Shoal Bay Beach Constructions No. 1 Pty Ltd v Mark Hickey and the persons listed in Schedule A to this Statement of Claim trading as at all material times Sparke Helmore (No 5)

By statement of claim filed on 2 July 2019, Shoal Bay Beach Constructions No. 1 Pty Ltd (the plaintiff) claims damages for alleged negligence and breach of contract against Mark Hickey and others, trading as Sparke Helmore Lawyers (the defendants).

The plaintiff is the assignee of Shoal Bay Beach No. 1 Pty Ltd (the developer). From about early 2014, the developer constructed and developed 53 units on land which it owned on Bullecourt Street in Shoal Bay (the property). It eventually sold the units. On 18 June 2018, the Federal Court made an order for the winding up of the developer and the appointment of a liquidator. On 13 March 2019, the developer’s liquidator assigned to the plaintiff all of its claims against the defendants.

Although the plaintiff puts its case on breach on various bases, the plaintiff alleged that the defendants’ breach was their failure to alert the developer to the dates by which extension of time notices would need to be served on the purchasers of Lots 50 and 52 to avoid such purchasers becoming entitled to rescind the contracts within seven days of the Registration Dates, as occurred. The plaintiff submitted that, had the defendants alerted the developer to the dates in sufficient time, the developer would have been able to validly extend the Registration Date under the contract and the purchasers would not have been entitled to rescind.

The plaintiff claims damages on the following bases:

The defendants denied that they were negligent or in breach of contract. They contended that, on several occasions, they explained to the developer how the contract worked by reference to specific clauses and the relevant Registration Dates for each contract. The defendants submitted that the developer was a sophisticated client which engaged experts who were well aware of the significance of the Registration Dates and the potential for the purchasers to rescind if no valid notice for extension was served in time. Further, the defendants submitted that if they were found to be liable, the developer was entitled to no more than nominal damages as it could not establish that it would have issued extension of time notices to the purchasers of Lots 50 and 52 had it been alerted to the issue in time or that, if it had, the purchasers would not have validly rescinded in any event. In the alternative, the defendants submitted that the damages ought be limited to the differential between the price in the rescinded contract and the price at which the unit was ultimately sold. They argued that interest ought be at court rates, rather than at the commercial rates claimed by the plaintiff. They submitted that the costs of the litigation were not caused by the defendants and were, in any event, too remote.

It is necessary, for the purposes of determining breach, causation and damages for the facts to be addressed in considerable detail, since they inform the matters of which the defendant was aware at relevant times, the context in which advice was given, and the consequences of what occurred. This narrative summary is required, including to avoid hindsight reasoning. The facts against which these issues are to be determined are as follows.

Carmelo Adrian Mastronardo (known as Adrian) was a director of the developer from 21 October 2013 to 23 November 2016 and from 25 January 2017 onwards. He was its principal, made all key decisions regarding the development and was, as he put it, “in full control”. He was an experienced property developer, having been the project director between about 1984 and 2009 at Remo Corporation Pty Ltd, a family construction and property business, which had undertaken substantial off-the-plan developments. He was also a director of Veritas Property Group Pty Limited (Veritas) from its incorporation in 2007 until 2019 (other than for a short period in 2012).

Mr Mastronardo became bankrupt on 23 September 2020 on the application of the Commonwealth Bank of Australia. The developer was the plaintiff’s sole shareholder. The developer was deregistered but was subsequently reinstated by this Court (Rees J) on 6 August 2021, for the purposes of these proceedings. Shortly thereafter, Mr Mastronardo’s sister, Antonella, became a shareholder of the plaintiff company.

By the time of the hearing on 8 November 2021, Mr Mastronardo had been a director and secretary of at least 19 different companies.

When Mr Mastronardo was cross-examined by reference to the standard form contract for the sale of the lots in the development on the property, he said that he never looked at the contract because he was not interested in checking that its terms were acceptable. He described his way of doing business, which I accept, as follows:

Mr Mastronardo explained that he was not particularly concerned with individual clauses of contracts. He would ask the builder how long it needed to build the building and then allowed a margin of, say, 50%, which would then be incorporated into the contracts for sale. He was also concerned to give the developer flexibility to accommodate delays such as those caused by wet weather.

Mr Mastronardo concerned himself with the “big picture” and surrounded himself with experts to deal with the mechanics of the development. To that end, he engaged several people to manage and progress the development of the property on behalf of the developer and in accordance with his instructions. These people included Ben Suttor, Geoff Gazzard, Ian Mirels and Guy Robinson.

Mr Suttor was a director of Suttor Innovation, a firm engaged in building project management and development. He was a very experienced building construction development project manager who had worked for Multiplex. Mr Suttor was in charge of “setting up all the construction and the rollout” of the Shoal Bay development and reported directly to Mr Mastronardo. Mr Mastronardo had instructed Mr Suttor to liaise with the defendants regarding the contracts for sale.

Mr Mirels was a chartered accountant who had worked at Ernst & Young and Franklins. He was the general manager of Veritas from December 2002 to June 2011 before he became Chief Financial Officer of the Johnson Property Group from July 2011 to June 2014. He was engaged by the developer to work about two days a week. He reported directly to Mr Mastronardo, who expected him to liaise with the defendants on such matters as the Registration Date, taking into account how long the builder indicated it would need to complete the development. As far as Mr Mastronardo was concerned, Mr Mirels was “the key player in the contracts” and if something needed Mr Mastronardo’s attention, he expected that Mr Mirels would pick up the phone and call him. Mr Mastronardo described Mr Mirels’ role as the manager of the builder, the agent and the sales.

Mr Robinson, the managing director of Robinson Real Estate, a real estate agency, was engaged by the developer to sell apartments in the Shoal Bay development. He reported primarily to Mr Mirels and had little to do with Mr Mastronardo directly once the project was underway.

Mr Gazzard is a chartered accountant, experienced Chief Financial Officer and Chief Executive Officer, who has been the accountant for Veritas since 2016.

By Facility Agreement dated 30 March 2015, the developer agreed to borrow the cumulative sum of $13 million from Balanced Securities Limited (Balanced Securities) at an “Acceptable Rate” of 11.95% per annum and a “Higher Rate” of 8% above the Acceptable Rate per annum. The funds were guaranteed by a company, Cladroan Investments No. 1 Pty Ltd (Cladroan), and Mr Mastronardo and secured by registered mortgage over the property.

The developer also borrowed working capital in the sum of $1 million from Optima Funding Pty Ltd (Optima) at an “Acceptable Rate” of 19.75% per annum and a “Higher Rate” of 29.75% per annum. The loan from Optima was approved on 17 July 2015.

On 12 August 2015, Optima entered into a Facility Agreement with the developer (as borrower) and Cladroan and Mr Mastronardo (as guarantors), in which Optima agreed to make $1 million available to the developer. The advances were guaranteed by Cladroan and Mr Mastronardo. The “Acceptable Rate” was defined to mean 19.75% and the “Higher Rate” was defined to mean 10% more than the Acceptable Rate.

On 7 July 2017, Optima entered into a Facility Agreement with the developer (as borrower) and Elip Pty Ltd (Elip) and Mr Mastronardo (as guarantors) whereby Optima would advance additional working capital to the developer at an “Acceptable Rate” of 18.95% and a “Higher Rate” of 10% above the Acceptable Rate. This loan was increased on 22 December 2017 and provided an additional amount of $400,000, over the existing loan of $700,000, giving rise to a total of $1.1 million.

In about February 2014, the developer retained the defendant to act as its solicitors for the Shoal Bay development. In its fee proposal, the defendants’ firm represented that it “has the requisite technical and commercial skills in the area of strata developments and is considered the leading firm in the [H]unter [r]egion in the provision of legal services in this area.” The defendant represented that Mr Hickey would be the partner responsible for the work and that he would be assisted by Andrew Ferguson, Senior Associate. Helen Murray, Special Counsel, took over the day-to-day conduct of the matter from Mr Ferguson in December 2015 and Nicole Faulkner, a paralegal, also performed work on the matter.

The defendants’ retainer included the following aspects of the development:

The defendants communicated with the developer orally and by email. On occasion, they copied Mr Mastronardo into the emails but generally they communicated directly with the persons engaged by the developer who are referred to above. In about April 2014, the defendants were instructed to prepare a standard contract for the sale of the lots. They obtained the developer’s instructions on matters such as the wording of the contracts from Mr Suttor and Mr Robinson, without reverting to Mr Mastronardo.

The developer started to market the lots in early 2014. The clauses of the contracts will be referred to in more detail below. In substance, the contracts provided for a “Registration Date” (being the date by which certain documents, including the Strata Plan, had to be registered) which was to be a certain period after the Contract Date. There was also provision to enable the developer to extend the Registration Date by a period of up to six months, as long as a valid notice was given at least one month prior to the Registration Date. If registration of the relevant documents had not occurred prior to the Registration Date, either party had an automatic right to rescind the contract. The purchaser was required to rescind within seven days of the Registration Date and, in that event, was entitled to have the deposit returned.

The first contracts specified a Registration Date (see below) of 18 months from the Contract Date. For example, on 20 June 2014, a contract was entered into between the developer as vendor and Alfio and Katia Arlotta as purchasers for Lot 40 for the total sum of $490,000. The Registration Date was 18 months from the Contract Date. Thus, the Registration Date for that contract was 20 December 2015.

Later contracts (including for Lots 50 and 52) specified a Registration Date of 12 months from the Contract Date.

On 15 December 2014, Mr Ferguson sent a document entitled “Updated Sales Schedule” to Mr Mirels which included the properties sold to that date, being Lots 4, 8, 9, 15, 19, 22, 24, 25, 27, 28, 29, 30, 32, 33, 34, 35, 37, 38, 39, 40, 42 and 43. The schedule included a column headed, “Sunset Date (*6 month extension is also available in addition)”. The term “Sunset Date” was used by the parties as an alternative term for Registration Date. The Sunset Date for Lot 40 was recorded in the schedule as 20 December 2015, being 18 months after the Contract Date. Neither the requirement that notice of an extension be given one month prior to the Sunset Date, nor the actual date for such notice in respect of any given lot, was apparent from any of the schedules provided by the defendants to the developer.

Mr Mirels examined the schedule carefully, as is evident from the following response sent a couple of hours later:

Later that day, 15 December 2014, Mr Mirels and Mr Ferguson exchanged emails as follows:

On 17 March 2015, Mr Ferguson sent an email to Mr Mirels which appears to answer a question asked of him by Mr Mirels in an earlier email:

Mr Ferguson sent a further Updated Sales Schedule to Mr Mirels on 10 July 2015, which included details of all lots for which contracts had been exchanged. As with the previous version, it included a column headed “Sunset Date (*6 month extension is also available in addition)”.

On 6 August 2015, a contract was entered into for the sale of proposed Lot 52 between the developer, as vendor, and Gregory and Georgina Forbes, as purchasers for the sum of $800,000, of which $80,000 was paid as a deposit on exchange of contracts. The contract contained additional provisions beyond those contained in the 2005 edition of the standard form contract for the sale of land. These additional provisions included the following.

Clause 31 defined “Builder” as “the builder or builders appointed by the Vendor or on behalf of the Vendor from time to time to construct the Development.” “Completion Date” was defined as the date for completion pursuant to cl 48. “Extended Registration Date” was defined to mean 18 months from the Contract Date. “Registration Date” was defined as 12 months from the Contract Date. “Strata Documents” were defined to mean the Strata Plan, the By-Laws, and any necessary s 88B instrument.

Clause 42 made provision for conditions precedent to completion. It relevantly provided:

Clause 43 provided for time for registration to be extended as follows:

Clause 48 relevantly provided:

I accept Mr Mastronardo’s evidence that he had not read the contracts for sale and that he relied on those people the developer had engaged and the defendants to monitor such matters as the Registration Date and any need for an extension of time.

It was common ground that the contract for the sale of proposed Lot 50 had relevantly identical terms to the contract for the sale of proposed Lot 52, save that the purchaser was Madeleine Forbes, the sale price was $725,000, of which $72,500 was paid on exchange, and the date on which the contracts were exchanged was 7 August 2015. Thus, the Registration Date for Lot 52 was 6 August 2016 and for Lot 50 was 7 August 2016.

On 12 August 2015, Mr Ferguson sent a further schedule to Mr Mirels under cover of an email in which he said, “Updated schedule attached as requested.” The Sunset Date for the contract for the sale of Lot 40 was identified in the schedule as 20 December 2015. By this time, contracts for the sale of Lots 50 and 52, had been exchanged. There was no date in the Sunset Date column for these lots but, as with other entries, the date on which contracts had been exchanged (6 August 2015 for Lot 52 and 7 August 2015 for Lot 50) were set out in the final column in the schedule.

On 27 October 2015, Mr Mirels and Graeme Schmarr (a real estate agent from PRD Port Stephens who had been engaged by the developer to assist with the sale of the lots) sent an email to all the purchasers of lots in the development, informing them that, as a consequence of wet weather, the expected completion date had to be adjusted to January or February 2016. They also informed purchasers that there were only 13 units left. Mr Mastronardo explained that he encouraged his team to communicate with purchasers and keep them well informed as part of “public relations.”

On 23 November 2015, Mr Mirels asked Mr Ferguson for another “list and status”. In response, Mr Ferguson provided another updated sales schedule in a similar format to those which had previously been provided. As with the one provided in August 2015, the Sunset Date for Lots 50 and 52 was blank.

In December 2015, a dispute arose between Mr Mastronardo and Mr Mirels concerning the latter’s remuneration for work performed on the development which was to include a unit in the development. It would appear that the dispute was resolved as Mr Mirels continued to work for the developer and liaise on its behalf with the defendants.

On 21 December 2015, the Arlottas, the purchasers of Lot 40, rescinded their contract by notice which was sent by their licensed conveyancer to the defendants. Mr Ferguson sent it to Mr Mirels in an email which included the following explanation:

At Mr Mirels’ request, Mr Ferguson forwarded the email to Mr Mastronardo. Although Mr Mastronardo could not recall reading the email, he said in cross-examination that he would have spoken to Mr Mirels about it and told him to “sort it out.” He did not appear to be particularly troubled by the rescission of the contract for the sale of Lot 40 because it was one of the early lots and therefore part of a “cheaper release” which meant that there was a reasonable prospect of the developer making money on the resale.

On 30 December 2015, Mr Mirels wrote to Ms Murray (who had assumed conduct of the file in December 2015) and Ms Faulkner as follows:

On 12 January 2016 (following what I infer was the summer break for the defendants’ firm), Ms Murray responded by informing Mr Mirels that “[a]partment 410 (Lot 40) rescinded on 21 December 2015.” She continued:

By email sent on 18 February 2016, Mr Mirels asked Ms Murray to provide an updated sales status schedule with Sunset Dates. He explained that “[w]e are having an issue with the builder and PC [practical completion] will [be] reached a lot later than expected.” On 19 February 2016, Ms Murray sent an updated sales schedule with Sunset Dates. It recorded the Sunset Dates for Lot 52 as 6 August 2016 and for Lot 50 as 7 August 2016, being 12 months after the respective Contract Dates. Mr Mastronardo did not recall seeing the document although he accepted that he had “probably gone through something of this nature” with Mr Mirels. He confirmed that he was “more interested in the prices we’re achieving, what sort of take up we had, that sort of stuff, not so much all this sort of detail.”

On 23 February 2016, Ms Murray sent a further email to Mr Mirels as follows:

Mr Mirels forwarded this email to Mr Mastronardo with the following text (which was copied to Ms Murray):

At 7.10am on 24 February 2016, Mr Mirels sent an email to Ms Murray asking her to call Mr Mastronardo and explain it to him. Mr Mirels also wrote:

Ms Murray does not recall having telephoned Mr Mastronardo in response to this email and has not been able to locate a file note of any such conversation.

At 9.02pm on 24 February 2016, Mr Mirels sent an email to Ms Murray with the subject heading “Extension letter” as follows:

Ms Murray responded by email sent at 10.03am on 25 February 2016 as follows:

The attached draft was in the following terms:

Mr Mirels forwarded Ms Murray’s email to Greg Hastie (the new construction manager) and asked him to “insert details as per below. This is urgent for extension of time.” Mr Hastie’s signature block on the email identified him as “Director, Cost Consulting & Project Management” of AltusPageKirland.

At 1.44pm on 25 February 2016, Mr Hastie sent an email to Ms Murray and Mr Mirels entitled “Extension Letter” as follows:

The attached notice said:

At 1.54pm on 25 February 2016, Mr Mirels wrote to Ms Murray and asked her to finalise the notice so that he could send it to the Building Superintendent, Todd Corbett, for sign off. He said:

At about this time, the original builder left the site. This caused inevitable delays in construction but also meant that there was no builder who could certify the delay for the purposes of a notice of extension of time of the Registration Dates of the contracts. The developer hoped to overcome this problem by having the Building Superintendent sign such a notice in the period when there was no builder on site.

At 3.55pm on 25 February 2016, Ms Murray sent an amended notice which included a sign-off by “Building Superintendent, Todd Corbett – RPS”. At 4.34pm on 25 February 2016, Mr Mirels sent an email to Mr Mastronardo, which was copied to Ms Murray, Mr Gazzard and Mr Hastie, in which he asked Mr Mastronardo whether it was “ok to send [the draft notice] to Todd Corbett to sign.” In the same email, Mr Mirels wrote:

The email contained a table with three columns, the apartment number, the name of the purchaser and the “Current Registration Date (Sunset Date)”. The email concluded:

At 4.41pm on 25 February 2016, Ms Murray responded to Mr Mirels as follows:

On 26 February 2016, Mr Mirels sent the draft notice to Mr Corbett for his signature. On 29 February 2016, Mr Hastie sent an email to Mr Corbett and Mr Mirels, which was copied to Ms Murray, asking him to sign the notice and return it that morning.

On 29 February 2016, Mr Corbett responded to Mr Mirels and Mr Hastie (in an email copied to Ms Murray):

On 29 February 2016, Mr Hastie emailed Ms Murray (copied to Mr Corbett and Mr Mirels) asking her to adjust the notice in accordance with Mr Corbett’s response and reissue it for signing. Further correspondence ensued with Mr Corbett, who indicated that he was not comfortable signing the notice as he had not made any determination regarding the 61 days which were allegedly beyond the vendor’s control. Ultimately, he agreed to sign off for 85 days and sent a signed notice to that effect at 2.55pm on 29 February 2016.

On 29 February 2016, following receipt of the signed notice from Mr Corbett, Mr Mirels and Ms Murray spoke on the phone. Ms Murray noted what Mr Mirels said (but not her responses) in a file note as follows:

On 1 March 2016, the defendants sent letters to the solicitors for the purchasers of Lots 32 and 33 which enclosed Mr Corbett’s extension of time notice.

On 16 March 2016, Mr Mirels sent the extension of time notice to Mr Mastronardo (copied to Ms Murray) and said:

Mr Mastronardo responded to Ms Murray (copied to Mr Gazzard and Mr Mirels):

Further emails were exchanged on 16 March 2016 in which Mr Hastie said that Mr Corbett had confirmed the extension of time for the weather but that the additional 61 days was “based on nominal delays and not actual delays.” He foreshadowed further delays. The defendants were unaware of who “James” (referred to in Mr Mastronardo’s email above) was. Mr Mirels confirmed that he was from Fortis Development and Construction Co (Fortis) and “is the new builder stepping into the existing construction contract with Builtform to complete the works.” Mr Mastronardo subsequently confirmed that it was intended that “he [James Maruzza of Fortis] will finish all the works.”

Ms Faulkner amended the notice of extension of time to include the 61 days in addition to the 85 days for inclement weather and to identify Mr Maruzza as the person who was to sign the notice. The notice was signed in that form by Mr Maruzza on 16 March 2016. As far as the evidence reveals, Fortis remained the builder on site until the construction of the development was completed.

The evidence does not reveal when Fortis became the builder on the site or when Builtform left the site. Mr Mastronardo was unsure of the precise timing. He recalled that he was “in discussions with a few builders at the time” and “[a] lot of things were going on.” Mr Mastronardo said, in cross-examination, that the departure of the builder put a “bad stigma on the project” although “the market was still strong”. He said that it was “not a good thing to happen on a project.” He became very concerned because he “need[ed] to deliver projects and complete them and bring the money back in the door.”

On 18 March 2016, Ms Faulkner sent an updated schedule to Mr Mirels in the usual format. She recorded in the column entitled “Sunset Date (*6 month extension is also available in addition)” the original Sunset Date and any extension which had been notified and the date on which it had been notified. The schedule indicated that extension notices had been served for contracts with Sunset Dates in April and May 2016.

On 21 March 2016, Mr Gazzard sent an email to Ms Murray and Ms Faulkner asking them, at Mr Mastronardo’s request, to amend the schedule which had been sent on 18 March 2016 “to reflect the actual latest sunset date incorporating the extensions plus a column for the $ deposit being held.” Later that day, Ms Faulkner sent the amended list to Mr Gazzard.

On 22 March 2016, Ms Murray, Mr Mastronardo and Mr Gazzard spoke on the phone. Ms Murray recorded in a file note what she was told as follows:

Ms Murray’s affidavit evidence as to the import of the file note (which was tendered by Mr Weinberger, who appeared on behalf of the plaintiff) was as follows:

Mr Mastronardo explained his rationale for seeking the purchasers’ agreement to the extensions in his cross-examination as follows:

Following this conversation on 22 March 2016, Mr Gazzard sent an email to Ms Murray attaching a schedule of sales in which he highlighted in yellow all contracts which had a Sunset Date before the end of July 2016. He said:

Mr Gazzard’s schedule included the following totals at the columns of money amounts:

Mr Mastronardo was not precise about time but he recalled that he wanted to raise funds on the project and “the funder wanted to make sure that we had enough sales to cover the funding.” He told Mr Gazzard to make sure that every contract is “binding and none of them can fall over”. Mr Mastronardo explained in cross-examination:

Mr Mastronardo wanted the contracts “at risk” of being rescinded by the purchasers to be identified so that the developer could “get those contracts to re-engage”.

Again, Mr Mastronardo confirmed that he was more concerned about the “big picture” and would have relied on Mr Mirels and Mr Gazzard to “sort it out.” He added:

On 24 March 2016, the defendants sent letters in the following form to the solicitors or conveyancers for the purchasers of Lots 4, 9, 15, 19, 30, 32, 33, 36 and 43 (being the lots with Sunset Dates which were due to expire in June and July 2016):

Mr Mastronardo confirmed in his affidavit evidence that as at 26 March 2016, he was still “seeking a new builder to complete the development.” At that time he did not believe that the development could have been completed by June 2016 because the following matters were still required to be done to achieve Practical Completion and obtain registration of the Strata Plan, including notifying the Local Council of Practical Completion; inspection by a building certifier; lodgement of the proposed Strata Plan; obtaining consents from the financiers and mortgagees of the property; and lodging documents with the Land Registry Services.

At 6.57am on 29 March 2016, Mr Gazzard wrote to Ms Murray asking whether there had been any progress on extension of sunset dates. At 8.09am on 29 March 2016, Ms Murray responded by informing him that the letters had been sent out by facsimile but that, given the Easter break (Easter Day was 27 March 2016), she would not expect any response until later that week “at the earliest”. At 8.13am on 29 March 2016, Mr Gazzard asked Ms Murray to email a copy of the letter to him. She responded by sending the pro forma letter but he requested that she send a copy of “every letter sent out” and a “list of who they were sent to”. Mr Gazzard concluded his email by saying, “[w]e need this urgently.”

A file note made by Ms Murray on 29 March 2016 recorded that she had a telephone conversation with Mr Gazzard on that day. She recorded:

At 4pm on 29 March 2016, Ms Murray sent an email to Mr Gazzard as follows:

At 4.01pm on 29 March 2016, Ms Faulkner sent an email to Mr Gazzard which attached copies of all of the letters the defendants had sent to the lot owners referred to above.

On 29 March 2016, Mr Schmarr sent an email updating the purchasers, which forwarded the following “message from [Mr] Mastronardo” as follows:

Mr Forbes (the co-purchaser of Lot 52) responded to Mr Schmarr, expressing his disappointment with the delay. On 30 March 2016, Mr Schmarr forwarded this exchange to Mr Mastronardo, who responded to Mr Schmarr (which was copied to Mr Mirels):

Later that day, Mr Mastronardo wrote to Mr Mirels (copied to Mr Schmarr) and told him to “sort it”. In cross-examination, Mr Mastronardo denied that he was “not particularly sympathetic to Mr Forbes’ concerns” and maintained: “I like my purchasers happy.”

On 30 March 2016, Ms Faulkner sent Mr Gazzard a schedule which identified those purchasers who had agreed to an extension of the Registration Date to 31 October 2016 (which at that time was only the purchasers of Lots 19 and 33). On 31 March 2016, Ms Faulkner sent a revised list, which added the agreements of Lots 4 and 9. On 4 April 2016, Mr Gazzard wrote to Ms Faulkner and asked her whether answers had been received from all purchasers to whom requests for extension had been sent. She responded and informed him that the purchasers of apartments which corresponded with Lots 15, 30, 32, 39 and 43 had not yet replied but that she had called their solicitors and been told that they were still waiting for responses from their clients.

At some time in early April 2016, Mr Mastronardo increased the prices of the remaining units. He explained the reason for the increase as follows:

On 11 April 2016, Mr Gazzard asked Ms Faulkner for an update about further responses. She confirmed that she had phoned the purchasers’ solicitors, who were still waiting for responses from their clients. Ms Faulkner sent a further updated list on 13 April 2016 which recorded the agreement of the purchasers of Lots 4, 9, 19, 30, 33 and 43 and confirmed that “[a]ll outstanding purchasers were chased up yesterday.”

The developer required the information which was repeatedly being sought from the defendants because of their attempts to refinance the development. On 13 April 2016, Mr Gazzard wrote to Mr Mirels (copied to Mr Mastronardo) as follows:

Mr Mastronardo’s response to the email was to instruct Mr Gazzard to “chase up” the defendants to see if any more purchasers had agreed to extend the Registration Date. On 4 May 2016, Ms Faulkner sent a further schedule which indicated that she was expecting confirmation of the agreement by the purchaser of Lot 15 to an extension in the week commencing 9 May 2016; the solicitor for the purchaser of Lot 32 was still waiting for a response from the client and the solicitor for the purchaser of Lot 39 was recorded as having recommended that the client agree to an extension and that confirmation was expected in the week commencing 9 May 2016. Later on 4 May 2016, Mr Mirels asked Ms Faulkner what the legal position was with the two who had not elected to extend and whether they were locked in or still able to “get out of [the] contract.” The evidence does not reveal Ms Faulkner’s response to that question.

On 31 May 2016, Mr Mirels asked Ms Faulkner to send an updated schedule. In an updated schedule provided on 1 June 2016, the date of exchange of contracts for Lots 50 and 52 was correctly recorded as 7 and 6 August 2015 respectively and the Sunset Dates for these contracts as 7 August 2016 and 6 August 2016 respectively. Mr Mastronardo did not recall whether Mr Mirels had discussed the document with him. He explained that the position had changed and said:

On 4 May 2016, Mr Mastronardo communicated with Steven Hodges, the Senior Credit Manager of Balanced Securities, about an unregistered mortgage over one of the properties he owns on Pile Street in Gladesville and a valuation of that property. At 10.23am on 4 May 2016, Mr Mastronardo told Mr Hodges by email that he was waiting on a fourth valuation, which he hoped would be forthcoming and would enable a further drawdown of $525,000. Mr Hodges responded that “[t]hat payment will be crucial for going forward.” Mr Mastronardo, in a further email to Mr Hodges said that the valuation would be ready “tomorrow sometime” and further: “[t]hey sold next door last week for 7.095M- I’m only looking to achieve 5.5M on the val.”

Mr Mastronardo confirmed that he had told Mr Hodges that he expected that the development and sales of the units would be completed by July 2016. These communications led to a further email from Mr Hodges to Mr Mastronardo at 1.35pm on 4 May 2016 which said:

On 31 May 2016, Mr Mirels asked Ms Faulkner for an updated schedule, which she provided on 1 June 2016. As with earlier versions, the schedule indicated that the Sunset Dates for Lots 52 and 50 were 6 August 2016 and 7 August 2016 respectively.

On 31 May 2016, Mr Schmarr, on behalf of the developer, sent an update email to purchasers of lots in the development, including Mr Forbes, which said:

Mr Mastronardo explained that a strata plan can be registered before Practical Completion or the issuance of an Occupation Certificate because a Strata Plan can be registered as long as the walls between strata units are fixed.

Ms Murray was on annual leave between 6 June 2016 and 7 July 2016.

No instructions were given to the defendants prior to 6 July 2016 to give notice to the purchasers to extend the Registration Date for Lot 52 or prior to 7 July 2016 to give notice to the purchaser to extend the Registration Date for Lot 50. Accordingly, when these dates passed without a notice having been given, the purchasers of those lots obtained a right to rescind their contracts, as long as the right was exercised within 7 days of the Registration Dates (6 and 7 August 2016).

As at July 2016, Mr Mastronardo knew that the construction of the development on the property had not yet been completed, that no occupation certificate had been issued and the strata plan had not been lodged for registration.

On 14 July 2016, Mr Gazzard sent an email to Ms Faulkner, Mr Mastronardo and Mr Mirels, which was copied to Ms Murray in which he said:

Following this email, Ms Murray spoke to Mr Mirels and “the Project Surveyor”, who may have been Mr Gazzard. Her confirmation email, sent at 10.57am on 15 July 2016, is referred to below.

On 15 July 2016, Ms Murray and Mr Mirels spoke on the phone. Mr Mirels instructed her to issue extension of time notices for any contracts with Sunset Dates in July or August 2016. Following that conversation, at 10.57am on 15 July 2016, Ms Murray sent an email to Mr Gazzard, which was copied to Mr Mastronardo and Mr Mirels, in which she said:

The attachment to the email was the notice referred to above, signed by Mr Maruzza on 16 March 2016, which certified a total extension of time of 146 days (85 for inclement weather and 61 days due to matters beyond the vendor’s control).

Mr Gazzard responded to Ms Murray by email sent at 12.28pm on 15 July 2016, confirming that he had spoken to Mr Mastronardo and that they agreed to instruct her to issue the notices.

On 18 July 2016, Ms Murray spoke to Mr Mirels who told her (as recorded in her file note) that the certifier was coming the following day and needed something from the surveyor; that the whole site was a “complete schmozzle”, that the “SA” (Strata Application) had been lodged in mid-December 2015 and that the “SP” (Strata Plan) would need to be certified.

On 18 July 2016, Ms Murray sent out the letters giving notice of an extension of time to purchasers with Sunset Dates in July and August 2016, including the Forbes’ solicitors, Coelho & Coelho. On 20 July 2016, Mr Gazzard sought confirmation from Ms Murray and Ms Faulkner that the letters had been sent and requested copies of the letters. She sent him the pro forma letter and Ms Faulkner subsequently confirmed by email sent on 21 July 2016 that they had been sent to the purchasers of the apartments which corresponded to Lots 6, 18, 19, 27, 41, 49, 50 and 52. It was common ground that the notices in respect of Lots 50 and 52 were invalid as they had not been sent in time.

On about 20 July 2016, Mr Coelho spoke with Ms Murray by telephone. Her file note recorded:

On 20 July 2016, at 9.09am, Mr Gazzard sent an email to Ms Murray and Ms Faulkner which attached a deed executed by the developer, which rescinded the Contract for the Sale of Lot 15 and substituted a new contract with the name of the purchaser altered and the Registration Date changed from 24 June 2015 to 31 October 2016.

On 22 July 2016, Mr Mirels asked Ms Faulkner for an updated “sunset date spreadsheet”. She provided the updated schedule shortly after his request. The column for the Sunset Date for Lot 52 said:

The column for the Sunset Date for Lot 50 said:

The statements in parentheses were only true if the purchasers did not exercise their right to rescind within seven days of the original Registration Date as the Registration Date had not been validly extended since the notice of extension had not been served in time (one month prior).

At 11.45am on 22 July 2016, Mr Mirels sent an email to Ms Murray in response which said:

At 12.37pm on 22 July 2016, Ms Murray responded by email as follows:

At 1.30pm on 22 July 2016, Mr Mirels responded to Ms Murray as follows:

At 1.57pm on 22 July 2016, Ms Murray responded:

At 2.05pm on 22 July 2016, Mr Mirels wrote to Ms Murray as follows:

At 6.03pm on 22 July 2016, Mr Mastronardo sent an email to Mr Mirels which was copied to Ms Murray, Ms Faulkner and Mr Gazzard in which he said:

At 6.36pm on 22 July 2016, Ms Murray responded to Mr Mastronardo as follows:

At 6.12am on 26 July 2016, Mr Mirels wrote to Ms Murray:

Ms Murray responded at 8.07am on 26 July 2016:

At 3.20pm on 28 July 2016, Ms Murray sent an updated list. The Sunset Dates for Lots 52 and 50 were said to be of 30 December 2016 and 31 December 2016 respectively, which was correct unless the purchasers exercised their rights to rescind, which had to be exercised within 7 days of the Registration Dates (6 and 7 August 2016), which is what occurred.

On 10 August 2016, the solicitors for the purchasers of Lots 50 and 52, served notices of rescission of the sale contracts on Ms Murray, who, at 4.40pm, forwarded them to Mr Mirels, Mr Gazzard and Mr Mastronardo. In her covering email, she explained the legal position (regarding the time within which notice to extend the Registration Date had to be served) and said:

At 4.45pm on 10 August 2016, Mr Mirels responded:

At 9.12am on 11 August 2016, Mr Gazzard wrote to Ms Murray as follows:

Ms Murray responded at 9.49am on 11 August 2016:

At 12.03pm on 11 August 2016, Mr Maruzza emailed Mr Forbes as follows:

Jennifer Coelho, the Forbes’ solicitor, forwarded this email to Ms Murray and asked her to confirm that she had informed her client that the contracts for Lots 52 and 50 had been rescinded.

On 16 August 2016, Mr Hickey sent an email to Mr Mastronardo and Mr Mirels as follows:

By 9 September 2016, Mr Mastronardo had informed the defendants that he held them responsible for the rescission of the contracts for Lots 50 and 52. There were discussions (the precise content of which is not revealed by the evidence) which led to the defendants being instructed to write to the Forbes’ solicitors to try to get them to accept that they were bound by the contracts for sale.

Mr Hickey appointed Richard Anich of the same firm to handle the matter and to draft a letter to the Forbes’ solicitors. Mr Hickey’s letter to the developer said, in part:

The developer must have instructed the defendants to send the draft letter which was attached to Mr Hickey’s email of 9 September 2016 to the Forbes’ solicitors because it was dated 9 September 2016 and sent on that day, or on the following Monday, 12 September 2016. By that time, the Forbes’ had instructed a different firm of solicitors: McCauley, Peters & Cripps (McCauley). In substance, the letter refuted the purchasers’ rejection of the developer’s allegation that the purchasers were estopped from rescinding the contracts because of the changes they had requested be made to the apartments. The letter concluded:

On 12 September 2016, McCauley responded by continuing to refute the allegation of estoppel. They also requested documents referred to in the defendants’ letter dated 9 September 2016. Their letter included the heading, “WITHOUT PREJUDICE SAVE AS TO COSTS”. The defendants responded by letter dated 28 September 2016, to which were attached copies of 14 documents said to be relevant to changes requested by the Forbes’ to the apartments on Lots 50 and 52. Once again, the letter concluded with a suggestion that the parties meet to resolve the dispute. At about this time, the developer terminated the defendants’ retainer.

The plan of subdivision of the property into 53 units was endorsed on 10 October 2016 and registered as SP 93143 on 24 October 2016.

By summons filed in the Equity Division of this Court on 27 October 2016, the erstwhile purchasers of Lots 50 and 52 commenced the Equity proceedings against the developer for return of the deposits paid to it. The solicitor on the record for the purchasers was Jonathan Yuill of McCauley. The summons sought declarations that the contracts for the sale of Lots 50 and 52 had been validly rescinded and orders for return of the deposits and costs.

By the time the summons had been served, the developer had instructed new solicitors, Rigelsford Jensen & Co (Rigelsford), who had been recommended by its in-house solicitor, Phil McLeod. By letters sent on 28 October 2016, Rigelsford enclosed completion notices for Lots 50 and 52, which notified a Completion Date of 15 November 2016. Rigelsford informed Mr Yuill that the developer did not accept that the contracts had been validly rescinded.

Mr Weinberger submitted that the developer’s new solicitors ought be taken to have adopted the stance taken by the defendants in endeavouring to resolve the dispute with the purchasers. He contended that they were entitled to treat that stance as amounting to legal advice given to the developer as to its true position. I reject this submission. I am not satisfied that the defendants ever gave legal advice to the developer that the purchasers were estopped from rescinding the contracts. The new solicitors were obliged to form their own view of the legal position and advise the developer accordingly. The defendants were well aware that the notices of extension which purported to extend the Registration Dates for Lots 52 and 50 were invalid and advised the developer of this.

On 3 November 2016, Rigelsford sent a letter entitled “[w]ithout prejudice save as to costs”, which included the following offer, which was not accepted:

On 15 November 2016, the developer once again, changed its solicitors. On 18 November 2016, Laurence & Laurence Commercial Lawyers (Laurence & Laurence) filed a notice of appearance on behalf of the developer in the Equity proceedings. Also on 18 November 2016, Laurence & Laurence sent a letter to McCauley foreshadowing a demand for the costs of variations to works on Lots 50 and 52 which was to be the subject of a cross claim in the Equity proceedings, a draft of which was provided.

On 24 November 2016, Laurence & Laurence wrote to the defendants to inform them that counsel briefed for the developer had advised that the notices of rescission were validly served and that the developer was obliged to refund the deposits. They put the defendants on notice that the developer would be consenting to the orders sought by the purchasers and would proceed to market the apartments and commence proceedings against the defendants for any financial loss suffered as a result of rescission of the contracts.

Also on 24 November 2016, Laurence & Laurence wrote to McCauley in a letter headed, “[w]ithout prejudice save as to costs”, offering to consent to the orders sought in the summons on the basis that there would be no order as to costs and that the developer would still be entitled to maintain its claim for works done to the apartments at the purchasers’ request. McCauley responded, also by Calderbank letter, offering to resolve the proceedings on the basis of declarations confirming the validity of the rescissions, orders for return of the deposits, a deed of release of all claims and an order that the developer pay the purchasers’ costs in the sum of $60,000. This offer was not accepted.

Ultimately, Emmett AJ made orders declaring the rescissions valid, orders for return of the deposits, with interest from 17 August 2016, and an order that the developer pay the purchasers’ costs of the Equity proceedings on an indemnity basis up to 24 November 2016 and on the ordinary basis thereafter. The Court also noted that the plaintiffs would not assert that the developer was estopped from claiming amounts for additional works done on the apartments.

By letter dated 13 December 2016, McCauley informed Laurence & Laurence that the total costs would be $59,091.55, including senior and junior counsel’s fees, solicitors’ costs and court fees.

On 27 May 2017, the sale of Lot 52 was completed for the sum of $675,000.

On 12 March 2018, the sale of Lot 50 completed for the sum (including deposit) of $450,000. It was agreed that this amount did not equate to its value and that damages ought not be assessed on the basis of this amount. The parties agreed that the market value of Lot 50 as at 1 January 2017 was $522,500 and that this was the date at which the difference in the selling price (between the price in the contract dated 7 August 2015 (incorrectly stated in the agreed facts to be 7 August 2014) and the amount of $522,500) was to be assessed.

The delay in the sale of the units was not explained. It was not alleged that the developer had failed to mitigate its loss by not selling the units earlier. Further, I am satisfied, having heard and seen Mr Mastronardo give evidence that he would have done what he could to maximise the price of any arms’ length sale (it was common ground that the sale of Lot 50 was not at arms’ length).

On 8 June 2018, the developer was wound up on the application of the Deputy Commissioner of Taxation and David Hurst was appointed as the liquidator. In a report to creditors dated 3 August 2018, Mr Hurst recorded that Mr Mastronardo was the co-owner with his wife of two properties on Pile Street in Gladesville. A further two properties were owned by Elip as trustee for the Pile Street Discretionary Trust of which the sole beneficiary was Mr Mastronardo’s wife.

On 13 March 2019, the developer’s liquidator assigned any causes of action which had accrued to the developer to the plaintiff for consideration of $30,000 (to be paid in three tranches) and 15% of the net proceeds of the litigation.

Before addressing the facts in the context of the defendants’ legal obligations, it is convenient to refer to the evidence adduced by the parties. Mr Mastronardo was the only witness called to give evidence. His evidence was useful to shed light on commercial considerations and his way of doing business but it did not particularly add to contemporaneous communications between those he engaged and the defendants since he did not generally concern himself with these.

An affidavit of Ms Murray was served and included in the Court Book but she was not called (parts of her affidavit were tendered by Mr Weinberger). An affidavit of Mr Mirels was also served and included in the Court Book but he was not called. Thus, the two people who were most closely involved in the communications about the contracts at the time leading up to the alleged breach, though available to give evidence, were not called by the parties. This gives rise to an inference that their evidence would not have assisted the party who could be expected to call them: Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8.

While relevant evidence could have been given by Ms Murray and Mr Mirels, I am not persuaded that any particular inference ought be drawn against any party on the basis of their not having been called. The evidence adduced comprised a substantial documentary narrative. Oral communications between the developer and the defendants were generally recorded by the defendants. Most communications were by email. The evidence of Mr Mirels and Ms Murray would necessarily have been affected by the passage of time, in any event, and may have provided a less valuable guide to what transpired than the surrounding documents: Watson v Foxman (1995) 49 NSWLR 315 at 319 (McLelland CJ in Eq).

The plaintiff put its claim for damages on two bases: breach of the term of the contract of retainer which obliged the defendants to exercise due skill and care in advising and performing legal work for the developer; and the negligence of the defendants. These causes of action are, in a case such as the present, co-extensive: Hawkins v Clayton (1988) 164 CLR 539 at 544 (Mason CJ and Wilson J) and 582 (Deane J); [1988] HCA 15.

Section 5A of the Civil Liability Act 2002 (NSW) (the Act) provides that Part 1A, which relevantly includes ss 5B, 5C, 5D, 5E, 5O, 5R and 5S, “applies to any claim for damages for harm resulting from negligence, regardless of whether the claim is brought in tort, in contract, under statute or otherwise.” Part 4 of the Act, Proportionate Liability, by s 34, relevantly applies to a claim for economic loss in an action for damages (whether in contract, tort or otherwise) arising from a failure to take reasonable care. By reason of these provisions, and in the absence of any limitation issue, it is convenient to address the defendants’ liability in contract and tort together.

The defendants will be liable if it failed to take precautions against a foreseeable, not insignificant risk of harm to the developer which a reasonable person in their position would have taken. In determining whether a reasonable person in the defendants’ position would have taken precautions, the Court is to take into account the possibility of harm if care were not taken, the likely seriousness of the harm and the burden of taking precautions as well as the social utility of the activity that creates the risk of harm: s 5B of the Act.

The plaintiff alleges that the defendants were in breach of their retainer and duty of care in two main respects, which will be addressed in turn:

The obligations of a solicitor to a client are well established. The relationship is a fiduciary one, as well as giving rise to a common law duty of care. The nature and extent of the duty is to be determined by reference to the circumstances, including the degree of sophistication of the client. Although expert evidence is admissible on the question of whether a solicitor has been negligent or otherwise in breach of his or her duty, it is open to the Court to decide the question in the absence of such evidence by reference to general principles: Waimond Pty Ltd v Byrne (1989) 18 NSWLR 642 at 654 (Kirby P).

The defendants, for whom Mr Zahra SC appeared with Mr Burnett, cited several authorities for the proposition that a solicitor is not negligent for telling a client what the client already knows. For example, they relied on Yager v Fishman & Co [1944] 1 All ER 552 (Yager) in which the Court of Appeal dismissed a claim against solicitors by a client who alleged that the solicitors had not reminded a client of the date by which a lease could be determined (the opportunity to have determined the lease having arisen on a previous occasion).

Yager was applied in Scottsdale Homes Pty Ltd v Gemkip Pty Ltd [2008] QSC 326 (Scottsdale) where an option agreement drafted by the plaintiff’s solicitor, Mr Goodman, allowed for a caveat to be lodged. Mr Goodman advised his client to lodge a caveat. The client subsequently instructed Mr Goodman to withdraw the caveat. The client failed to lodge a further caveat to protect its interests. Chesterman J found that Mr Goodman was not negligent for failing to repeat earlier advice.

His Honour’s findings about the circumstances of the retainer of Mr Goodman were as follows:

For the reasons given below, I consider the present case to be distinguishable from both Yager and Scottsdale.

As can be seen from the factual narrative above, as established by the documents and Mr Mastronardo’s evidence, the defendants were retained to act on behalf of, and advise, the developer on several aspects of the development. Their retainer extended to drafting contracts, giving notices under contracts, obtaining registration of the documents required before completion and acting on completion. They played a continuing role in informing the developer about the contracts which had been entered into for each of the 53 lots, including the Registration Dates; whether any extension had been notified (by service of the notice signed by Mr Maruzza which provided for an extension of 146 days); and whether any extensions had been agreed to by purchasers. Although there was some correspondence between Fortis and Mr Forbes about building work to be done to particular apartments, correspondence relating to the contracts for particular lots principally passed between the defendants and the solicitors for the various purchasers.

Like the client in Scottsdale, Mr Mastronardo engaged people “in-house” who were experts in property management and associated contracts (although they were not lawyers), such as Mr Gazzard, Mr Mirels, Mr Robinson and Mr Suttor. The evidence revealed that the developer had an in-house lawyer, Phil McLeod. However, there is no suggestion that he was involved at any time prior to the rescission of the contracts for Lots 50 and 52. Thus, the developer relied exclusively on the defendants for legal advice, including concerning the contracts, which the defendants had drafted on the developer’s instructions. The defendants’ retainer also included drafting extension of time notices and communicating with the purchasers’ solicitors about agreements to extend time.

In the period leading up to early July 2016 (when notices had to be served if the Sunset Dates for the sale contracts for Lots 52 and 50 were to be extended), the defendants knew the following:

The narrative reveals that the defendants told the developer of the effect of cll 42 and 43 of the contracts for sale on a number of occasions and also set out the clauses for the developer’s edification. The defendants ought to have known that Mr Mastronardo was an experienced developer but left it to others to instruct the defendants as to the terms of the contract, with the possible exception of price. Mr Mirels was the main contact point for the defendants concerning the contracts (although Mr Gazzard also played a role).

It is plain from Mr Mirels’ email of 15 December 2014 (extracted above), that he did not appreciate the effect of cll 42 and 43 in that he did not know whether the developer was entitled to an extension irrespective of the circumstances. Mr Ferguson referred him to cl 43, which he summarised and attached to the email. Mr Mirels asked him on 17 March 2015 whether an extension to the dates would be needed (a matter of which Mr Mirels, if he had appreciated the import of the clauses, would have been in a better position to answer).

Mr Zahra, in submissions, made much of the rescission of the contract for Lot 40, which he contended ought to have taught the developer (and Mr Mirels, in particular) what could happen if the Sunset Date was not extended. Ms Murray explained, in her email to Mr Mirels on 12 January 2016, that the developer had failed to register the plan within 18 months of the contract date of 20 June 2014. Although the explanation was correct and obvious to any lawyer (or a paralegal such as Ms Faulkner) there was a degree of subtlety to this answer, which the defendants could not have assumed the developer would appreciate. This was particularly so as the earlier contracts, including the contract for Lot 40, specified a Registration Date 18 months after the Contract Date, whereas the later ones (including for Lots 50 and 52) specified a Registration Date of 12 months after the Contract Date and an Extended Registration Date of 18 months after the Contract Date.

Although the Sunset Dates (which, as explained above, were also known as the Registration Dates) were set out in numerous schedules, the date on which a notice had to be given to extend the date for each contract was not.

Ms Murray provided a more complete instruction to Mr Mirels in her email of 23 February 2016, emphasising that a notice of extension needed to be given a minimum of one month prior to the Registration Date. However, the explanation was given in a context where all notices of extension were to be given by the defendants, since they were directed to the purchasers’ solicitors. The issue of extension notices became acute at the end of February 2016, when the developer was particularly anxious not to lose any contracts through rescission by the purchasers, which led to the attempts to get Mr Corbett, and later, Mr Maruzza, to certify an extension. The contracts with Registration Dates in June and July 2016 were to be dealt with, if possible, by negotiation.

Thus, the narrative indicates that, for all contracts with Sunset Dates in 2016, the developer had given instructions to the defendants to try to extend the Registration Date by agreement, or to extend it by notice. Therefore, contracts up to and including those with Sunset Dates in July 2016 had been the subject of instructions from time to time.

The defendants appreciated that, if notice were not given at least a month in advance, the developer would be exposed to the risk that the purchaser would rescind. They knew that it had happened once before in circumstances where the developer did not appear particularly troubled (indeed, Mr Mastronardo thought he would be able to make a profit on the resale because Lot 40 had been one of the earlier lots). However, they were privy to communications in 2016 which showed that, by that time, each contract was important to the developer. Further, they had no reason to be confident that Mr Mirels appreciated the full import of cll 42 and 43, since his questions (importantly, before 14 July 2016) betrayed that his understanding was incomplete.

Mr Gazzard’s email of 14 July 2016, in which he asked Ms Murray to check the Sunset Dates “expiring in August/September” is capable of bearing two interpretations. Either Mr Gazzard, like Mr Mirels, did not fully understand the effect of cll 42 and 43 and the explanations which the defendants had given to them throughout 2016, or he realised that the crucial dates had passed and he wanted to make it look as if it was the defendants’ fault. This question cannot be determined in the absence of evidence. The Jones v Dunkel inference does not entitle me to infer the latter explanation. In any event, Mr Gazzard’s email was sent after the relevant dates (6 and 7 July 2016) and is therefore not causally connected with the developer’s loss.

Mr Weinberger criticised the defendants for not alerting the developer to their exposure to the risk of the purchasers of Lots 50 and 52 rescinding their contracts. He submitted that this failure, together with other correspondence such as the email on 22 July 2016 in which Ms Murray alleged that Mr Mirels’ instruction was “not clear”, amounted to a consciousness of guilt: that is, that Ms Murray appreciated that the defendants had been negligent in not seeking instructions with respect to Lots 52 and 50 before 6 and 7 August 2016 and were attempting to cover it up.

It is possible that Ms Murray was concerned that the developer would blame her if the contracts were rescinded. I am satisfied that her knowledge of the effect of cll 42 and 43 was such that she appreciated, at the time she sent the notices on 18 July 2016, that they were invalid with respect to any contracts with a Sunset Date prior to 18 August 2016, including the contracts for Lots 52 and 50. She knew by 20 July 2016 that Mr Coelho, the purchasers’ solicitor, was of a similar view and that, if the purchasers of Lots 50 and 52 were minded to rescind, they would have the right to, as long as their rights were exercised in the 7 days after the Registration Dates. Whatever she said, or did not say, to the developer about that risk made no difference to whether it ensued. I am not persuaded that her communications amounted to a consciousness of guilt.

I do not place particular weight on what Mr Mirels, Mr Gazzard or Mr Mastronardo said in communications with the defendants after the notices of rescission were sent by the purchasers of Lots 50 and 52 on 10 August 2016. The developer was plainly trying to attribute the whole of the blame to the defendants. It is not known whether Mr Mastronardo also blamed Mr Mirels, whom he regarded as being in charge of the contracts on behalf of the developer.

It was common ground that the defendants were entitled to rely, in their defence of the plaintiff’s claim, on any defences which would have been available to the developer: see the summary in Renold Australia Pty Ltd v Fletcher Insulation (Vic) Pty Ltd [2007] VSCA 294 at [24]-[25] (Chernov JA, Ashley JA and Whelan AJA agreeing). The defendants raised s 5O of the Act (standard of care for professionals), ss 5R and 5S of the Act (contributory negligence) and apportionment under Part 4 of the Act (relating to concurrent wrongdoers).

The defendants relied on s 5O of the Act, which provides that a professional does not incur a liability for negligence if it is established that the professional acted in a manner that was widely accepted in Australia by peer professional opinion as competent professional practice. While a court may determine whether a solicitor has been negligent or breached his or her retainer without expert evidence and by reference to general principles, I am not satisfied that a defence under s 5O can be determined without expert evidence. The defendants have adduced no evidence to establish that its conduct was widely accepted in Australia by peer professional opinion as competent professional practice. The question of breach turns upon a close analysis of the particular facts of this case. I am not satisfied that the defendants have made out their defence under s 5O of the Act.

The risk of harm (that the purchasers would rescind the contracts if notice was not given in time) was plainly foreseeable and not insignificant. A reasonable person in the defendants’ position would have alerted the developer to the need to give notice in accordance with the contracts if an extension was required. The burden of taking the reasonable precautions to avoid the risk of harm (s 5B(2)(c) of the Act) was relatively small as all that was required was an email or telephone reminder of the relevant date, or for the date by which an extension had to be notified to be included in the schedules provided by the defendants to the developer from time to time. The quantum risk of the purchaser rescinding the contact if the notice was not given (s 5B(2)(a) of the Act) in time was unknown but it was, in the circumstances, an unnecessary risk, against which the developer could, had reasonable precautions been taken, have been protected. The likely seriousness of the harm was measurable and comprised the requirement to return the deposit and the risk that the Lot would have decreased in value since the contract was entered into. The activity that created the risk of harm was the sale off-the-plan of developed lots, which involves an inevitable delay between the Contract Date and the Registration Date and requires a contractual mechanism to address the potential for further delay. Such sales of off-the-plan lots are a common way of assisting in the finance of such developments, which have considerable social utility.

I am satisfied that the defendants were in breach of their retainer and negligent by not alerting the developer to the imminent deadline (6 and 7 July 2016) for the service of notices for the contracts for Lots 50 and 52. It was not a question of a solicitor being required to remind a client of something which had already been imparted. The terms of the contract were not straightforward to non-lawyers; those associated with the developer had already demonstrated that they did not understand how cll 42 and 43 worked; and the updated schedule highlighted the Sunset Date but not the date by which notice of extension was required to be given. Reasonable care required the defendants to seek instructions from the developer prior to 6 July 2016 about its intentions with respect to the contracts to ascertain whether the defendants ought send extension of time notices to the purchasers’ solicitors.

The other defences raised and the damages flowing from this breach will be considered below after the further allegation of negligence is addressed.

Mr Weinberger argued that the defendants had advised the developer that it had an arguable defence to the claims sought by the purchasers in the Equity proceedings and that their negligence had caused the developer to expend its own costs and become liable to pay the purchasers’ costs on the basis ordered by Emmett AJ.

I am not satisfied that the defendants advised the developer that it had a defence to the claim for declarations that the contracts for Lots 50 and 52 had been validly rescinded or for return of the deposits paid by the purchasers. It is plain that Ms Murray appreciated that the notices of rescission were valid and effective to terminate the contracts and that the legal effect of cll 42 and 43 of the contracts was that the deposits had to be repaid. She advised the developer of this on 22 July 2016 in her email of 12.37pm. In her covering email with which she sent the notices of rescission to the developer on 10 August 2016, she told them that, because the notice to extend time had not been served in time, the rescission was valid and the deposit was “refundable to the purchaser in full.” What Ms Murray said in these communications was correct in law and showed that she fully appreciated how the contracts worked.

I infer that the developer, in addition to blaming the defendants for what had happened, sought advice on any angle that could be taken by it to negotiate a settlement with the purchasers which would result in a better outcome than an acceptance that the contracts had been validly rescinded and the purchasers were entitled to have the deposits returned. I infer that Mr Hickey and Mr Anich advised the developer that they could argue that the purchasers were estopped from rescinding in light of the extra costs incurred by their requests for additional work to be done on their apartments. I do not accept that the defendants advised the developer that this argument had legal merit or would provide grounds to refuse to return the deposit or claim that the contracts were still on foot.

Rather, the defendants were endeavouring to identify some grounds for negotiating a settlement of the dispute which would put the developer in a better position than it found itself in as a matter of law. The obligations on solicitors which apply in respect of legal proceedings (that claims are not to be made without reasonable prospects of success) do not apply to the present situation where the developer was still hoping to be able to negotiate its way out of its strict legal obligations. I am not satisfied that the defendants’ conduct in this respect was negligent or in breach of their retainer. Indeed, it was specifically intended to work to the developer’s advantage and took place before the Equity proceedings had commenced.

As referred to above, the defendants have raised contributory negligence and apportionment as defences to the plaintiff’s claim (which would have been available to them had the developer sued them directly).

The persons alleged to have contributed to the harm, Mr Mastronardo, Mr Mirels and Mr Gazzard, were all persons through whom the developer acted. Although Mr Mastronardo was the developer’s guiding mind, it was his practice to delegate matters to Mr Mirels and Mr Gazzard, who relevantly acted as the developer’s agents. The injured party cannot be both contributorily negligent and a concurrent wrongdoer under s 34 of the Act: Rennie Golledge Pty Ltd v Ballard (2011) 82 NSWLR 231; [2012] NSWCA 376 at [128]-[132] (Campbell JA, Basten JA agreeing at [15] and Barrett JA agreeing at [157]). In this context, I consider that Mr Mastronardo, Mr Mirels and Mr Gazzard are better seen as agents of the developer, rather than separate potential wrongdoers.

The relevant test for contributory negligence in this context was set out in Astley v Austrust Ltd (1999) 197 CLR 1; [1999] HCA 6 at [30] (Gleeson CJ, McHugh, Gummow and Hayne JJ), as follows:

Section 5R of the Act requires the Court to apply the same principles to the question whether the person who suffered harm has been contributorily negligent in failing to take precautions against the risk of that harm that are applicable in determining whether a person has been negligent. Thus, the standard of care required of the developer (person who suffered harm) is that of a reasonable person in the position of that person, and the matter is to be determined on the basis of what that person knew or ought to have known at the time.

The defendants submitted that the negligence of the developer was so gross that any liability ought be reduced by 100%, as permitted by s 5S of the Act. I do not accept this submission. As referred to above, the contractual provisions were, for non-lawyers, relatively complex. The developer was entitled to rely on the defendants’ expertise throughout the transactions and could not reasonably be expected, in all the circumstances referred to above, to bear the full responsibility for monitoring the dates by which extensions of time had to be notified.

In the period leading up to 6 and 7 July 2016, Mr Mirels was the relevant mind of the developer for the purposes of extensions of the Registration Dates. He had been told on a number of occasions how cll 42 and 43 operated and that a notice of extension had to be given at least a month before the Registration Date. Although he does not appear to have appreciated the import of the provisions, a reasonable person in his position would have done so and would have realised that, since the Registration Dates for Lots 52 and 50 were 6 and 7 August 2016, the dates by which notices of extension had to be given were 6 and 7 July 2016. Mr Mirels knew of Mr Mastronardo’s desire to keep all contracts on foot as there were still unsold units (thereby making it less likely that Lots in respect of which contracts had been rescinded could readily be sold). He also knew that there were financial imperatives operating on the developer which meant that any reduction in the deposits paid (by such deposits having to be refunded) would affect the security available to the financier. In these circumstances, I am satisfied that developer’s failure to instruct the defendants to give notices for contracts with Registration Dates in August and September 2016 prior to mid-July 2016 when such instructions were given, constituted a failure to take reasonable precautions against a risk of harm within s 5R of the Act.

On this basis, I asses the reduction for the developer’s contributory negligence at 30%. This figure takes into account the matters referred to above, including the number of times the defendants had drawn the matter to the developer’s attention, as well as the relative complexity of the terms of the contract and the fact that the schedules did not separately identify the date by which notices of extension were required to be given.

Section 5D of the Act relevantly provides:

The defendants’ primary submission on damages was that the plaintiff was not entitled to more than nominal damages for breach of the contract of retainer as the plaintiff had not discharged its onus of proving causation. Mr Zahra submitted that the plaintiff had not established to the requisite standard (the balance of probabilities: s 5E of the Act) what the developer would have done if the defendants had alerted it to the impending deadline for extension of time notices to be given. Section 5D requires the matter to be determined subjectively in light of all the relevant circumstances.

What the developer would have done in relation to Lots 50 and 52 can be inferred from what the developer actually did in relation to Lots 50 and 52, as well as in relation to all other contracts for Lots in the development which had Sunset Dates in August and September 2016: it instructed the defendants to serve notices of extension of time. Although it was out of time for Lots 50 and 52, its intention with respect to the other lots demonstrates that it had the same intention for all lots with Sunset Dates in August and September 2016. There were other occasions when Mr Mastronardo was sanguine about the rescission of a contract, such as with respect to the contract for Lot 40 which, being one of the earlier lots had been sold at a cheaper price. By July 2016, Mr Mastronardo did not want to lose any contracts: the value of the lots had not increased as he had hoped, due, at least in part, to the bad press which the development had received when the builder had left the site; and he had refinanced on the basis of the deposits constituting security for the loan.

The other integer relevant to causation in the present case is what the purchasers of Lots 50 and 52 would have done if they had been served with extension of time notices within time to extend the Registration Dates. Mr Zahra submitted that the purported certification by Mr Maruzza was invalid as he had not been appointed the builder at the time he had signed the notice and did not have knowledge of the delays in the project before he came onto the site to finish the construction work. Thus, Mr Zahra submitted that the certificate was not conclusive and did not bind the purchasers.

As set out above, cl 43.2 provides that “[a] certificate by the Builder in relation to extensions of time under this clause 43 is final, conclusive and binding on the parties.” It does not provide that “the Builder” must have personal knowledge of the reasons for the delay, or that the person must have been the builder for the whole or any part of the period of delay.

The validity and effectiveness of the notices of extension of time, had they been sent, is not the question. In the present case, the question is whether the purchasers of Lots 50 and 52 would have challenged the notices, had they been sent in time, on the basis outlined by Mr Zahra. The only evidence on the subject is that on 20 July 2016 and in subsequent correspondence, the purchasers’ solicitor, Mr Coelho, informed Ms Murray of his view that the notices were invalid as they were not sent in time. No suggestion was raised as to an alternative objection which the purchasers could have made to the validity of the notices. I am not satisfied that there is any real possibility that, had the notices been sent in time, the purchasers would otherwise have objected to the notices or rescinded on an alternative basis.

I consider that the requirements of factual causation and scope of liability (s 5D(1) of the Act) are met. I am satisfied that, but for the defendants’ negligence, the developer would have instructed the defendants to serve notices to extend time. In that event, the purchasers would not have had a right to rescind the contracts and the developer would not have suffered loss amounting to the sum of the differential between the original contract price for Lot 52 ($800,000) and the actual price obtained for Lot 52 ($675,000) of $125,000 and the differential between the original contract price for Lot 50 ($725,000) and the agreed figure for the value of Lot 50 ($522,500) of $202,500.

Mr Weinberger submitted that even if I were not satisfied that the second allegation of negligence (negligent advice about the developer’s rights against the purchasers of Lots 50 and 52) was made out, the plaintiff was still entitled to be compensated for the amounts expended by the developer on legal costs in the Equity proceedings because they were incurred as a result of the negligent failure to alert the developer to the deadline for extension of time notices.

I accept that factual causation within the meaning of s 5D(1)(a) of the Act is made out for damages on this second basis, since it is merely a restatement of the “but for” test and had the contracts not been rescinded, the Equity proceedings would not have been commenced and the costs would not have been incurred.

I am not, however, satisfied that it is appropriate for the scope of the defendants’ liability to extend to the harm so caused (as required by s 5D(1)(b) of the Act). The defendants gave correct legal advice to the developer as to its position. The developer chose to retain other solicitors who may have given different advice. I do not accept Mr Weinberger’s submission that there is an analogy between the developer’s position in September 2016 and that of a person who has been negligently injured by, say, a motorist, and who then seeks medical attention as a result of the injuries sustained and is further injured as a result of the negligence of a doctor or hospital. It is well established that in the latter case, the original tortfeasor (the driver of the motor vehicle) is liable for the subsequent negligence of the doctor or hospital: Mahony v J Kruschich (Demolitions) Pty Ltd (1985) 156 CLR 522; [1985] HCA 37.

Further, the present case is to be distinguished from cases relied on by Mr Weinberger, such as Walton t/as Pitcher Walton & Co v Efato Pty Ltd [2008] NSWCA 86 (Pitcher Walton). In Pitcher Walton, it was held that a solicitor negligently failed to file a notice under s 459G of the Corporations Act 2001 (Cth) (to set aside a statutory demand) within the requisite time. This failure resulted in a presumption of insolvency. The Court (Tobias JA, Beazley and Giles JJA agreeing) found, at [92] and [95]-[97], that the client’s legal costs of rebutting the presumption and being found liable for the costs of the application for an order winding up the client fell within the kind, type or class foreseeable as a result of the solicitor’s negligence and was “not unlikely to flow from the breach”.

In the present case, after the defendants had negligently failed to alert the developer to the deadline for the notice to extend time, the defendants gave the developer non-negligent advice as to its true legal position. The defendants attempted, unsuccessfully, to obtain a better result for the developer than the true legal position by negotiation. The developer then chose to terminate the defendants’ retainer and obtain advice from new solicitors. Contrary to the defendants’ advice (as to the true legal position), the developer initially took an untenable position in the Equity proceedings. The developer subsequently received advice from counsel, briefed by the new solicitors, which accorded with that given to the developer by the defendants, after considerable costs had been incurred. The developer then capitulated and was ordered to pay the purchasers’ costs, including for a period on an indemnity basis. I am not persuaded that it is appropriate that the defendants ought be liable for the loss suffered by the developer after it terminated the defendants’ retainer in these circumstances. I am not satisfied that the type of loss (costs incurred in resisting a proper claim for relief) fell within the reasonable contemplation of the defendants as being not unlikely to flow from the breach. Accordingly, I reject this aspect of the damages claim.

Mr Weinberger submitted that the developer’s loss (and therefore the damages to which the plaintiff is entitled) included interest at commercial rates assessed by reference to the cost of its finance. He relied on business records which comprised statements from Balanced Securities and Optima which recorded the amounts outstanding to the developer from time to time.

An injured party may be entitled to an award of damages which includes interest if the injured party can show that it incurred interest at a higher rate than the court rate for pre-judgment interest as a result of the defendants’ breach. In the present case, although the developer was out of pocket as a result of the rescission of the contracts (which was caused by the defendants’ breach), it has not shown that it was liable to pay interest as a consequence. The evidence of its financial affairs is insufficiently clear to draw that inference.

The evidence of the developer’s indebtedness is insufficient to show a connection with the development of the property. Mr Mastronardo’s evidence was that he was involved with “several different projects at the time”. Further, there are entries which are extraneous to the development of the property by the developer. For example, one of the Optima statements records that there was a loan of $629,884 from Optima to Elip, the trustee of the discretionary trust of which Mrs Mastronardo was the sole beneficiary. The same statement records a loan to Mr Mastronardo of $300,000 which was drawn down on 22 December 2017 on the developer’s account with Optima. Other entries in the statements of Balanced Securities and Optima are similarly opaque, such that it cannot be known how much of the plaintiff’s indebtedness to these lenders arose from matters concerning the development of the property and how much related to other projects or to other persons or entities. It is also of significance that the developer’s indebtedness to Balanced Securities was nil prior to February 2017.

The liquidator’s report to creditors dated 3 August 2018 recorded that Veritas owed the developer over $1.5 million. I am not satisfied, on the evidence adduced, that, had the funds for Lots 50 and 52 been received pursuant to the original contracts, they would have been applied to reduce the developer’s indebtedness to Balanced Securities and Optima.

Mr Mastronardo, as the plaintiff’s director, was in a position to give evidence to shed light on the state of the company’s financial affairs and the particular entries on the statements of Balanced Securities and Optima. Where a witness does not give evidence in chief on a material topic, it can be inferred that his or her evidence would not have assisted the case of the party with whom the witness is associated: Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 at 418–19 (Handley JA); see also Stambolziovski v Nestorovic and Camanaro Prestige Properties Pty Ltd t/as Sydneyhome Real Estate [2015] NSWCA 332 at [51] (Ward JA, Beazley P and Emmett AJA agreeing).

The developer’s loss (and therefore the plaintiff’s damages) are to be assessed by a comparison between the developer’s position but for the breach and the developer’s position because of the breach.

But for the breach, the contracts for Lots 50 and 52 would have been completed by about early 2017 (the date on which the Strata Plan was registered was 24 October 2016). Because of the breach, the developer received $125,000 less for Lot 52 and is taken to have received $202,500 less for Lot 50 (having regard to the agreement as to its value as at 1 January 2017) than the contract price with the original purchasers. I am not persuaded that these damages ought be reduced to take account of the prospect that the sales to the original purchasers would not have proceeded, since I regard that prospect as being so slim as to be immaterial. For the reasons given above, I am not persuaded that there was any real prospect that the purchasers would have challenged the notice of extension of time, had it been given in time, or that they would have jeopardised their deposits by terminating on any other basis.

The plaintiff has failed to prove that it suffered any other consequential loss arising from the need to re-sell Lots 50 and 52, such as marketing, advertising or legal costs, or through its continued ownership of those lots. Accordingly, although these matters form part of the particulars of damage, no award for these items has been made out. The plaintiff is not entitled to interest on the deposit for any period prior to its return to the original purchasers since that which was earned ought to have been paid to the developer pursuant to cl 35.1(e)(i) of the sale contracts since its entitlement arose whether the contracts were completed (as would have occurred but for the defendants’ breach) or rescinded (as occurred as a consequence of the defendants’ breach).

The plaintiff is otherwise entitled to interest at Court pre-judgment interest rates (its claim for interest at commercial rates having failed) under s 100 of the Civil Procedure Act 2005 (NSW) in accordance with Practice Note SC Gen 16. The parties have agreed to perform the calculations and provide short minutes of order to reflect the agreed calculations.

The parties requested that I make a costs order but also grant liberty to the parties to make an application for a different costs order, if the circumstances warrant it. As the plaintiff has been successful in obtaining judgment for more than nominal damages, the general rule that costs follow the event applies: Uniform Civil Procedure Rules 2005 (NSW), r 42.1.

For the reasons given above, I make the following orders: