Bluth v Boyded Industries Pty Ltd

1. [1]

   BELL CJ: I have had the benefit of reading the reasons of Harrison JA. I agree with his Honour that it was open to the primary judge to hold that, but for the breach, Mr Turner would have sought to rescind the Deed of Call Option and sought to recover payment of $3.5 million pursuant to cl 14 of the Deed. I also agree that there is no basis established for disturbing the primary judge’s closely reasoned conclusion in that regard, informed as it was by his assessment of Mr Turner in the witness box.

2. [2]

   I also agree with Harrison JA that the primary judge erred in concluding that the commercial opportunity Boyded lost on account of HWLE’s breach of duty, namely the opportunity to recover the payment of $3.5 million from Gateway and Mr Fayad, had some non-negligible value within the meaning of Sellars v Adelaide Petroleum NL (1994) 179 CLR 332; [1994] HCA 4. Gateway’s encumbered ownership of substantial real property provided no sufficient basis for inferring that either it or Mr Fayad could meet this monetary obligation in May/June 2020 when the payment would have been due, on the counterfactual accepted by the primary judge. This was a matter upon which Boyded carried the onus of proof and, for the reasons given by Harrison JA, that burden was not discharged on the exiguous and incomplete material before the primary judge and relied upon at first instance. Indeed, such evidence as there was, such as the deteriorating negative asset position in the Gateway Balance Sheet between 2017 and 2020, the lack of any material progress in the development of the land parcels and, in Mr Fayad’s case, outstanding land tax obligations as at May/June 2020, pointed against Gateway and Mr Fayad’s ability to pay the $3.5 million.

3. [3]

   I agree with the orders proposed by Harrison JA.

4. [4]

   GLEESON JA: I agree with Harrison JA and the additional remarks of the Chief Justice.

5. [5]

   HARRISON JA: The appellants are a firm of solicitors trading as HWL Ebsworth Lawyers (HWLE). The respondent is a family owned company which has operated car dealerships across New South Wales for many decades (Boyded). Mr Kieran Turner is the Chief Executive Officer of Boyded. In 2015 and 2016, Boyded entered into a series of contracts to sell land at 57, 63 and 83 Church Street, Parramatta, from which it operated its largest dealership, to various entities in a corporate group referred to as The Gateway Group. The Gateway Group belonged to the Dyldam Group. Sam Fayad was the Chief Executive Officer of the Dyldam Group and the sole director of the Gateway entities involved in the events that give rise to this appeal. The aggregate sale price of the lots which were sold was $150 million.

6. [6]

   In December 2016, a dispute arose between Boyded and Gateway arising out of the sale of the land, about whether notices to complete issued by Boyded were effective. Proceedings were commenced but were settled in February 2017. The settlement included an extension of time for Gateway to complete the purchase and the grant of a call option to Boyded over a proposed lot to be created on the land as part of a planned development. The proposed lot became known as the car showroom. As at May 2017, the car showroom did not physically exist and did not have a separate legal title.

7. [7]

   The Deed of Call Option was ultimately executed on 15 May 2017. It contained an express prohibition on Boyded lodging a caveat over the land and gave Gateway a right to terminate the deed if it did so. After May 2017, the Gateway entities completed the purchase of the land.

8. [8]

   In July 2018, Mr Turner, who was then living in France, saw a media article which caused him to become concerned about the financial position of the Dyldam Group. On 20 July 2018, Mr Turner instructed HWLE to lodge a caveat over the land to protect Boyded’s interest under the call option. In what was ultimately conceded to be a breach of its duty of care to Boyded, HWLE did not advise Mr Turner about the prohibition against lodging a caveat. On 8 August 2019, Gateway became aware of the caveat and terminated the Deed of Call Option eight days later. On 6 March 2020, Boyded commenced proceedings against Gateway challenging the termination on a number of bases. HWLE acted for Boyded in those proceedings. On 8 October 2020 the proceedings were dismissed: Boyded Industries Pty Ltd v Gateway Parramatta Two Pty Ltd [2020] NSWSC 1368.

9. [9]

   Boyded sued HWLE claiming damages for negligence and breach of retainer. The proceedings were heard by Chen J, whose judgment was published on 4 August 2023: Boyded Industries Pty Ltd v Bluth & Ors [2023] NSWSC 915. The issue before his Honour was causation of loss, which turned upon two cumulative hypothetical questions:

10. [10]

    The trial judge concluded that HWLE’s negligence had caused Boyded some loss and calculated the loss at $2 million. HWLE challenges both conclusions in this appeal.

Deed of Call Option

1. [11]

   The key provisions of the deed are as follows.

2. [12]

   Clauses 2.1 and 2.2 of the deed granted Boyded the option to purchase the car showroom, described as a lot in an unregistered stratum plan:

3. [13]

   By cl 2.5, the call option was required to be exercised prior to the expiration of the call option period which expired on 15 May 2020, subject to any extension in accordance with cll 2.9(d), 5.5 and 15(d):

4. [14]

   Clause 2.9 placed a number of conditions on the exercise of the call option:

5. [15]

   Clause 8(a) prohibited Boyded from causing any caveat to be registered on title and cl 8(b) contained an acknowledgement by the parties that cl 8(a) was an essential term, breach of which entitled the Gateway parties immediately to terminate it:

6. [16]

   Clause 13 dealt with the guarantee provided by Mr Fayad. Relevantly, it provided:

7. [17]

   Clause 14 dealt with the consequences of the car showroom not being created in a timely manner or if there was some other defined event occurring:

8. [18]

   ‘Sunset Date’ is defined to be 15 May 2020 as extended by cll 2.9(e), 5.5 and 15(e). It is accepted that registration of the documents necessary to create the car showroom did not occur by 15 May 2020.

Grounds of appeal

1. [19]

   HWLE relies upon the following grounds of appeal:

   1. (1)

      The trial judge erred in finding that Boyded would have rescinded the Deed of Call Option when the Strata Documents were not registered by 15 May 2020.

   2. (2)

      The trial judge erred in not finding that Boyded would have instead extended the Deed of Call Option.

   3. (3)

      By reason of these matters, the trial judge erred in finding that HWLE’s breach of duty / negligence caused loss.

   4. (4)

      The trial judge erred in finding that, in May or June 2020, the Gateway companies had both a willingness and an ability to pay $3.5 million under the Deed of Call Option.

   5. (5)

      The trial judge erred in finding that, in May or June 2020, Mr Fayad had both a willingness and an ability to pay $3.5 million under the Guarantee.

   6. (6)

      The trial judge erred in finding that Boyded had proved that the right under the Deed of Call Option to be paid $3.5 million by the Gateway companies and Mr Fayad was an opportunity of some value, not being a negligible or speculative value.

2. [20]

   In summary, HWLE contends that his Honour erred in finding that its breach of duty and negligence caused Boyded to sustain any loss.

Boyded’s pleaded case at trial

1. [21]

   Boyded’s statement of clam is in unexceptionable terms. Paragraph 26 pleaded that Boyded suffered harm, loss and damage caused by HWLE’s negligence as follows:

2. [22]

   Despite the claim in paragraph 26(a) to the right to the car showroom, no claim was made for that by Boyded at trial. Boyded instead conducted its case on the basis that the lost right under the deed was the right to receive $3.5 million. A critical aspect of Boyded’s case was that it would have rescinded the deed in May 2020, even though by doing so it would have had to abandon any prospect of getting the car showroom.

3. [23]

   Boyded contended that rescission would have occurred in May 2020, leading to a demand for payment of the $3.5 million shortly thereafter. Boyded contended that the right to demand payment had some value as at May or June 2020. Boyded did not contend that the right had value at any later time. It was common ground that by April 2023 the right had no value. This meant that Boyded’s case was “all or nothing” meaning that if the call option had been extended and the prospect of getting the car showroom was preserved, no loss caused by HWLE would have been suffered.

4. [24]

   Boyded contended in the court below that the provisions of cll 2.9(a)(i)-(iii) inclusive of the deed had not, and would not have, been satisfied by 15 May 2020 and that in such circumstances the provisions of cl 14.1(b) applied. Boyded maintained that it would have rescinded the deed pursuant to cl 14.2 and would have become entitled to be paid $3.5 million upon doing so. HWLE contended on the contrary that the hypothetical prospect that Boyded would have done so should have been rejected by his Honour as Mr Turner’s evidence did not support such an outcome but instead supported a counterfactual analysis, which should have led his Honour to find that Mr Turner would have instead sought to agree to extend the option for a further three years. That dispute acquires significance as the result of the very different financial position of the Gateway entities in May 2023 compared to their equivalent position in May/June 2020 when the obligation to pay $3.5 million to Boyded would have crystallised.

5. [25]

   There are two general sources of evidence to which his Honour was taken for the purpose of deciding which hypothesis he favoured.

6. [26]

   Mr Turner swore an affidavit in the proceedings on 19 November 2021. Paragraphs [84] – [86], under the chapeau “Loss arising from lodgement of caveat”, are in these terms:

7. [27]

   HWLE contended before his Honour and in this Court that Mr Turner’s affidavit supported as the most likely conclusion that he would have negotiated with the Gateway entities to extend the option if given the chance in May 2020 (and that Gateway would have agreed to such an extension). Mr Turner was cross-examined on this issue of what he would have done if his cl 14.2 choices had arisen for consideration by him on 15 May 2020. In response to a hypothetical question that, if it appeared to Mr Turner the conditions listed in cl 2.9(a)(i)-(iii) of the option deed would not be satisfied prior to 15 May 2020, he would have taken steps to try to renegotiate an extension of the call option date with the two Gateway companies, Mr Turner said:

8. [28]

   After the cross-examiner clarified that the hypothetical question assumed that the car showroom had not been built and the strata plan had not been registered prior to 15 May 2020, the cross-examination continued:

9. [29]

   The cross-examiner then challenged Mr Turner’s evidence on the basis that the second sentence in paragraph [85] of his affidavit was not qualified by a reference to how long it would take the Gateway companies to satisfy the conditions in the option deed. Mr Turner rejected that criticism giving the following responses:

10. [30]

    Mr Turner was then cross-examined at some length concerning what he had said in paragraph [85] as follows:

11. [31]

    In early August 2019, Mr Turner became aware of a newspaper article that suggested that Dyldam may have been experiencing financial difficulties. The article referred to Dyldam’s “wind-up challenge”. Mr Turner’s father-in-law sent him an email telling Mr Turner that he needed “to move to try and secure the Parramatta showroom asset or get in line for the $3m before they collapse”.

12. [32]

    On 7 August 2019, Mr Turner wrote to Mr Bluth of HWLE in these terms:

13. [33]

    It is instructive at this point to observe what his Honour made of this correspondence:

14. [34]

    On 11 December 2019, Mr Turner wrote to Mr Bluth relevantly as follows:

15. [35]

    On 12 December 2019, Mr Turner wrote to Mr Bluth and Mark Webeck asking:

16. [36]

    His Honour characterised this correspondence as follows:

17. [37]

    On 22 February 2020, Mr Turner wrote to Mr Bluth:

18. [38]

    Mr Webeck replied to Mr Turner on 24 February 2020:

19. [39]

    Shortly thereafter, Mr Turner wrote to Mr Webeck and Mr Bluth:

20. [40]

    Mr Webeck replied:

21. [41]

    Mr Turner responded immediately:

22. [42]

    Mr Webeck replied:

23. [43]

    His Honour referred to this correspondence at [67], which he analysed at [68], set out later in these reasons at [48(4)].

24. [44]

    Mr Webeck sent an email to Mr Turner on 29 October 2020 informing him that senior counsel had advised that there was “no realistic prospect of success on appeal” from the judgment upholding the termination. Mr Turner responded as follows:

25. [45]

    His Honour commented on this email in these terms:

26. [46]

    Mr Turner was not relevantly cross-examined about this correspondence.

The judgment below

1. [47]

   His Honour found that the most likely outcome was that, but for HWLE’s negligence, Boyded would have rescinded the deed in May 2020:

2. [48]

   According to HWLE, his Honour’s conclusion was drawn from the following seven matters:

   1. (1)

      Mr Turner had some sentimental attachment to the site but it was simply one consideration to be evaluated amongst others:

   2. (2)

      Boyded would have made the decision about rescission based on Mr Turner’s assessment of the most financially advantageous position:

   3. (3)

      Mr Turner had concerns about the financial position of Gateway which would have caused Boyded to have rescinded and demanded the money in May 2020:

   4. (4)

      Whilst Boyded originally had a preference for the car showroom, contemporaneous emails sent by Mr Turner in 2019 and 2020 demonstrate that by May 2020 that preference had changed:

   5. (5)

      These emails were more reliable and informative evidence than the statements in paragraph [85] of Mr Turner’s affidavit:

   6. (6)

      The trial judge was unpersuaded that paragraph [85] in Mr Turner’s affidavit reflected the most likely scenario:

   7. (7)

      Even if Mr Turner had tried to negotiate an extension, his optimism that Gateway would have agreed was speculative:

The appellants’ submissions: Grounds 1 - 3

1. [49]

   HWLE contends that his Honour erred in drawing the inference that Boyded would have rescinded the deed in May 2020 and that he ought instead to have inferred that it would have extended the call option. In such circumstances, HWLE maintains that Boyded’s all or nothing case fails for want of causation of loss.

2. [50]

   Despite Mr Turner’s evidence that he had a strong sentimental attachment to the site and that it was Boyded’s “spiritual home”, his Honour concluded that such sentiment did not significantly inform the likelihood that an attempt to negotiate for an extension would have displaced a decision to rescind. HWLE submitted that there was a tension between that conclusion and Mr Turner’s evidence where he identified his sentimental attachment as the specific reason why he would have exercised the call option if he was able to do so. HWLE conceded that to some extent “these are matters of degree” but that his Honour “did not give appropriate weight” to Boyded’s sentimental attachment to the site.

3. [51]

   HWLE conceded that this is the other side of the coin and also a question of degree. It is not in dispute that Mr Turner is a savvy businessman or that one of the considerations for him in deciding whether to rescind would have been Boyded’s financial interests. The essence of this submission is simply that his Honour got the balance wrong.

4. [52]

   It was not in contest that from 2018, Mr Turner was concerned about the financial position of Gateway. His Honour considered that such concern would have been the main reason why Boyded would have rescinded in May 2020: it was directly linked to the prospect that the development would ever proceed. Mr Turner’s concern about Gateway’s viability was relevant not just to whether the development would proceed but also to its ability to make an immediate payment of $3.5 million. In that sense, there was no factor that exclusively or predominantly informed the “commercial reality” urged by Boyded in the court below. In addition, Mr Turner’s affidavit referred to the fact that the car showroom would appreciate in value over time, suggesting or implying a commercial preference for capital appreciation.

5. [53]

   HWLE’s submission at paragraph 40 should also be noted:

6. [54]

   HWLE submitted that his Honour erred by finding that in May 2020 Mr Turner would have subjectively formed the view that it was in the financial interests of Boyded to rescind and claim the $3.5 million because of concerns about whether the development would be completed.

7. [55]

   Mr Turner’s original preference was for the car showroom. His Honour found that the preference was not “fixed” or “immutable”. The question is whether that preference would have changed by May 2020 had HWLE’s negligence not led to Gateway’s termination.

8. [56]

   HWLE emphasised that Mr Turner’s written preference was, up until 7 August 2019, for the car showroom and not the money. It was submitted that the 7 August 2019 email evinces the attitude that Mr Turner would have maintained up until May 2020 if their negligence had not intervened. Even in his 22 February 2020 email, Mr Turner expressed a preference for the car showroom but proposed seeking the money instead. Boyded placed the greatest weight on the 22 February 2020 email as it was closest in time to the rescission date. His Honour found that these emails demonstrated that Mr Turner’s original preference changed.

9. [57]

   HWLE submitted that his Honour erred in making the finding about why Mr Turner’s preference changed. In paragraph 70(a) of his affidavit Mr Turner directly addressed the reason for his 22 February 2020 email and what was to be inferred from it about his newly expressed preference for the money: even though his email said he would “prefer the showroom”, he thought that making an offer to Gateway to take the money instead might be a way to resolve the dispute about Gateway’s termination.

10. [58]

    HWLE also submitted that paragraph 70(a) is important for what it does not say: there is no mention of any concern for Gateway’s financial position or non-completion of the development. Mr Turner said that he would still try to get the car showroom which HWLE submitted was irreconcilable with his Honour’s finding that Mr Turner was concerned that Gateway would not complete the development.

11. [59]

    HWLE contends that Mr Turner’s change in preference was directly caused by HWLE’s negligence. The emails written after the dispute arose on 8 August 2019 are not capable of supporting his Honour’s conclusion about what would have happened in May 2020 if they had not been negligent. Moreover, the emails are the only evidence that supports his Honour’s conclusion that Boyded would have rescinded in May 2020 apart from Mr Turner’s evidence in cross-examination.

12. [60]

    HWLE submitted that paragraphs 84, 85 and 86 of Mr Turner’s affidavit are contrary to the inference drawn by his Honour about what he would have done in May 2020. His Honour concluded that the emails on 11 and 12 December 2019, 22 February 2020 and 29 October 2020 were more reliable and informative. HWLE submitted that these emails lack probative value on the question of what would have happened but for the negligence and cannot be a better guide than Mr Turner’s affidavit, especially paragraph 85. It was submitted that the statements in paragraph 85 should be viewed as admissions and given primacy over the emails.

13. [61]

    Mr Turner expressly confirmed in cross-examination that paragraph 85 was true. Even so, his Honour found that Mr Turner’s statement in paragraph 85, that he would have tried to negotiate an extension of the call option, did not reflect the most likely scenario. His Honour said that this was because Mr Turner’s evidence “said nothing about the period of any extension that might have been pursued”. Mr Turner said, and his Honour accepted, that whether he would have extended would have depended upon the length of the extension. Mr Turner said that he would not have extended for three years. Mr Turner did not identify any other circumstances in which he would not have extended, implicitly allowing for the possibility that there would be other circumstances in which he would have extended. His Honour’s rejection of a three year extension did not foreclose the possibility that Mr Turner would have sought an extension of less than three years. If Mr Turner’s evidence allowed of the prospect that any other extension might have been considered, Boyded’s all or nothing case fails. HWLE submitted that even if Boyded, who bore the onus, proved that a three year extension would not have been considered, it did not prove that there would not have been any extension.

14. [62]

    HWLE submitted that, given Mr Turner’s evidence in paragraph 85, his Honour ought to have found that in May 2020 he would not have rescinded the deed and thereby abandoned any prospect of acquiring the car showroom, but would instead have sought an extension of some period less than three years.

15. [63]

    HWLE contended that his Honour’s finding that Mr Turner’s optimism that he could have successfully negotiated an extension was speculative and was not the correct question in any event. His Honour should instead have addressed the question of whether Gateway would have agreed. Mr Turner’s optimism is relevant but not determinative.

16. [64]

    HWLE submitted that, on the hypothetical question being considered, Boyded would have sought an extension. Gateway’s alternatives would have been to make an immediate payment of $3.5 million or to agree to an extension. HWLE submitted that “on any view” it would have been in Gateway’s interests to agree to an extension, regardless of how long it might have been. His Honour accepted that Gateway would have been “attracted to an extension” but identified no reason why it would not have done so. It was submitted that his Honour should have found that Gateway would have agreed to an extension.

Consideration

1. [65]

   HWLE’s appeal is based upon a review of his Honour’s findings and inferences of fact. The critique of his Honour’s decision is largely framed as a subjunctive analysis that urges this Court to consider his Honour’s conclusions in terms of what he should have found or what weight he should have given to particular evidence. It is also based upon a cognate review of what, in a competition between alternative hypotheses, Mr Turner, and hence Boyded, would have done. To the extent that the task required his Honour retrospectively to choose between or among several possibilities, there was always scope for different opinions about the outcome. In order to succeed, HWLE must demonstrate that his Honour’s choice was factually erroneous.

2. [66]

   The scope and limitations of such an appeal where they concern findings based on credibility and demeanour are well-known. In Lee v Lee (2019) 266 CLR 129; [2019] HCA 28, the majority explained at [55]:

3. [67]

   In the present case, his Honour found at [73] (set out in full above at [47]) what Boyded would have done but for HWLE’s negligence. That finding was explicitly based on his Honour’s assessment of Mr Turner’s evidence and his Honour’s impression of him as “a rather savvy businessman … [who] would – undoubtedly – have pursued an outcome that was most financially advantageous to” Boyded.

4. [68]

   His Honour made similar findings with respect to Mr Turner’s evidence concerning the question of whether he would have negotiated an extension of three years or more rather than rescinding the deed. His Honour described Mr Turner’s “categorical denial” of that possibility as “quite emphatic” and “quite credible”.

5. [69]

   As Boyded has emphasised, in order for HWLE to succeed on these grounds of appeal, it must point to some glaring improbability in his Honour’s finding or to some compelling inference to which the finding is contrary. HWLE has not sought to do this, instead comparing and contrasting his Honour’s findings with evidence that might conceivably support a different conclusion. Boyded submitted in this context that it is “telling” that the list of seven matters described as the basis for his Honour’s findings (see at [48] above), and the discussion of those matters in written submissions, omits any reference to his Honour’s express reliance on his assessment of Mr Turner’s oral evidence. Boyded submitted that this approach, in effect, disregards the well-accepted advantages that his Honour enjoyed in watching and “feeling” the case unfold (see Fox v Percy (2003) 214 CLR 118; [2003] HCA 22 at [23]), seeing Mr Turner give evidence and forming an assessment of his credibility and demeanour.

6. [70]

   Somewhat unusually, although not uniquely, Mr Turner’s credibility did not fall to be assessed by reference to competing evidence from other witnesses called by HWLE. On the contrary, the assessment of Mr Turner’s credibility required consideration of what HWLE sought to portray as irreconcilable differences, or at least inconsistencies, in his account suggesting on the one hand that he would have rescinded the deed in May 2020 or instead sought an extension on the other hand. That task had to be performed by reference first to anterior correspondence between Mr Turner and others, secondly to his affidavit evidence, particularly at paragraphs 84 to 86, and thirdly to his oral evidence at the trial. His Honour’s decision that Boyded would have demanded payment of the $3.5 million in May 2020 pursuant to cl 14.2 of the Deed of Call Option necessarily had to account for what HWLE maintained was Mr Turner’s expressed preference for something different.

7. [71]

   In such circumstances, his Honour was not confronted with a question of who between or among several witnesses to believe. Rather, his Honour was required to assess Mr Turner’s evidence given at the trial in light of the uncontroversial fact that Boyded’s all or nothing case depended upon its acceptance. It was HWLE’s contention that the significance of that fact should have decisively informed his Honour’s finding. In stark terms, that his Honour could not draw a legitimate inference that Mr Turner would have rescinded the deed because his affidavit, which he confirmed was true, suggested something quite different and by the time Mr Turner came to be cross-examined he well understood that fact.

8. [72]

   However, despite the fact that Mr Turner was not in terms confronted with that proposition, it is clear that his Honour accepted Mr Turner’s evidence that his apparently contradictory reference to negotiating to extend the option was always tied or subject to understanding the reasons why Gateway would have failed to satisfy the conditions listed in cl 2.9(a)(i)-(iii) of the deed before the call option expiry date on 15 May 2020. The lodgement of the fateful caveat was a manifestation of Mr Turner’s concern about Gateway’s financial troubles. His Honour accepted that Mr Turner was a skilful businessman whose sentimental attachment to Boyded’s spiritual home would never prevail over raw commercial interests. It was in effect Mr Turner’s evidence that if Gateway’s failure to satisfy the conditions by 15 May 2020 itself bespoke or foreshadowed problems in the long term, he would have been uninterested in negotiating an extension. His Honour was in my opinion perfectly entitled to accept that evidence, in particular Mr Turner’s unchallenged insistence when he said, “I would need to know why the conditions weren’t fulfilled to make a decision”: see [27] above. I am fortified in that conclusion by the fact that, in answer to the suggestion that he had not in his affidavit said that his apparent willingness to extend the option would depend on how long the extension would be, Mr Turner somewhat emphatically responded, “But of course it does”.

9. [73]

   I am unable to discern error in the way his Honour accepted Mr Turner’s evidence about what he would have done if 15 May 2020 had arrived and the deed was still on foot. Grounds 1, 2 and 3 of the appeal should be dismissed.

10. [74]

    Having found that Boyded would have rescinded in May 2020 and that payment would have been due in June 2020, his Honour proceeded to determine whether the lost commercial opportunity to receive $3.5 million had any value at that time. His Honour addressed two considerations, namely Gateway and Mr Fayad’s willingness to pay and their ability to pay. His Honour found that they were both willing and able to do so and that accordingly Boyded’s lost opportunity had some value. His Honour did not consider whether the lost opportunity had some value at any time after May/June 2020: Boyded’s all or nothing case meant that there was no allegation that the lost opportunity had any value after that time. His Honour approached this issue upon the basis that Boyded had to prove on the balance of probabilities that the lost opportunity had some value, being not a negligible value, or that there was a substantial prospect of acquiring the benefit sought: see Sellars v Adelaide Petroleum NL (1994) 179 CLR 332; [1994] HCA 4.

HWLE’s submissions – willingness to pay

1. [75]

   The only matter identified by his Honour that supported Gateway’s willingness to pay was the absence of any defence to Boyded’s hypothetical claim: judgment at [102] – [103]. HWLE submitted that that fact alone did not warrant the conclusion that Gateway would have been willing to pay. The Gateway entities were special purpose vehicles established solely for the purpose of undertaking a profitable development on the land. Payment would have depended upon whether they intended to proceed with the development at the time payment would have had to be made, and whether an obligation to pay an extra $3.5 million would have affected that intention. His Honour found that the development was being pursued in the second half of 2019 but there was no evidence relating to any time after that. In May 2022 the land was listed for sale. At some stage between late 2019 and May 2022, Gateway decided not to proceed with the development.

2. [76]

   HWLE submitted that on the evidence, Gateway’s willingness to pay in May/June 2020 had been left as a matter of conjecture. Boyded had to prove willingness to pay. HWLE submitted that his Honour erred in making the finding that Gateway would have been willing to do so.

3. [77]

   So far as Mr Fayad was concerned, HWLE submitted that His Honour found that Mr Fayad would have been willing to pay because there was no defence to the claim on the Guarantee and Mr Fayad subsequently took steps to defend bankruptcy proceedings arising from a judgment debt of approximately $10 million.

4. [78]

   HWLE submitted that neither matter demonstrated a willingness to pay.

Conclusion – willingness to pay

1. [79]

   In my opinion, both Gateway and Mr Fayad would have been willing to pay $3.5 million in May or June 2020, if they had had the ability to do so, and his Honour made no error in concluding that they would have been so willing. The amount in issue as a fraction or percentage of the total project cost, or of the cost of acquisition of the land, even before the development costs are taken into account, was small. As Boyded contends, it is in my view singularly improbable that the commercial opportunity represented by the prospect of developing prime commercial sites acquired at significant cost would have been allowed to fail by risking liquidation or bankruptcy for the want of payment of the sum in question. It is well to remember that the Deed of Call Option was itself the product of a commercial response to litigation arising out of the original conveyance of the land. In that sense, the conditional obligation to pay $3.5 million was an unexceptionable cost of doing business. I consider that was reasonable for the primary judge to have inferred that Gateway and Mr Fayad would each have factored that cost into consideration at the time the deed was executed and, all things being equal, would have been more than willing, when faced with the potential consequences of not doing so, to discharge the obligation that they had originally assumed and which was still a continuing commercial reality in May 2020. But that willingness had to be accompanied by the ability to pay.

His Honour's reasoning - ability to pay

1. [80]

   It is convenient at this point to recall the way in which his Honour reasoned to his conclusion that Gateway and Mr Fayad had the ability to pay in May or June 2020:

HWLE’s submissions – ability to pay

1. [81]

   His Honour found that Gateway would have been able to pay in May/June 2020. That finding was based on two items of evidence only:

2. [82]

   His Honour viewed the Gateway group as a whole for the purpose of considering the implications of ownership of the land. HWLE accepts that this was the correct approach if the relevant Gateway obligors were willing to pay (and to call upon their related entities gratuitously to assist) but not otherwise.

3. [83]

   His Honour held that the fact that the Gateway group owned the land was a significant reason supporting an ability to pay $3.5 million. His Honour accepted that ownership of valuable land demonstrated an ability to borrow.

4. [84]

   HWLE submitted that ownership of land implies an ability to borrow only if the land can be given as security for the new debt. Security cannot be given unless the landowner has equity. In this case, each parcel of the land was subject to three mortgages. His Honour accepted that that fact was “of some potential importance (albeit not unexpected)”. However, his Honour considered that “it would be conjecture to infer that this would stultify any ability to borrow against the land” because there was no evidence about the degree to which the land was encumbered under the mortgages. In taking that approach, HWLE submitted that his Honour reversed the onus of proof. Boyded had argued that Gateway’s ownership of the land demonstrated an ability to borrow and that the existence of the triple mortgaging was a not unexpected matter of public record, yet Boyded did not adduce evidence to demonstrate that Gateway had any equity, let alone equity which was sufficient for new borrowing to fund a payment of $3.5 million in May/June 2020. As his Honour said, the position was left as a matter of conjecture. HWLE submitted that, without more, the mere fact that Gateway owned the land did not support the finding that it had the ability to pay in May/June 2020.

5. [85]

   Boyded relied upon the summary balance sheet in Exhibit F which is appended to these reasons as a schedule. By reference to the “total” columns, his Honour accepted that Exhibit F demonstrated some ability to borrow and pay expenses when they fell due and that that was some evidence of an ability to pay.

6. [86]

   However, HWLE submitted that Exhibit F’s demonstration of an ability to borrow $3.5 million in May/June 2020 did not rise above the level of speculation. Gateway’s assets, both current and non-current, were static year on year from 2017 to 2022. The current liabilities were static until 2020 when they increased. The non-current liabilities were generally increasing. Overall, Gateway always had a significant deficiency in net assets which consistently deteriorated year on year. Only one transaction is apparent from Exhibit F, which is an evident refinance between 30 June 2019 and 30 June 2020 when PAG via NAP was replaced by Global Portfolio Trading. None of the various other loans which were extant as at June 2019 was repaid as a part of the refinancing. HWLE submitted that the fact that there was existing debt did not demonstrate an ability to take on new debt. On the contrary.

7. [87]

   HWLE emphasised that Boyded had to prove on the balance of probabilities that the lost opportunity to seek $3.5 million from Gateway had some value. HWLE submitted that, on the evidence, it failed to do so, and that his Honour erred in finding otherwise.

8. [88]

   As for Mr Fayad’s ability to pay, his Honour accepted that not a great deal was known about Mr Fayad’s financial position. His Honour nonetheless drew an inference that he had the ability to pay $3.5 million. A land tax assessment showed that Mr Fayad’s principal place of residence had an unimproved capital value of $1.8 million in 2020. However, there was no evidence of the improved value and the property was heavily encumbered. His Honour noted that it was difficult to know what equity Mr Fayad may have had in the property but held nonetheless that there was evidence that supported an inference that Mr Fayad had some equity and an ability to pay more generally.

9. [89]

   HWLE submitted that the evidence upon which his Honour relied did not prove that Mr Fayad had any equity in the property as at May or June 2020 and that the evidence was to the opposite effect. Significantly, Mr Fayad did not pay his land tax assessment in 2020 or in 2021. HWLE submitted that a failure to pay land tax is indicative of a lack of means to meet the most elementary of financial obligations. Unpaid land tax is a first ranking encumbrance on land: s 47(1) of the Land Tax Management Act 1956.

10. [90]

    The summary of the Gateway balance sheet in Exhibit F contained a line item that shows Mr Fayad made a $14 million loan to Gateway before 30 June 2017, which remained in subsequent years. His Honour held that the capacity to make that loan was evidence that Mr Fayad had the ability to pay in May or June 2020. HWLE submitted that no such inference could be drawn from that evidence standing alone. HWLE’s submission was that the fact that Mr Fayad was able to lend Gateway a substantial amount of money in 2017 said nothing about his financial position in 2020.

11. [91]

    HWLE contended that the correct approach to the assessment of the absence of evidence in this case is the approach taken by the Court in Miles v Luneburger Franchising Pty Ltd [2021] NSWCA 248 at [81] and [88] per Gleeson JA:

12. [92]

    No evidence was adduced in that case about the ability to recover from the company or the guarantors’ ability to pay. There was an evidentiary vacuum. The Court held that the plaintiff had not proved that any loss had been caused by the breach of contract: in the absence of any evidence about the ability to recover, the conclusion to be drawn was that the value of the lost opportunity to obtain the benefit of the contingent fee was so low as to be regarded as negligible or speculative.

Boyded’s submissions – ability to pay

1. [93]

   It is sufficient for present purposes to observe that Boyded embraced these findings and conclusions. In addition, Boyded’s written submissions in response included the following summary with respect to the ability of Gateway and Mr Fayad to pay $3.5 million:

2. [94]

   Finally, Boyded made the following submissions in aid of the contention that HWLE’s arguments involved a reversal of the onus of proof:

Consideration

1. [95]

   In my opinion, his Honour was not correct to find that there was evidence rising higher than speculation or surmise that Gateway or Mr Fayad had the ability to pay the $3.5 million in May or June 2020. My reasons for coming to that view are as follows.

2. [96]

   Boyded’s contentions, regarding HWLE’s criticisms concerning the so-called reversal of the onus of proof, in my view erroneously proceed upon the assumption that Boyded had in fact led sufficient evidence from which Gateway’s or Mr Fayad’s respective abilities to pay could be inferred. HWLE submitted that, despite its ownership of valuable land, Gateway would be prevented from borrowing further money. Boyded argued that this was a “competing hypothesis” that it “was not required to prove in order to succeed”. I disagree. It is, on the contrary, the very thing that Boyded was itself required to demonstrate before the inference for which it contended could be drawn. In my opinion, his Honour’s error was too readily to draw the inference of an ability to pay when the material available to him in Boyded’s case did not support it.

3. [97]

   Exhibit F is at the heart of Boyded’s case concerning Gateway’s ability to pay. It is described as the Gateway Balance Sheet but it only deals with the positions of Gateway Parramatta Two Pty Ltd and Gateway Parramatta Two Commercial Pty Ltd, the registered proprietors of 57 and 63 Church Street, Parramatta. There is no equivalent balance sheet for Gateway Parramatta One Pty Ltd and Gateway Parramatta One Commercial Pty Ltd, the registered proprietor of 83 Church Street Parramatta, the most valuable of the three parcels. All of the properties are encumbered with mortgages to the same three companies, Amber Bright Development IV Limited, Global Capital Prospect VII Limited and Global Asia Opportunity IX Limited. These mortgages were recorded on the respective titles to the three parcels of land on 3 October 2019, simultaneously discharging prior mortgages.

4. [98]

   None of the mortgages is in evidence. The term of the mortgages is not known, nor is the interest rate or the amount secured. It is not known whether the mortgages are fully drawn or whether there is some capacity to draw down further funds without the need to revert to the mortgagee. His Honour noted Boyded’s submission that a development site valued at $159 million supported a likely ability to borrow money on the security of the land and that ability to borrow corresponded to proof on the balance of probabilities of an ability of the companies to pay. It is hardly controversial that the extent to which ownership of a valuable land asset informs the owner’s ability to use it to access funds is directly related to the owner’s equity. I am unable to accept that the value of encumbered land is a relevant integer in the debt to equity equation without an understanding of the extent of the debt which the land secures.

5. [99]

   Nor is the fact that the figures in Exhibit F regularly change any indicator of the companies’ respective or combined ability to draw and hence their ability to pay $3.5 million. Unaided by any expert accounting analysis, a perusal of Exhibit F suggests that the two companies to whose financial position it relates at all times either alone or in aggregate had liabilities which exceeded their assets. That does not necessarily mean that they lacked the capacity to borrow further funds. The difficulty for Boyded, however, and the difficulty with his Honour’s reasoning, is that no inferences in favour of the existence of an ability to pay $3.5 million can reliably be drawn on the material that was before his Honour. I am unable to agree with his Honour’s conclusion at [119] that “the balance sheet demonstrates, in the Gateway entities, some ability to borrow and pay its expenses” or that “this is some evidence supportive of the overall finding that … the Gateway entities had an ability to pay [$3.5 million]”. Contrary to his Honour’s conclusion, the balance sheet does not in my opinion show a demonstrated ability to borrow and repay amounts which were owing, thereby negativing any inference that there was an inability to pay debts as and when they fell due.

6. [100]

   There was no evidence before his Honour about the income of the companies. It appears to be the accepted position that they were special purpose vehicles and that the only income likely to be generated depended on the exploitation of the land as development sites. That fact standing alone does not derogate from Boyded’s ability to rely upon the companies’ balance sheet as support for the alleged existence of their ability to pay. However, in the absence of any information about income, the only significant source of any positive change to the companies’ debt to equity ratio would be capital gains in the value of fixed assets over time. The balance sheet shows that the value of 57 and 63 Church Street remained constant from the date of purchase. It follows that, so far as the evidence before his Honour said anything about it, the companies’ ability to pay $3.5 million was always dependent upon their capacity to refinance.

7. [101]

   It will be recalled that at [117] his Honour referred to Boyded’s submission that at a minimum, the inference to be drawn from the “total” column contained within Exhibit F, was that, although the total non-current liabilities had not significantly changed across the periods 2017-2020, there had been refinancing. That may be accepted. Boyded argued that this showed a demonstrated ability to borrow and repay amounts which were owing so that no inference of an inability to pay debts arose. However, Exhibit F also shows that the companies’ total equity reduced between 30 June 2017 and 30 June 2020 from ($1,571,111) to ($9,099,410). That may not reveal the whole picture, but in the absence of information suggesting that the companies would have been able to borrow a further $3.5 million, the inference drawn by his Honour that they could have done was, with respect, speculative and not open on the evidence. In particular, the companies’ deteriorating net equity position would suggest a diminishing capacity to refinance on the security of 57 and 63 Church Street rather than the reverse.

8. [102]

   As I have recorded above, Boyded submitted that it is not mere conjecture to suggest that companies owning nearly $160 million worth of land would be able to raise the relatively small sum of $3.5 million by security over those assets. However, in much the same breath, Boyded also submitted that it is mere conjecture to assume that the presence of existing securities over the land would preclude the possibility of any further borrowing. This reasoning is difficult to follow. A complete understanding of the value of the land and the extent of borrowings secured over the land is of equal significance to both questions. Boyded’s contention, and his Honour’s finding at [114], that “absent knowing more about the extent of the encumbrances under the mortgages … it would be conjecture to infer that this would stultify any ability to borrow against the land” inconsistently discounts the importance of knowing the actual extent of the encumbrances. Boyded’s case was beset by an evidentiary vacuum. An understanding of the companies’ ability to borrow more and of their ability to pay $3.5 million depends upon the same thing, about which the evidence is silent. The suggestion and the assumption are informed by the same facts and are equally conjectural. His Honour’s preference for one over the other was therefore erroneous.

9. [103]

   I have so far not referred to the position concerning 83 Church Street, owned by entities different to 57 and 63 Church Street. It is common ground that this property is also security for the obligations of other corporate entities and that their financial position is relevant to the issue of Gateway’s ability to pay $3.5 million in May or June 2020. No information, such as that contained in Exhibit F, about the financial position of the registered proprietors of 83 Church Street in mid-2020 was in evidence. The property secures obligations under three registered mortgages but the details of the mortgages or the extent of the companies’ indebtedness is entirely absent. This is significant inasmuch as 83 Church Street is the most valuable of the three properties and it is clear that his Honour took Gateway’s ownership or control of this property into account in drawing the inference that Gateway had the ability to pay. However, mere ownership of valuable but mortgaged land does not reliably inform the availability of that inference.

10. [104]

    His Honour dealt with Mr Fayad’s ability to pay at [121] to [129] of his judgment (set out above at [80]).

11. [105]

    His Honour noted that it was difficult to know what equity Mr Fayad may have had in his Constitution Hill residence but held nonetheless that there was evidence that supported an inference that Mr Fayad had some equity and an ability to pay more generally.

12. [106]

    In my view, as HWLE submitted, the evidence upon which his Honour relied did not prove that Mr Fayad had any equity in the property as at May or June 2020 and that the evidence was to the opposite effect. Mr Fayad did not pay his land tax assessment in 2020 or in 2021. As submitted, such a failure to pay land tax is indicative of a lack of means to meet the most elementary of financial obligations.

13. [107]

    Exhibit F contains a line item that shows Mr Fayad made a $14 million loan to Gateway before 30 June 2017. That loan remained undischarged as late as 2023. His Honour held that the capacity to make that loan was evidence that Mr Fayad had the ability to pay in May or June 2020. I am unable to accept that, without more, any such inference can be drawn from that evidence. I accept HWLE's submission that the fact that Mr Fayad was able to lend Gateway a substantial amount of money in 2017 says nothing about his financial position in 2020.

14. [108]

    In short, the inference that Mr Fayad had any ability in mid-2020 to pay $3.5 million, relying upon his capacity to borrow that amount based on his property holdings and his debt to equity ratio, cannot be sustained in light of the paucity of evidence to support it. As his Honour observed at [127], “in the absence of evidence about the improved value of the [Constitution Hill] land it is difficult to know what equity, if any, was available in connection with the property.” Evidence that Mr Fayad was apparently able from time to time to refinance debts secured over the property is inadequate support for the inference that his Honour was prepared to draw.

15. [109]

    In this respect it should be noted, as Boyded appears to accept, that his Honour erroneously concluded that the Constitution Hill property was further encumbered on 24 December 2021 in the sum of $1.267 million. In fact, the transaction was a transfer of an existing encumbrance to which the property was always subject.

Conclusion

1. [110]

   In my view, the evidence does not support a finding on the balance of probabilities that Gateway or Mr Fayad had the ability to pay $3.5 million on May or June 2020. It follows that the appeal should be allowed and that Boyded should be ordered to pay HWLE’s costs.

Cross-appeal

1. [111]

   By its notice of cross-appeal filed on 30 October 2023, Boyded contended that his Honour should not have discounted the damages he awarded from the full amount of $3.5 million to which they would have become entitled upon rescission of the deed in May 2020. Boyded argued that his Honour erred in holding that Boyded’s loss was limited to $2 million when, having found that Boyded would have instructed HWLE not to lodge a caveat and that it would have rescinded the deed, and having found that each of the Gateway entities and Mr Fayad had an ability to pay the full amount, his Honour ought to have held that Boyded’s loss caused by HWLE’s negligence was $3.5 million. However, having regard to the conclusion I have reached on the appeal, it is unnecessary to deal with this issue.

2. [112]

   It follows that the cross-appeal should be dismissed with costs.

Orders

1. [113]

   The orders I would propose are as follows:

   1. (1)

      Allow the appeal.

   2. (2)

      Set aside orders 1 and 2 made on 11 August 2023 and, in lieu thereof, dismiss the Amended Statement of Claim with costs.

   3. (3)

      Dismiss the cross-appeal.

   4. (4)

      Order the respondent/cross-appellant to pay the appellant/cross-respondent’s costs of the appeal and of the cross-appeal.