Lindsay-Owen v HWL Ebsworth Lawyers (No 2)

1. [1]

   HIS HONOUR: On 17 February 2023, I published reasons for judgment, finding that the defendants (HWLE) were liable for damages that remained to be calculated: Lindsay-Owen v HWL Ebsworth Lawyers [2023] NSWSC 68. A familiarity with that decision is assumed for present purposes.

2. [2]

   I have since been informed that with the benefit of my reasons, the parties exchanged correspondence in the hope that some agreement about a final damages amount might be reached, either in whole or in part. However, I am now advised that the difference between the parties’ respective assessments of the damages payable is “stark”. In contrast, HWLE contend that the plaintiffs are entitled to nominal damages only: they say that the correct calculation of damages in fact yields a negative result.

Notation

1. [3]

   My earlier judgment has resolved most of the matters in dispute, although a number of issues remain to be determined or clarified. Notwithstanding the contrasting nature of the parties’ respective opinions concerning the plaintiffs’ entitlement to damages, HWLE has suggested a way forward.

2. [4]

   The plaintiffs and HWLE have each approached the second tranche of submissions, as with the first, upon the basis that I should resolve the issues that are beyond any prospect of agreement so that, with the benefit of my conclusions, they can be used as integers to be used in the calculation of loss to be performed by others. HWLE’s further submissions described it thus:

3. [5]

   This judgment deals with these outstanding matters. In that setting I should observe that I have had the benefit of considerable assistance from the parties in the form of their extensive written and oral submissions. Those submissions have been specifically crafted to aid in the resolution of these remaining disputes. As an aid to understanding, I have included significant portions of these submissions, where indicated or hopefully where otherwise obvious or apparent, as a summary of the parties’ respective arguments as a matter of convenience and efficiency. It will be clear from my earlier judgment that the disposition of the damages issues has not been uncomplicated. As a consequence I have chosen, in the explication of the remaining differences between the parties, to include in these reasons a fairly detailed recitation of their competing contentions. I wish to make it clear that by adopting that course, it is essential accurately and consistently to attribute authorship of the submissions. I do not intend, whether intentionally or inadvertently, either by omission or lack of specificity, to take credit for counsel’s words or their reasoning, or to appear to adopt as my own analysis without acknowledgment any of the submissions that I have recited.

Lost development profits

1. [6]

   The parties accept that the calculation of this claim is dependent upon the finalisation of the applicable integers to be identified as the result of the determination of the 13 outstanding issues listed and considered below.

Expenses

1. [7]

   The plaintiffs’ claim for recoverable expenses is calculated as follows:

2. [8]

   These expenses total $16,105,272. The plaintiffs claimed interest on the total of these amounts at court rates from 17 February 2023, which as at August 2023 was $6,657,205. That figure will need to be updated.

Issues for decision

1. [9]

   HWLE has indicated that the following 13 issues remain to be decided. Apart from what may be described as matters of emphasis, the plaintiffs have not indicated that there are any others.

Issue 1 – are the expenses a separate head of loss?

1. [10]

   This issue raises the question of how the expenses actually incurred by the plaintiffs should be brought to account when measuring their loss.

2. [11]

   HWLE contend that there is only one, not two, categories of loss. They suggest that the losses that are certain (first category) ought to be addressed with the losses arising on the hypothetical scenario that are necessarily uncertain (second category).

3. [12]

   The plaintiffs maintain that HWLE's contention overlooks the claim as pleaded, the way the case was conducted on behalf of the plaintiffs at the trial, and the way the I have earlier approached damages and made findings. As I noted at [162] of my earlier judgment, "[t]he plaintiffs emphasise that these expenses are recoverable even if the joint venture were destined to fail at the time that the land was sold, as HWLE maintains, but which the plaintiffs dispute."

4. [13]

   The plaintiffs submitted that HWLE’s approach is new and that there is no warrant for it to be raised now, particularly considering that the claim for loss of development profits required assessment according to the degree of probability or possibility of the hypothetical development proceeding. The plaintiffs maintain that I have already accepted at paragraphs [156] and [157] of my earlier judgment that the two categories of claimed loss ought to be treated separately and distinctly and that I have found that the expenses were certain in amount and required no adjustment. They referred to the following paragraphs of my earlier judgment:

5. [14]

   I shall return to this contention shortly.

6. [15]

   There is no dispute that the elements which need to be considered include the proceeds which the plaintiffs actually received from the joint venture from the land sales to Stocklands and RMS, about the quantum of which there is also no dispute, and the expenses which they actually incurred in undertaking the joint venture. The difference is the profit actually made by the plaintiffs.

7. [16]

   It will be recalled that there were two types of dispute about the expenses actually incurred. First, there was a dispute about the amount of the expenses caused by HWLE's negligence. That dispute has now been largely (but not completely) decided by me. Secondly, regardless of the amount of the expenses, the parties remain in dispute about how those expenses are to be brought to account in assessing the plaintiffs' loss. Rather than constituting a separate head of loss which is to be added on top of compensation for the lost opportunity to carry out the joint venture under an amended joint venture agreement as the plaintiffs contend, HWLE submits that the expenses should instead be netted off against the proceeds actually received from the sale to Stocklands and incorporated in the calculation of compensation for the lost opportunity.

8. [17]

   HWLE's position is that this is not a new approach as the plaintiffs contend. They say that Mr Eversgerd adopted this approach in his first report dated 28 May 2020, which was served by the plaintiffs and relied upon at the trial. HWLE submits that both he and Mr McGuiness have consistently taken the same approach ever since. HWLE’s position was expressly set out in writing in its opening submissions and was referred to and repeated in its final address.

9. [18]

   The plaintiffs also submit that HWLE's position overlooks the way the case was conducted on their behalf at trial. HWLE say that this is “only half correct” [sic!]. It is accepted by HWLE that the plaintiffs submitted at trial that the expenses actually incurred ought to be treated as a separate head of loss. However, they also submitted that the same expenses ought to be netted off against the proceeds actually received from Stocklands and incorporated in the calculation of compensation for the lost opportunity. Mr McGuiness was cross-examined on that basis. The calculations of loss put forward by the plaintiffs at trial were based on netting off, including the calculations in MFl-2 and Schedule B to the plaintiffs' closing submissions. HWLE contends that the claim for expenses as a separate head of loss on top of netting off the same expenses in the loss calculation means that there is a double count of over $20M.

10. [19]

    HWLE complains that the plaintiffs accept that both approaches cannot be correct but that the process by which the double count is to be addressed has never been identified and no figures have been put forward by the plaintiffs which are free of the double count. It is not a simple matter of deducting a single figure. As both Mr Eversgerd and Mr McGuiness have explained, the expenses actually incurred are not a line item: they are a cashflow which has implications for tax, discounting and interest over time. For this reason they need to be brought to account within the models made by both Mr Eversgerd and Mr McGuiness and not treated as a separate head of loss.

11. [20]

    HWLE submitted that the correct way to account for the expenses actually incurred is to net them off against the proceeds actually received from Stocklands and RMS. This will identify the position in which the plaintiffs actually are (the factual), for comparison with the position in which they would have been had they carried out the joint venture under a hypothetical amended joint venture agreement (the counterfactual). HWLE say that their submissions are supported by authority, by reason and by all the evidence, including the plaintiffs' evidence: whether the claim is considered in tort, breach of the implied contractual duty to act with reasonable care or misleading and deceptive conduct, the fundamental requirement is to make a comparison between the plaintiffs’ actual position and the position in which they would have been but for the breach or contravention. When making that comparison, the plaintiffs must bring to account any benefit which they have received and which they would not have received but for the breach. The benefit is to be brought to account net of any expenses caused by the breach.

12. [21]

    It is not in dispute that between 2010 and 2014 the joint venture was carried out under the joint venture agreement without an amendment that obliged the joint venture to take over the land debt. This allowed Schofields to terminate it in April 2014. A number of consequences flowed from the termination, specifically:

13. [22]

    Although there are references to the expenses "paid" by the plaintiffs, they were actually deducted from the proceeds received from the sale to Stocklands to generate a net figure the plaintiffs received. This is not controversial: in his 28 May 2020 report at paras 3.2.69, 3.2.74 and 3.2.75, Mr Eversgerd explains how all the expenses were deducted from the proceeds actually received. HWLE submitted that regard ought to be had to the net receipt, consistently with the plaintiffs' own expert evidence and with authority and that, contrary to the approach now proposed by the plaintiffs, the loss ought not to be calculated by artificially separating out the expenses from the proceeds from which they were deducted and treating them differently.

14. [23]

    HWLE’s submission in this respect was that neither the proceeds nor the expenses would have “happened” had the joint venture been conducted under an amended joint venture agreement: the expenses and the proceeds were an equal result of the negligence. The plaintiffs argue that the expenses are certain in amount and require no adjustment but in this respect they are no different to the proceeds. However, “as a matter of reason”, HWLE submitted that the actual expenses ought to be brought to account in the same way as the actual proceeds. That is achieved by netting them off: “it would be illogical to do otherwise”.

15. [24]

    HWLE contends that the only reason the plaintiffs give for why the actual expenses ought to be treated as a separate head of loss is that the compensation for the lost opportunity requires "assessment according to the degree of probability and possibility". HWLE says there is no logic to this submission because both parties agree (as do both the expert witnesses) that the compensation for the lost opportunity is to be assessed having regard to the proceeds actually received which are also certain in amount and require no adjustment.

16. [25]

    HWLE submitted that “in accordance with the logic”, both forensic accountants have expressed the opinion that the expenses actually incurred should be netted off against the proceeds actually received and not treated as a separate head of loss. In support of their submissions, HWLE referred in some considerable detail to the following evidence.

17. [26]

    Mr Eversgerd was instructed by the plaintiffs to express an opinion on questions which included:

18. [27]

    In Section 4 of his 28 May 2020 report, Mr Eversgerd gave consideration to the correct methodology to answer Question 2. He considered the principles of loss and damage and how they apply in this case. Relevantly, Mr Eversgerd set out the principle of making a comparison between the hypothetical scenario and the actual scenario. He described the actual scenario as "the position in which the plaintiff is or will be after the occurrence of the alleged wrongful act". Mr Eversgerd also sets out his opinion about cashflows and discounting which he considered relevant to the questions he was asked to answer, including Question 2.

19. [28]

    Informed by these principles, Mr Eversgerd decided to adopt a six-step methodology to assess the plaintiffs' loss. Relevantly, step 2 is to calculate the profit from the hypothetical scenario. Steps 3, 4 and 5 were as follows:

20. [29]

    In other words, Mr Eversgerd's expert opinion is that the "Actual Scenario" would be calculated in Step 3 by netting off the proceeds in fact received and the expenses in fact incurred. In section 6 of his report, Mr Eversgerd applied his six-step methodology to the facts in this case. For the plaintiffs' cash inflows, he took the uncontroversial figure of $63,138,217 which was the plaintiffs' share of the proceeds from the sales to RMS and Stocklands. For the cash outflows, Mr Eversgerd identified a number of expenses. When the joint venture costs are removed, the expenses taken into account by Mr Eversgerd total $33,648,042. In Annexure H to his report, Mr Eversgerd specifies his paragraphs where the individual expenses are identified. It is clear that the expenses identified by Mr Eversgerd as cash outflows are exactly the same as the expenses set out at [160] of my earlier judgment.

21. [30]

    Having identified the actual expenses, Mr Eversgerd undertook Step 3 by netting off the actual expenses against the plaintiffs' share of the actual proceeds: $63,138,217- $33,727,031. The resulting figure is $29,411,186.

22. [31]

    In Step 4, Mr Eversgerd considered the discounting of the hypothetical cashflows and the actual cashflows. It is his opinion that the hypothetical cashflows are to be discounted differently to the actual cashflows. It is his further opinion that the actual proceeds and the actual expenses are to be discounted for the time value of money in the same way as each other. HWLE characterised this as “hardly surprising when the actual expenses directly resulted in a reduction of the proceeds actually received by the plaintiffs”. Mr Eversgerd's opinion about discounting is informed in part by timing issues.

23. [32]

    In Step 5, Mr Eversgerd compared the resultant actual cashflows ($29,411,186) with the hypothetical cashflows to form his opinion about the plaintiffs' loss. He then added pre-judgment interest (Step 6) and answered Question 2 accordingly.

24. [33]

    It is Mr Eversgerd's opinion that his response to Question 2 "represents a quantification of GLO/Dairycorp's loss of opportunity to develop the Land".

25. [34]

    Mr Eversgerd maintained the same methodology for the calculation of loss in his report in reply dated 23 December 2021 and in the joint report dated 3 March 2022. In each case the actual expenses are netted off against the actual proceeds and then compared with the hypothetical profits which the plaintiffs would have received had they carried out the joint venture under an amended joint venture agreement. For the Actual Scenario, the same net figure of $29,411,186 is used throughout.

26. [35]

    HWLE submitted that “nowhere in his evidence does Mr Eversgerd suggest that the expenses actually incurred ought to be looked at separately from the proceeds actually received: nor could he”. Having brought the expenses fully to account in Step 3 of his methodology, it would be double counting for him to consider them as a separate head of loss on top of the compensation for the lost opportunity to carry out the joint venture under an amended joint venture agreement.

27. [36]

    Nowhere does Mr Eversgerd say that the expenses actually incurred cannot be netted off or brought to account in his calculation of the plaintiffs' loss because they are "certain in amount and require no adjustment". That is because the expenses were deducted from the proceeds actually received which Mr Eversgerd was able to bring to account (and which the plaintiffs accept).

28. [37]

    HWLE also drew attention to the fact that on this issue Mr McGuiness's evidence is the same. It is Mr McGuiness's opinion that there are errors in Mr Eversgerd's approach to Question 2. However, he does not dispute Mr Eversgerd's six step methodology or the netting off of the actual expenses.

29. [38]

    Mr McGuiness set out Mr Eversgerd's six step methodology at paragraph 7.3.5 of his first report dated 4 June 2021. Mr McGuiness's models thereafter follow the same six steps. At paragraph 7.5.2, Mr McGuiness set out the actual proceeds and the actual expenses in a single table and considered each item of expense. Having conducted that review, Mr McGuiness adopted Mr Eversgerd's net figure of $29,411,186 for the actual cashflows.

30. [39]

    Apart from the “impermissible” Winton Fee ($5,747,718), which I have dealt with in my earlier judgment, the two experts have approached this issue in exactly the same way: netting off the actual expenses and the actual proceeds. Like Mr Eversgerd, Mr McGuiness considered discounting of the actual cashflows for the time value of money and non-diversifiable risk by reference to the net figure and thereby applied the same discount rate to both actual expenses and actual proceeds. Mr McGuiness maintained this position in his supplementary report dated 26 August 2021 and in the joint report. Despite being cross-examined, Mr McGuiness was not challenged by counsel for the plaintiffs about netting off expenses against the proceeds. Nor was it suggested to Mr McGuiness that actual expenses ought to be treated as a separate head of loss on top of the compensation for the lost opportunity to carry out the joint venture under an amended joint venture agreement.

31. [40]

    According to these detailed submissions from HWLE which I have recorded, the experts have proceeded at all times on the common basis that the actual expenses should be netted off against the actual proceeds. HWLE contended that this has been an integral element in every model which has been prepared by both Mr Eversgerd and Mr McGuiness. The plaintiffs' submission that the actual expenses are a separate head of loss is contrary to these experts’ evidence. HWLE submitted that I would have to reject the evidence of Mr Eversgerd (especially his six step approach) as well as Mr McGuiness in order to uphold the plaintiffs' submission. The plaintiffs do not identify any evidence to support their submission. HWLE says that is because there is none.

32. [41]

    HWLE also drew attention to paragraph [249] of the plaintiffs’ original submissions which was in the following terms:

33. [42]

    If it is not otherwise apparent, HWLE’s final submission on this issue was therefore that expenses actually incurred by the plaintiffs are to be brought to account by netting them off against the proceeds actually received in the way that Mr Eversgerd and Mr McGuiness have both done: the expenses actually incurred are not a separate head of loss.

34. [43]

    The plaintiffs responded to these submissions. I should note immediately, however, that in doing so they did not directly address HWLE’s reference to [249] in their original submissions or HWLE’s contention that this paragraph represented an acceptance or acknowledgement of the need to net off expenses against receipts in the way that HWLE has outlined.

35. [44]

    The plaintiffs’ first point in response was to say that I have already accepted that the expenses are to be treated separately and distinctly from the calculation of the lost development profit. They submitted that the expenses were found by me to be certain in amount and required no adjustment, except for Court interest from 26 March 2015. The plaintiffs relied upon paragraphs [156], [157] and [162] of my judgment for the submission that HWLE’s first issue “has already been determined”. Paragraphs [156] and [157] have been set out earlier. Paragraph [162] is as follows:

36. [45]

    On the limited issue of what I may already have decided, I do not accept, as the plaintiffs contend, that the quoted paragraphs of my judgment support them. A finding that the expenses were certain in amount and required no adjustment is an entirely different matter to what treatment those certain sums should receive in assessing loss. HWLE’s perception of what I was saying in these paragraphs is undoubtedly correct. They did not determine the issue of how these certain expenses are to be treated.

37. [46]

    Acknowledging HWLE’s submission that the actual expenses should be netted off against the proceeds received from the land sales and incorporated in the calculation of damages for the lost opportunity, the plaintiffs submitted that HWLE’s original submissions did not challenge their proposition that “the claim for damages involved separate heads of loss”. The plaintiffs quote the terms of HWLE’s Issue 20 in their written submissions dated 24 March 2022, which specifically addresses the "Other amounts claimed as expenses". However, once again, the plaintiffs’ reference to what are or are not expenses is different to whether they are to be netted off. HWLE’s closing submissions at T 846.30-43, are about the accountants netting off expenses from the proceeds received from Stocklands:

38. [47]

    HWLE emphasised that these submissions do not, as the plaintiffs somehow seek to imply, support an argument that HWLE has accepted the proposition that the expenses should be treated as a separate head of loss or that they are not to be netted off against receipts. It is simply inaccurate to say, as the plaintiffs say, that the “findings” at [163] of my judgment “accurately scope the extent of the dispute that attended the expenses at the trial”. Paragraph [163] does no such thing.

39. [48]

    The plaintiffs responded, saying that the unstated vice in HWLE’s so-called new approach is unnecessary discounting. There is simply no warrant to discount the expenses incurred on 26 March 2015 back to 29 March 2010 for non-diversifiable risk and then apply a Sellars discount to them. Also, the impost of tax, to determine a post-tax lost development profit, is irrelevant to the expenses incurred.

40. [49]

    According to the plaintiffs, HWLE’s approach also proceeds on a false premise. They complain that HWLE’s reference (see [19] above) to their submission that the same expenses ought to be netted off against the proceeds actually received from Stocklands and incorporated in the calculation of compensation for the lost opportunity is wrong. The plaintiffs contend that their submission was and is explicitly to the contrary. The plaintiffs quote their own submissions at paragraph 23(c) “at the top of page 8” in this respect:

41. [50]

    It seems to me that the words in parentheses are a specific reference to the expenses claimed as a separate head of loss, so that HWLE’s understanding is in fact correct. That is to say, the plaintiffs were not accepting that the “expenses separately claimed as damages” should be netted off against proceeds of sale.

42. [51]

    The plaintiffs also maintained that HWLE’s submission, that a separate head of loss on top of netting off the same expenses in the loss calculation, resulting in a double count of over $20M, is also incorrect. This is because the expenses that were incurred and paid by reason of HWLE’s breach, which are claimed in the first head of loss, form no part of the plaintiffs' separate claim for lost development profit: there is no double count.

43. [52]

    In answer to HWLE’s submissions generally on Issue 1, the plaintiffs submitted that their approach is “conceptually flawed”. They submitted that when determining the net profit from the actual scenario and the net profit on the hypothetical scenario so as to calculate the value of the plaintiffs' lost opportunity, it is necessary to compare like with like. On the hypothetical scenario, the costs of the development and the sale of the parcels of land are deducted from the revenue consistent with the economics of the development. Those costs include the repayment of the NAB debt by the joint venture, the development and construction costs, professional fees, sale costs and so on. On the actual scenario, it is the costs expended to generate the actual sale proceeds that are brought to account. Those costs include the repayment of the plaintiffs' share of the NAB debt, the planning debt, the consultant's fees and sale costs – that is to say, the costs incurred by the plaintiffs to sell the land.

44. [53]

    Within that comparative framework, the other expenses that were incurred and paid by reason of HWLE’s breach are irrelevant. Importantly, that includes the Schofields' notional share of the NAB debt that should have been assumed by the joint venture. Those expenses are not expenses of the sale. That is why those expenses are to be treated separately and why there is no double counting.

45. [54]

    Thus, according to the plaintiffs, HWLE’s approach erroneously seeks to import the expenses incurred by reason of the breach, which do not have a corresponding line item in the hypothetical scenario. Unsurprisingly, according to the plaintiffs, there is no item for the expenses of the clause 11 litigation before Ball J in the hypothetical scenario. Those expenses were not a cost of the development or the sale of the land. The problem is not limited to the litigation costs and infects HWLE’s approach to all the plaintiffs' out-of-pocket expenses.

46. [55]

    Secondly, it misunderstands the causal connection with each notional half of the NAB debt.

47. [56]

    One-half of the NAB debt is included in the plaintiffs' expenses, as this was the Schofields' share that the plaintiffs had to pay by reason of HWLE’s breach. The other half is the plaintiffs' share of the NAB debt that was paid on completion to discharge the mortgage and sell the land. That is why only half of the NAB debt is netted off from the gross profits of the sale of the land to derive the net profit from the actual sale.

48. [57]

    Thirdly, it misunderstands the causal connection with respect to the consultants' fees of $152,633. The plaintiffs' share of the consultants' fees reimbursed to Schofields was a cost of the actual sale. It was not incurred or paid by reason of HWLE’s breach.

49. [58]

    As to the balance of HWLE’s submissions on Issue 1, the plaintiffs offered the following short points.

50. [59]

    There is no real difference between the monies being paid by the plaintiffs or being deducted from their share of the proceeds of the sale. The expenses were either caused by HWLE’s breach or were a cost of the actual sale.

51. [60]

    HWLE’s submissions confuse and conflate the two heads of loss. The plaintiffs insist that I have already found that the expenses ought not be adjusted as these amounts are certain. They constitute, moreover, direct loss and damage. Contrary to HWLE’s submissions, the actual profits do require adjustment as they are brought to account in calculating the lost development profit on the hypothetical scenario.

52. [61]

    Finally, the plaintiffs submitted that HWLE’s reliance on Mr Eversgerd's evidence is surprising (in light of their attack on his evidence at trial) but appears to be misplaced. The plaintiffs insisted that the accountants' written and oral evidence has, in important respects, been overtaken by my findings. In any event, neither I nor the plaintiffs are bound by Mr Eversgerd's opinions (or indeed Mr McGuiness' opinions) that were given on instructions at the time of their reports. The determination of the nature of any loss and damage and the approach to their calculation are matters for submissions to and determination by me.

53. [62]

    Having considered these detailed submissions from both parties, it seems to me that, rather than constituting a separate head of loss which is to be added on top of compensation for the lost opportunity to carry out the joint venture under an amended joint venture agreement as the plaintiffs contend, the expenses should instead be netted off against the proceeds actually received from the sale of the land and incorporated in the calculation of compensation for the lost opportunity. Mr Eversgerd and Mr McGuiness have approached the matter in that way: that is, they have expressed the opinion that the expenses actually incurred should be netted off against the proceeds actually received and not treated as a separate head of loss. HWLE always maintained that it was the correct approach. There is no other, independent accounting expert evidence to support the plaintiffs’ contention that this approach was wrong or to say why I should not assume that Mr Eversgerd and Mr McGuiness have correctly dealt with the treatment of these expenses. The paragraphs of my earlier judgment on which the plaintiffs place emphasis do not support them.

Issue 2 – is the $152,633 claimed as "consulting fees" an expense caused by HWLE's negligence?

1. [63]

   The plaintiffs claim as an expense consultants' fees reimbursed by them to Schofields pursuant to clause 6(a)(iii) of the Deed of Acknowledgement in the sum of $152,633 (59.33% of $257,262). The amount itself is not in dispute. HWLE’s position in respect of this item was that “the document provided in support of the claim for consultant's fees does not establish that those fees were incurred by reason of any negligence by HWLE”. On that basis, the plaintiffs do not now claim that sum as an expense under the first category. However, as it is not suggested that the consultants' fees were not appropriately incurred by Schofields and reimbursed by the plaintiffs in connection with the development and sale of the land, they submitted that the fees are to be taken into account when determining the plaintiffs' net profit from the sale.

2. [64]

   HWLE note that the plaintiffs’ claim was described as a "share of consultant fees". Mr Eversgerd was instructed that such a deduction was made and he brought it to account in his calculation of the net proceeds actually received by the plaintiffs. A corresponding sum is referred to in clause 6(a)(ii) of the Deed of Acknowledgment dated 6 December 2014 where it is referred to as "Consultants' fees paid by Schofields". Apart from this, nothing is known about the nature of the payment or why it was made.

3. [65]

   HWLE submitted that there is no evidence that the payment was caused by HWLE's negligence when drafting the joint venture agreement in 2010. There is no evidence about who the "Consultants" were, what they did or whether their fees would have been paid in any event. The plaintiffs made no submissions about the nature of the expense or how it is said to have been caused by HWLE's negligence. These are all matters which the plaintiffs have to prove to make good the instructions given to Mr Eversgerd.

4. [66]

   As unsatisfactory as it may seem, there is no evidence of what the claimed fees relate to or what the consultants who were apparently paid these fees did for their money. In the absence of some clarification of the unexplained claim for this amount, I am unable to accept it.

Issue 3 – is the $1,147,397 claimed as "penalty interest" to be included as a separate expense?

1. [67]

   At [183]-[184] of my judgment, I said this:

2. [68]

   The plaintiffs noted my observations as to the disputed expenses at [184] of my earlier judgment but pointed out that at that stage a raft of expenses was still in issue. Given that the scope has narrowed considerably, the plaintiffs asked me to determine the remaining two issues on the documentary evidence, rather than appointing a referee and potentially prolonging the litigation with a reference.

3. [69]

   The plaintiffs claim compensation for an expense of $1,147,397 in penalty interest which they assert was incurred on the NAB debt between 16 April 2014 and February 2015 when the NAB debt was repaid in full. In their Further Submissions dated 4 August 2023, they have increased that sum to $1,163,300. The plaintiffs submit that they should be compensated for all interest payments made on the NAB loan after planning approval was obtained on 16 April 2014. HWLE understandably do not suggest otherwise but contend that the plaintiffs have not established the quantum of such interest.

4. [70]

   The bank statements for the NAB loan show that the interest that was charged by the NAB was as follows:

5. [71]

   The plaintiffs submitted that HWLE led no evidence to contradict this and that I would be well satisfied that the plaintiffs have established the quantum of the interest they paid after planning approval in the amount of $1,163,300.

6. [72]

   HWLE submitted on the contrary that this claim should be disallowed. The plaintiffs have not provided evidence which proves that "penalty interest" was incurred, nor the amount claimed as “penalty interest”. The plaintiffs rely upon a number of bank statements which demonstrate that all the sums claimed as "penalty interest" are included in the $22,940,570 paid to the NAB in two tranches of $9,227,151.50 and $13,713,418.98, which sum is the subject of a separate claim as set out in my earlier judgment at [160]. In other words, by claiming $1,147,397 (or $1,163,299.95) on top of the $22,940,570 paid to the NAB, the plaintiffs are claiming the same sum twice.

7. [73]

   With respect to the table relied upon, all of the debits, apart from debits 8, 9, 11 and 14, were made from the NAB account No. 59-561-3593. That account was evidently used for a number of purposes. In the usual way, the debits for interest were added to the running total which by 2 February 2015 was minus $978,740.78. On that date, the negative balance was all but cleared by a transfer of $978,371.12 from the NAB account No. 73-331-7435. The entire negative balance of account No. 73-331-7435 was then reduced to nil by two deposits on 27 February 2015 ($9,227,151.50 - the RMS proceeds) and 26 March 2015 ($13,510,424.98 - the Stocklands proceeds).

8. [74]

   Debits 8, 9, 11 and 14 were made from a different account, namely the NAB account No. 74-410-7476. They were made in October, November, December 2014 and January 2015. By 2 February 2015 account No. 74-410-7476 had a negative balance of $21,533,024.16. On that date the negative balance was all but cleared by a transfer of $21,524,205.36, again from the NAB account No. 73-331- 7435. As set out above, the entire negative balance of account No. 73-331-7435 was reduced to nil by the deposits from the RMS proceeds and the Stocklands proceeds.

9. [75]

   HWLE submitted that it follows that when the NAB debt of $22,940,570 was paid off, it was paid off from account No. 73-331-7435 and included these items of "penalty interest". The plaintiffs claim for the penalty interest is made on top of the $22,940,570 and is therefore a claim for the same sum twice.

10. [76]

    In their reply submissions, the plaintiffs now accept that the extension and roll over fees of $535,000 and the penalty interest of $1,163,000 were included in the NAB debt of $22,940,570 that was repaid by the plaintiffs by two tranches of $9,277,151.50 and $13,713,418.98. In the result the roll over fees and penalty interest should be allowed as expenses but should be deducted from the NAB debt of $22,940,570 to avoid the problem identified by HWLE. Thus, for the purpose of calculations on each head of loss, the NAB debt should be reduced to $21,242,570 so that the Schofields’ notional half share which the plaintiffs had to pay by reason of HWLE’s negligence is $10,621,135. A consequential adjustment is also required to the plaintiffs’ notional share of the NAB debt that is brought to account on the actual scenario to determine the lost development profit.

Issue 4 – is the $535,000 claimed as extension and roll over fees to be included as a separate expense?

1. [77]

   The plaintiffs claim extension and roll over fees paid to the NAB after 16 April 2014 in the amount of $535,000, in two payments of $300,000 on 28 October 2014 and $235,000 on 2 February 2015. The quantum of these items is not in dispute.

2. [78]

   The same bank statements referred to in the preceding section show that the two roll-over fees claimed by the plaintiffs are also included in the $22,940,570 paid off from account No. 73-331-7435. The $300,000 extension fee was debited on 28 October 2014 and added to the running balance of account No. 59-561-3593. Thereafter it was part of the $978,371.12 transferred from account No. 73-331-7435 on 2 February 2015 and paid off as part of the $22,940,570.

3. [79]

   The $235,000 extension fee was debited on 2 February 2015 but this time from account No.73-331-7435. It was added to the running balance of that account. Therefore it was part of the $21,524,205 transferred from account No. 73-331-7435 on 2 February 2015 and paid off as part of the $22,940,570.

4. [80]

   HWLE has not previously disputed these two sums as expenses incurred by the plaintiffs which were caused by HWLE's negligence. However, now that it is clear that they are claiming them twice, once as part of the $22,940,570 in repayment of the NAB loan and once as a separate item of $535,000, it is appropriate that they are only brought to account once.

Issue 5 – is the $2,384,205 claimed as "Schofield's costs" an expense caused by HWLE's negligence?

1. [81]

   On 6 December 2014, the plaintiffs executed the Schofields and Dairycorp Joint Venture Deed of Acknowledgment. Clause 6 of the Deed required them to pay Schofields the amount of $2,384,205 "on account of costs incurred by Schofields". There is no dispute that the plaintiffs paid that amount to Schofields. The plaintiffs submitted that "there can be no serious dispute that the amount substantially relates to the dispute between the parties that arose from the unamended clause 11 of the joint venture agreement, including Schofields' costs of the proceedings that were heard and determined by Ball J." HWLE contend that the plaintiffs have failed to establish quantum.

2. [82]

   The plaintiffs emphasised that they do not have, and have never had, access to the invoices issued by Schofields' solicitors, Clayton Utz, totalling $2,384,205. However, the documents have now been produced to the Court on subpoena. Clayton Utz have chosen to redact all narratives on account of privilege. Accordingly, at least for the moment, the parties may not review the relevant detail of the invoices.

3. [83]

   It is suggested that I review the unredacted invoices, if and when they are produced, to determine privilege claims. That is unsatisfactory. The plaintiffs are pressing Clayton Utz for access to unredacted invoices (or, at least, for the redactions to be limited to what is truly privileged). In any event, it is expected that the invoices after planning approval will prove the plaintiffs' entitlement to the amount of $2,384,205 or a substantial part of that amount.

4. [84]

   Mr Eversgerd and Mr McGuiness have included the deduction of $2,384,205 from the proceeds received by the plaintiffs in calculating the net proceeds actually received by them.

5. [85]

   The sale to Stocklands settled in March 2015 after the joint venture had undertaken years of subdivision work and incurred many expenses. It came after years of disputes between the plaintiffs and Schofields. For example, in July 2013, Schofields commenced Supreme Court proceedings to enforce its claim to a further participation interest which had nothing to do with HWLE's negligence. The finances of the plaintiffs and Schofields were intermingled to a significant extent when the Stocklands proceeds were distributed. Deductions were made to separate the parties at every level. Many of the deductions from the plaintiffs' share of the proceeds were unrelated to HWLE's negligence.

6. [86]

   The plaintiffs contend that the deduction of the sum of $2,384,205 was caused by HWLE's negligence. As with any other issue of causation, the plaintiffs must prove the facts relevant to this claim on the balance of probabilities: section 5E of the Civil Liability Act 2002.

7. [87]

   According to HWLE, there are only two pieces of evidence about the sum of $2,384,205:

8. [88]

   HWLE submitted that there is no evidence about what "costs" are referred to or to whom the costs were paid or when. They submitted that it is not open on the evidence for me to find that the deduction of this sum was caused by HWLE's negligence.

9. [89]

   Throughout their submissions the plaintiffs refer to the $2,384,205 as Schofield's "costs and disbursement" but that legal characterisation is not based on the evidence. The plaintiffs assert that the costs "substantially relate to the dispute between the parties that arose from the unamended clause 11 of the joint venture agreement, including Schofields' cost of the proceedings that were heard and determined by Ball J". No evidence is referred to in support of that submission. HWLE submitted that the plaintiffs also refer to invoices issued to Schofields by Clayton Utz but there is no evidence which establishes the relationship between Clayton Utz and the "costs" which are the subject of this claim.

10. [90]

    HWLE even submitted that it may be inferred from the plaintiffs' submissions that it is admitted that at least some of the "costs" are unrelated to HWLE's negligence. That is to say, the item remains in dispute but only to the extent that the amount may include costs that do not relate to clause 11 of the joint venture agreement and including the proceedings determined by Ball J in August 2014. As a consequence of the inclusion of this expense in all the calculations of loss undertaken by Mr Eversgerd (and hence Mr McGuiness), HWLE submitted that those calculations are too high.

11. [91]

    Short of the provision of the unredacted invoices, and possibly also with the benefit of some explanation of what they relate to if it is not otherwise apparent from the documents, I am unable to assess this claim. It seems to me to be appropriate, albeit regrettable, to refer this matter to a referee for determination if it cannot otherwise be agreed.

Issue 6 – how is the repayment of the NAB loan to be brought to account?

1. [92]

   The plaintiffs submitted that “logic requires that the same class of cost be accounted for in both the hypothetical profit calculation and the actual profit calculation”. They reasoned as follows.

2. [93]

   If 50% of the NAB loan is not deducted from the proceeds of the actual sale, when 100% of the NAB loan is already taken up in Mr Dempsey's net development profit for scenario 1, then the damages calculation is unjustly skewed in favour of HWLE by about $11M, before discounting. The only fair approach is to bring equally to account the cost of the NAB loan on the hypothetical scenario and the actual cost of the NAB loan to the plaintiffs, on both sides of the ledger. There is no double counting, as the remaining 50% of the NAB loan that the plaintiffs had to pay is included as an expense.

3. [94]

   Accordingly, the plaintiffs have included one half of the NAB debt as part of their expenses, as this was Schofields’ share which the plaintiffs had to pay by reason of HWLE’s breach. The other half is the plaintiffs’ share of the NAB debt that was paid on completion to discharge the mortgage and sell the land. That explains why only half of the NAB debt is included in the calculation of the net profit from the actual sale.

4. [95]

   HWLE described the plaintiffs’ position as “incongruous”, effectively drawing upon their submissions that the expenses actually incurred are not a separate head of loss and are to be netted off the proceeds of sale. In that sense, the NAB debt is not a separate expense, and 100% of that debt should be brought to account by netting it off against the proceeds actually received.

5. [96]

   It will be apparent that the determination of this issue must follow the event of my conclusions in respect of Issue 1.

(This is Question 11(a) set out in HWLE’s Closing Submissions dated 24 March 2022 at paragraph [11] but it has not been determined in my earlier judgment).

1. [97]

   Issues 7 and 8 remain outstanding following my earlier judgment because the quid pro quo that Schofields would have required before agreeing to amend the joint venture agreement or the means of calculating it needs to be identified in order to value the chance lost by the plaintiffs.

2. [98]

   HWLE’s submissions contained the following history by way of background which it is convenient to recall as an aid to understanding.

3. [99]

   The case upon which the plaintiffs succeeded is described in my earlier judgment as the loss of the opportunity to amend the joint venture agreement prior to 29 March 2010. On the question of causation, I found that Schofields would have agreed to amendments to the draft joint venture agreement. Connected with that finding is the question of the quid pro quo which Schofields would have required in exchange for its agreement to the joint venture taking over responsibility for the NAB debt. I have already found that a quid pro quo would have been part of the agreement by Schofields to amend:

4. [100]

   I found earlier that Schofields' requirement for a quid pro quo would have been acceptable to the plaintiffs:

5. [101]

   Finally, I accepted that Schofield's requirement of a quid pro quo needed to be brought to account when calculating the value of the lost opportunity to amend:

6. [102]

   These conclusions were contrary to the plaintiffs’ original submissions.

7. [103]

   Beyond these findings, and what may be inferred from them, I accept that I did not directly address or adopt any particular formula for quantifying or calculating the quid pro quo so as to enable the parties to bring it to account when assessing the profit which would have been made from the hypothetical joint venture “as amended”.

8. [104]

   The plaintiffs’ submissions on this issue were as follows.

9. [105]

   The plaintiffs emphasised that it is important, from the outset, to note that the phrase "quid pro quo", as deployed by HWLE at the trial, is apt to mislead. It was said to capture that which Schofields would have demanded from the plaintiffs if the joint venture agreement was amended and that by quid pro quo, HWLE invite me to assume that all concessions and compromises and allowances that were made by the parties in the course of their extensive negotiations in late 2009 and early 2010 were completely disconnected from the "deal" in relation to the NAB debt and were made for unrelated reasons. Thus, when HWLE refer to a quid pro quo, they are referring to something that Schofields would have demanded, and the plaintiffs would have given in addition to these concessions, compromises or allowances already given or made by them during the negotiations.

10. [106]

    The so-called quid pro quo and HWLE’s arguments for a consequential adjustment to the formula in the Facility Agreement were the subject of extensive submissions at the trial. The plaintiffs contended that I have already determined these issues and that there is no room for HWLE’s further arguments. According to the plaintiffs, a short survey of my reasons explains why:

    1. (1)

       At [313] I found that Schofields' participation interest was 40.67%.

    2. (2)

       Despite argument for Schofields' participation interest to be adjusted/increased via some modified formula, I declined to make any adjustment.

    3. (3)

       I made no finding that Schofields would have insisted on a further quid pro quo before accepting an amendment that made clear that the joint venture was assuming liability for the NAB debt on planning approval.

    4. (4)

       I implicitly found that any quid pro quo had already been priced into the deal. This follows from the finding on causation at [94]. Notably, I then “correctly” [sic!] said "the remaining question in this setting" related to the hypothetical amendment having some value.

    5. (5)

       I also said at [109] that the amendment does not invite speculation: "all that was necessary was to link by clear language Dairycorp's performance obligation in clause 11(b) to the external loan funds in clause 11(a)."

    6. (6)

       There is no finding that any further amendment to the joint venture agreement or the formula in the Facility Agreement would have been required.

    7. (7)

       No finding was therefore necessary or made in relation to the effect of clause 4.1(n)(ii) in the joint venture agreement and the plaintiffs' submission about "the almost non-existent prospect of the plaintiffs paying SPD for it to acquire an extra 9.33% participating interest in the joint venture."

    8. (8)

       Moreover, I was invited to and did determine the integers applicable to the formula in the Facility Agreement at [312]-[315]. I would not have done so if there was any unresolved dispute about any modification to the formula.

11. [107]

    The plaintiffs' participation interest in the net development profit at 59.33% should therefore be calculated without further adjustment.

12. [108]

    As will become apparent, I do not accept the plaintiffs’ submissions that I am being asked, in effect, to re-examine these issues. Against the prospect that I might hold that view, the plaintiffs made the following further submissions. The plaintiffs submitted that “they tell against [HWLE’s] submissions that assume a further quid pro quo and the making of further amendments.”

13. [109]

    First, HWLE promote the amended formula that was raised by Schofields in their counter-rectification suit (and/or other variations or modifications) without engaging in the legal principles that apply by analogy. The principles governing rectification based on mutual mistake provide an appropriate touchstone for the determination of this question. Thus, HWLE need to show "in the clearest and most satisfactory manner" or by clear and "convincing proof" that at the time of the putative amendment to clause 11, the plaintiffs and Schofields would have also had a common intention for some additional quid pro quo to be provided for the joint venture to assume liability for the NAB debt.

14. [110]

    As Ball J earlier noted at [69]:

15. [111]

    The plaintiffs submitted that HWLE’s submissions on these issues rise no higher than speculation. The question of whether Schofields would have demanded any further quid pro quo and what that demand would have involved, ought not be left to a guess. I have already addressed the facts as they occurred in late 2009 and early 2010 and for the reasons addressed in detail at the trial, there is no warrant for any further amendment(s).

16. [112]

    Second, the content of Schofields' cross-claim in the proceedings before Ball J is not evidence of anything other than the claims made by Schofields in a proceeding that took place years after the parties negotiated and entered into the joint venture agreement. It is certainly not evidence of anything that Schofields might have demanded back in late 2009 and early 2010 when the parties' relationships and the commercial landscape were very different: see [85] of my earlier judgment.

17. [113]

    Third, the following facts and findings speak powerfully against any additional quid pro quo being required or provided.

18. [114]

    By late 2009, the parties had a "deal" on the NAB debt. They had communicated such deal to the NAB. The evidence supports the submission that both parties were intent on keeping to that deal. In my earlier reasons at [85], I found that in 2010 (and 2009), the:

19. [115]

    That characterisation of the commercial realities and mood at the time underlies the analysis of the parties' negotiating positions and the likelihood of agreement on any further quid pro quo.

20. [116]

    Mr Downing was in a position to identify the "red flag" by at least 11 January 2010. From then on, he could have approached Schofields' lawyers with a request to amend the documents to reflect the parties' deal. I found at [87] of my earlier judgment that the request to deal with the "red flag" may have come prior to the signing of the joint venture agreement. Any give and take on the issue would "…not be ‘amendments’ but the negotiation of different terms". Mr Downing was very alive to the need to effect his instructions at that time and had assumed that clause 11 already incorporated those instructions. Based on his evidence and the evidence of the events after 29 March 2010, I would comfortably find that Schofields also considered, at least at that time, that the joint venture's assumption of responsibility for the NAB debt had already been agreed.

21. [117]

    Negotiations between the plaintiffs and Schofields would have taken place in the context of the commercial realities at the time. The significant commercial value of the deal was apparent to both sides. I found it would have been commercially unlikely that either party would walk away from the deal based on the issue of the NAB debt: see the reasons at [85]. Equally, it would have been highly unlikely (and, indeed, unwise) for one party to insist on terms that were overbearing and unrealistic.

22. [118]

    The trend of the negotiations as revealed by the evidence also supports the proposition that Schofields would not have required any further quid pro quo. As HWLE suggest, several terms changed throughout the negotiations. Those changes were in favour of Schofields. For example, the change of the valuation ceiling from $40M to $30M for the initial capital contributions was very favourable to Schofields. Moreover, the deal came to include a 5% management fee for Schofields' related management entity. Both mechanisms militated to give Schofields a bigger share of equity in and yield from the project (the first by allowing for more dilution and the second by an allocation effectively of a commission referable to the success of the development project). The plaintiffs' concessions in relation to the terms that came to favour Schofields, including the above, were of course not made in a vacuum. They were made in circumstances where everyone at the time, including Mr Downing, considered (or in his case, assumed) that the deal concerning the NAB debt was already the subject of the joint venture agreement. That is why Schofields sought and the plaintiffs gave the concessions that made the terms "significantly more favourable to Schofields than that contemplated in December 2009" according to HWLE’s submission. The plaintiffs contend that HWLE, whose burden it is to prove the form of the additional quid pro quo, have not given any sensible explanation for the abovementioned trend in the negotiations. The only available explanation is that they were the price for, amongst other things, the existing "deal" with respect to the NAB debt. In other words, by the time the joint venture agreement was finalised, the quid pro quo over the NAB debt had already been priced into the deal. No further quid pro quo would have been required by Schofields.

23. [119]

    The events after 29 March 2010 provide further support for these submissions. Mr Taber's email of 29 April 2010 and the finance submission to the NAB indicated that as far as Schofields was concerned, the joint venture was to bear responsibility for the repayment of the NAB debt. Despite having the opportunity to do so, HWLE did not call Mr Taber or Mr Costelloe to give evidence about any further quid pro quo they might have required. HWLE have instead chosen to run their case based on what happened in the litigation in 2014. If that approach were rejected - as the plaintiffs say it should be - their case on the further quid pro quo would be deprived of any factual or evidentiary basis and must fail. Conversely, the plaintiffs' case on this issue is amply supported by the facts, the evidence, common sense and the matrix of commercial interests and motivations that drove the plaintiffs and Schofields in the first place.

24. [120]

    Moreover, according to the plaintiffs, it is highly improbable that Schofields would have demanded, or that the plaintiffs would have agreed to, the substance of the further quid pro quo, for which HWLE now contend. It is “almost impossible to think that Mr Lindsay-Owen would have taken the risk that he would pay for Schofields to gain further equity in the project”. For one thing, he did not have the ready cash to make any such payment and had no expectation that he could raise it. His position as asset rich but lacking sufficient cash-flow had been the main driver for him to seek to have the joint venture responsible for the NAB debt.

25. [121]

    Further, it is unrealistic to suggest that Schofields would have required him to take such a risk given the parties' relationship and the prevailing commercial mood at the time, or for him to have agreed to do so. Asking for such a concession would have poisoned the parties' relationship before it started. Moreover, the mere existence of a clause such as clause 4.1(n)(ii) in the joint venture agreement undermines HWLE’s submission that the plaintiffs would have agreed to pay Schofields if the final equity calculation might render a negative figure. There is nothing in the evidence of the parties' respective negotiating positions to suggest that the plaintiffs were in such a dire position to have accepted such a risk in circumstances where they must have known that the final equity position would be determined by reference to undeveloped land.

26. [122]

    Finally, the contention that Mr Lindsay-Owen would have accepted a mechanism whereby Schofields would gain a majority stake in lieu of payment by the plaintiffs of any negative figure as determined by the formula in the Facility Agreement is also highly improbable. First, he had no commercial reason to agree to such terms in 2009 and 2010. Secondly, he would not have done so as all the negotiations until that time had proceeded on the basis that the ceiling of Schofields' participation interest would be 50%. Thirdly, it is unlikely that Mr Lindsay-Owen would have wished to relinquish control. Fourthly, the plaintiffs had already conceded on the initial valuations with the effect that Schofields would be able to gain more equity for less. It is not likely that they would have agreed to terms that would have compounded the benefit to Schofields. Fifthly, and for similar reasons, they would not have agreed to this further mechanism where they had already granted a 5% management fee to Schofields' management arm.

27. [123]

    HWLE proffered different ways of conceptualising the quid pro quo. One possibility was that Schofields would have insisted on a change to the calculation of the equity payment required for it to obtain a larger participating interest. Any such payment, they argued, was to be calculated by reference to a modified formula in clause 4.4(b) of the Facility Agreement. The effect of that approach, they argued, was that the plaintiffs would be required to pay Schofields in order for Schofields to increase its participating interest to 50%. The amount the plaintiffs would pay on HWLE’s case would be subtracted from the lost development profit.

28. [124]

    Based on my findings, principally at [312]-[313], the plaintiffs submitted that no adjustment is required or warranted. There is no finding to the effect that Schofields would have insisted on a quid pro quo: that is, I did not find against the submission that any quid pro quo was already priced into the deal, and more importantly, there is no finding that any quid pro quo would have manifest in a further amendment to the clause 4.4(b) formula. In the result, the plaintiffs maintained that I appear to have rejected HWLE’s claims (and it was their burden to prove) as to the existence and form of the quid pro quo.

29. [125]

    In any event, the plaintiffs submitted that HWLE’s argument to reduce the plaintiffs' participation interest to 50% critically overlooks clause 4.1(n)(ii) of the joint venture agreement. There was no contractual obligation and therefore no prospect of the plaintiffs paying Schofields for Schofields to increase its participation interest by 9.33%.

30. [126]

    As was originally submitted, HWLE contended that I could be comfortably satisfied that the quid pro quo would have been agreed by an amendment to the formula for the final equity payment. The mechanism of upfront payments followed by a final equity payment once planning approval was obtained was the mechanism chosen by Schofields and the plaintiffs specifically for their joint venture. As found by Ball J in the previous proceedings, the amount of the final equity payment was intimately connected to the parties' agreement that the plaintiffs alone would remain responsible for the NAB debt once planning approval was obtained. Ball J said that "those two elements cannot be separated". If the joint venture instead took over responsibility for the plaintiffs' NAB debt, the total payments by Schofields to the plaintiffs would have been lower. As Ball J said, and as already found by me, this made "perfect commercial sense".

31. [127]

    If this is accepted, then the Issue 7(a) option is excluded by the findings I have already made: self-evidently, the Issue 7(a) option refers to the formula in the Facility Agreement which was actually signed without any amendment for the quid pro quo.

32. [128]

    Only two possible amendments to the formula have been put forward. First, the amended formula referred to in the Issue 7(b) option, being the one which Schofields identified in 2014 in their counter-rectification suit before Ball J. This is set forth in the Schofields cross-claim dated 4 August 2014. In the proceedings before Ball J, the plaintiffs sought to have the joint venture agreement construed (or rectified) so that it required the joint venture to take over the NAB debt. Against the possibility that the plaintiffs succeeded before Ball J, Schofields filed a cross-claim seeking to have the Facility Agreement rectified to incorporate the quid pro quo which they would have required before agreeing to the joint venture taking over the NAB debt.

33. [129]

    HWLE submitted that this is the best evidence about what the quid pro quo would have been. The formula referred to in the Issue 7(b) option operates to reduce the amount of the final equity payment by half the amount of the NAB debt. It is a "dollar for dollar" adjustment. This formula is the one used by Mr McGuiness in his supplementary report dated 26 August 2021.

34. [130]

    The only alternative that has been put forward is Mr Eversgerd’s formula referred to in the Issue 7(c) option. Originally, Mr Eversgerd calculated the final equity payment using the unamended clause 4.4(b) of the Facility Agreement (that is, no quid pro quo). Although Mr Eversgerd does not say so expressly, it appears that his original approach to using the unamended formula has been abandoned. In his second report, Mr Eversgerd has departed from the formula in clause 4.4(b) altogether and has instead gone back to December 2009 and extracted a formula from the words in the Terms Sheet.

35. [131]

    HWLE described this approach as “simplistic” and one that should not be accepted. As previously submitted, the positions of both parties changed between December 2009 and March 2010. Neither party considered itself bound by the Terms Sheet and both parties changed their respective positions in a number of areas. In particular, in December 2009, the parties contemplated that the "participation interest" gained by Schofields from earlier payments to Dairycorp would be calculated as a proportion of $40M, yet by March 2010 they had reached a different agreement and used $30M instead. Schofields' "participation interest" was another element in the calculation of the final equity payment. The final agreement on 29 March 2010 about the "participation interest" was significantly more favourable to Schofields than that contemplated in December 2009 and there is nothing to suggest that by March 2010 Schofields would have been willing to proceed otherwise. HWLE submitted that when so many other things had changed, Mr Eversgerd's return to the December 2009 Terms Sheet for the isolated matter of a formula based on $30M is implausible.

36. [132]

    This is said to be especially so because the Terms Sheet did not contain a precise formula, or any of the detailed terms, definitions or machinery necessary for the operation of a formula. The Terms Sheet merely addressed payments at a high level. In his second report, Mr Eversgerd was not able to implement his "formula" from the Terms Sheet without regard to the detailed provisions of the joint venture agreement and the Facility Agreement which were subsequently entered into.

37. [133]

    HWLE submitted that it is not appropriate to require me to devise my own formula (the Issue 7(d) option) given the solid evidential foundation for the formula referred to in the Issue 7(b) option.

38. [134]

    The plaintiffs originally maintained that the assumption of responsibility for the NAB debt was already priced into the deal so that no additional payment for it would have been expected or required. The flaw inherent in that submission, which I did not accept, is that that responsibility was not, by reason of HWLE’s breach, any part of the hypothetical amended deal at all. The hypothetical variation being sought, with which my earlier decision was concerned, was one being negotiated for the plaintiffs from what was effectively a position of weakness. That reality informed my conclusion that some financial adjustment or accommodation as a quid pro quo would have been a commercial fact and in my opinion it is not open to the plaintiffs now to challenge that result before me.

39. [135]

    It is instructive to recall a portion of HWLE’s submissions on this issue from 1 December 2023, when the matter returned for further submissions. Mr Faulkner SC for HWLE was urging the uncontroversial proposition that the method of calculation or assessment of the quid pro quo was important:

40. [136]

    It is also important in this context to observe that there can be no right or wrong decision on this issue: the choice is not binary. My obligation, as the decision maker, is to produce a conclusion that is supported by evidence, even though other evidence may suggest an equally plausible but different outcome. The unavoidable reality is that different outcomes are always possible subject only to the well-known constraints guiding the exercise of an otherwise open-ended discretion.

41. [137]

    HWLE seeks to draw support for its submission from the fact that Schofields, in the context of a commercial transaction to which for all anyone knew at the time they may or may not have been still bound, sought to ameliorate the consequences of a “different” allocation of responsibility for the NAB debt. It is true that the plaintiffs maintained that such a burden was on their understanding always factored into the original agreement. However, at the time that the cross-claim was filed, the plaintiffs’ rectification suit was undecided and Schofields had terminated the bargain. It seems entirely reasonable to assume that the lingering shadow of the plaintiffs’ possible success in the rectification suit would have influenced Schofields’ concerns about having to comply with the rectified bargain and the steps it considered necessary to take in the circumstances.

42. [138]

    The so-called modified clause 4.4(b) formula at least inferentially represents a considered response at the time by an erstwhile contracting party to the possible forced assumption of a burdensome obligation that it had successfully, at least for the time being, managed to displace. It seems to me that the formula that was given life in the cross-claim is as good as any as a means of pricing the cost of Schofields’ hypothetical agreement to the joint venture taking over responsibility for the NAB debt. It is preferable as a solution as well for the reason that it is unassociated with the views or opinions of either Mr Eversgerd or Mr McGuiness, thus obviating the need to make a choice influenced by my assessment of them.

Issue 8 – if the parties to the hypothetical JVA would have agreed to the formula in clause 4.4(b) of the Facility Agreement (Eversgerd I), would there have been some other quid pro quo for Schofields' agreement to the joint venture taking responsibility for the NAB debt once planning approval was achieved and, if so, what quid pro quo?

1. [139]

   By reason of my conclusions with respect to Issue 7, this question does not arise.

Issue 9 – would a final equity payment have been received or paid by the plaintiffs upon planning approval?

1. [140]

   The plaintiffs’ submissions on Issue 7 may be taken to address this issue as well.

2. [141]

   In accordance with the approach I have so far adopted, I will include HWLE’s submissions on Issues 9 and 10 in full as follows.

3. [142]

   The trial was conducted by both parties on the basis that under the hypothetical joint venture, Schofields' participation interest would have been 40.67% when planning approval was obtained. The common position is recorded in paragraph [312] of my judgment. There remains a question whether, upon planning approval being obtained, the final equity payment would have been paid under clause 4.4 of the Facility Agreement to increase Schofield's participation interest to 50%. Mr Eversgerd was asked to prepare his opinion based on alternative assumptions, namely that Schofields' participation interest would have increased to 50% (Question 2) and that Schofields' participation interest would have instead remained at 40.67% (Question 3). The experts have generally proceeded on the basis of those alternative calculations, although there are variations. The plaintiffs' closing submissions were put forward on the basis of these alternative assumptions. The "Dyson" and "Dempsey" options offer sub-alternatives, one for a 50:50 split of the participation interest and one for a 40.67:59.33 split.

4. [143]

   The choice between these alternatives makes a difference to the calculation of loss in two ways: the plaintiffs' participation interest determines the share of the hypothetical profits which they would have received and the making of the final equity payment would have been a benefit (or a cost) to the plaintiffs which would have increased (or reduced) their profit from the hypothetical joint venture.

5. [144]

   The quantification of the plaintiffs' loss therefore requires a determination of whether, hypothetically, the final equity payment would have been made.

6. [145]

   In the first instance, the question whether the final equity payment would have been made requires a determination of the amount of that payment, and who would have been obliged to make it. Using the amended formula referred to in the Issue 7(b) option, Mr McGuiness has calculated that the final equity payment would have been $6.57M from the plaintiffs to Schofields. That calculation uses $22.65M for "LA" in the amended formula, discussed below at [170]-[171]. The parties have since agreed that it should be $20.5M, with the result that Mr McGuiness's calculation would give a final payment of $5,491,700 from the plaintiffs to Schofields.

7. [146]

   HWLE submitted that there is nothing remarkable about the final payment being made by the plaintiffs to Schofields and not the other way around. The joint venture agreement specifically provided for that result in clause 4.1(n). Clause 4.4 of the Facility Agreement also expressly provided for the consequences in the event that the final payment was negative.

8. [147]

   The possibility of a final payment from the plaintiffs to Schofields is also apparent from the scheme of the joint venture. The parties adopted the mechanism of a series of upfront payments followed by a final equity payment once planning approval was obtained by which Schofields' final participation interest would be determined. When the joint venture commenced in March 2010, the parties did not know how much Schofields would be required to pay between then and planning approval, or the value of the land once planning approval was obtained. Therefore, the final equity payment would not necessarily be a final payment by Schofields to the plaintiffs, but rather it was a final reckoning of the payments already made.

9. [148]

   HWLE submitted that the plaintiffs’ submission, that a negative payment makes no sense, does not take account of the amendments to the joint venture agreement to achieve the quid pro quo. With the change to the formula referred to in the Issue 7(b) option, the overall amount to be paid by Schofields for a 50% participation interest in the joint venture would have been less than that actually agreed in March 2010. That makes sense because on this hypothesis the joint venture would be taking on the large NAB debt and therefore Schofields would be getting less value for its money. Paying less for 50%, there would have been a greater chance that the final payment would be negative when all the payments which Schofields was required to make up front were taken into account. To accommodate that increased likelihood, the quid pro quo would have included an amendment to clause 4.1(n)(ii)(B) of the joint venture agreement, as set out in Schofields' cross-claim in the rectification proceedings and as explained in Mr McGuiness's second report dated 26 August 2021 at paragraph [1.2.3]. By that amendment, the plaintiffs did not have to make the "negative" final equity payment to Schofields, but if they did not, Schofields' participation interest would have increased above 50% and the plaintiffs would have had a final participation interest of less than 50%.

10. [149]

    As explained by Mr McGuiness in his second report dated 26 August 2021, when planning approval was obtained in April 2014, the plaintiffs would have been confronted with the choice of either paying $5,491,700 to Schofields and proceeding with the joint venture 50:50 or not making the final equity payment and having their participation interest reduced from 59.33% to 46.45%.

11. [150]

    Contrary to the plaintiffs' submissions, there was no scenario in which they could have chosen to make no payment, and nevertheless have kept their interest at 59.33%. If the plaintiffs decided not to make the final equity payment in circumstances where the formula produced a negative number, it necessarily followed that their interest would be diluted.

12. [151]

    HWLE submits that, confronted with that choice, the plaintiffs would have made the final equity payment to Schofields. Whilst the transaction documentation contemplated that other outcomes were theoretically possible, the joint venture had always been envisaged by the plaintiffs as a 50:50 joint venture. Whilst the plaintiffs would have had to source $5,491,700 for the payment to Schofields shortly after planning approval was obtained, making the payment would have secured a larger share of the future profits for which they still had high hopes in April 2014. In addition, the dysfunction of the joint venture between March 2010 and April 2014 would no doubt have left Mr Lindsay-Owen unwilling to proceed as a minority partner in a long term business undertaking with Schofields. He would have wanted an equal say in future matters.

13. [152]

    For these reasons, HWLE submitted that I ought to determine Issues 9 and 10 by making the following finding:

    1. (1)

       the hypothetical joint venture would have proceeded on the basis that the plaintiffs would have made the final equity payment to Schofields under clause 4.4 of the Facility Agreement in the amount calculated in accordance with the formula referred to in the Issue 7(b) option; and

    2. (2)

       the hypothetical joint venture would thereafter have proceeded with the plaintiffs having a participation interest of 50%.

14. [153]

    Alternatively, if I were to find that the plaintiffs would not have made the final equity payment, I ought to determine Issues 9 and 10 by making the following findings:

    1. (1)

       the hypothetical joint venture would have proceeded on the basis that no final equity payment was made under clause 4.4 of the Facility Agreement, and

    2. (2)

       the hypothetical joint venture would have thereafter proceeded with the plaintiffs having a participation interest of 46.45%.

15. [154]

    In my opinion, the hypothetical joint venture would have proceeded on the basis that the plaintiffs would have made the final equity payment to Schofields under clause 4.4 of the Facility Agreement in the amount calculated in accordance with the formula referred to in the Issue 7(b) option and the hypothetical joint venture would thereafter have proceeded with the plaintiffs having a participation interest of 50%.

16. [155]

    Significant in forming that conclusion is my distinct impression Mr Lindsay-Owen would have ensured, to the extent he was able, that the profitable exploitation of the land would have come to pass. It is clear that he had a close historical familial association with the land. He foresaw the prospect of its development as a monumental and complicated process, but one with which, in my estimation, he wanted at all times to be closely involved. At one level, Mr Lindsay-Owen was a source of frustration for his joint venture partners for this reason, having regard to the extent to which his desire to remain involved in all decisions could at times be described as micro management. But that approach in my view bespoke a desire to exploit the land as an equal partner, not as a minor player subject to the controlling interest of his corporate joint venturers.

17. [156]

    The prospect that the plaintiffs would even have contemplated the unpalatable choice of proceeding with a less than 50% participation interest seems to me to be remote in the extreme. I consider that they would have determined to secure the funds necessary for the payment to Schofields shortly after planning approval was obtained, knowing that making the payment would have secured a larger share of the future profits for which, as HWLE has emphasised, all parties still had high hopes in April 2014. The manner in which the plaintiffs would have managed to obtain the means of making the payment is not capable of precise elaboration by me. However, having regard to my assessment of Mr Lindsay-Owen’s connection to the land and his emotional and financial investment in the project, the prospect that he would have been prepared to continue as a “junior partner” would not have been acceptable to him under any circumstances if he could possibly have avoided it.

Issue 10 – if so, what would the plaintiffs' participating interest have been thereafter?

1. [157]

   This is answered above.

Issue 11 – for the purposes of calculating the net development profit from the hypothetical joint venture, should the land debt figure be $22.65M or $20.5M?

1. [158]

   I have already found that the net development profits from the hypothetical joint venture are to be assessed on the basis of Mr Dyson's Scenario 1 using Mr Dempsey's evidence (as to gross realisations) and the Brown Smart Consulting document (as to development costs). On that basis, the joint venture’s hypothetical profit would have been $124,298,811 less the selling costs of $1,670,109 for the RMS land leaving $122,628,702. HWLE insisted that all disputes about this figure have been resolved by my judgment and that the plaintiffs appeared to have accepted that. However, since my judgment, the plaintiffs have raised a new issue about these figures which is referred to in the plaintiffs' further submissions at paragraph 23(a).

2. [159]

   The issue is the amount to be included for repayment of the land debt when calculating the development costs which the hypothetical joint venture would have incurred. Both Mr Dyson and Mr Dempsey have used the figure of $22.65M. Until the most recent submissions, the plaintiffs accepted this position was correct. The plaintiffs now seek to contend for the lower figure of $20.5M.

3. [160]

   In the context of calculating the lost development profit, the plaintiffs formulated a series of steps, one of which is contained, as noted above, in paragraph 23(a) as follows.

4. [161]

   Based on my findings, the starting point is the net development profit calculated by Mr Dempsey for scenario 1, namely a net development profit of $124,298,811. Calculation of the plaintiffs' lost development profit then involves, among other things, adjusting the net development profit for the actual amount of the NAB loan at the time of planning approval. The calculations that informed Mr Dempsey's figures assumed the facility limit of the NAB loan at $22.65M, rather than the actual amount of the loan at $20.5M. The net development profit ought to be adjusted by the difference. Accordingly, the net development profit for scenario 1 as calculated by Mr Dempsey is $126,448,811. The further adjustment needs to be made to account for the costs of the sale of the RMS land to determine the net development profit for distribution. After deducting the RMS land cost, the net development profit available for distribution should now be $124,778,702 rather than $122,628,702.

5. [162]

   HWLE responded as follows.

6. [163]

   Both Mr Dyson and Mr Dempsey calculated the net development profit made by any given hypothetical development by estimating the gross realisation from the sale of the subdivided lots and subtracting the costs which the joint venture would have incurred. The table in paragraph 121 of Mr Dyson's first report dated 27 May 2020 is a typical example of the common approach. For this purpose, the costs are hypothetical.

7. [164]

   One of the costs which the hypothetical joint venture would have had to meet was the cost of repaying the NAB debt. Like the other expenses, the cost to the joint venture of this repayment is hypothetical. The amount of that cost would have depended upon a number of matters including changes in the amount of the NAB debt over time as it was used for different joint venture purposes, payments which may have been made to the NAB from time to time and the time at which the various payments would have been made (which might vary depending upon which scenario was pursued). For a hypothetical, these matters are uncertain.

8. [165]

   There was some material available to Mr Dyson about the changes to the actual amount and the purpose of the NAB debt at different times. Specifically, the plaintiffs acquired the other half of the land from Mr Lindsay-Owen's sister in 2005 with a facility from the NAB; the facility was for $21.5M of which $17.5M represented the initial purchase price and $4M to accommodate the capitalisation of interest; the NAB facility was initially expressed to be for a period of 3 years; the limit and the period were amended from time to time up until December 2009 including an increase in the facility limit by $1.1M in December 2006; a further increase in the limit by $1.6M in August 2008 (bringing the facility limit to $24.2M) and the expiry date to March 2009; further extensions of the facility, ultimately to September 2009 and a reduction in the limit to $24M; and an extension to December 2009 subject to a monthly injection of $100,000 to reduce the balance of the facility.

9. [166]

   On 30 March 2010, the NAB offered a facility of $18.8M expiring on 31 December 2011 and on 30 April 2010 a payment of $2,118,294 was made to the NAB to reduce the NAB debt to $18.8M. In June 2011, the NAB facility limit was increased to include an initial planning finance facility of $1M and the NAB facility was further extended to $22.65M in May 2013 to allow for up to $2.85M in land holding costs, planning costs and marketing costs to be paid while a full development finance was being finalised. Having regard to the payments already made and the sums further drawn down, in about April 2014 the then current balance of the NAB facility was $20.5M. In March 2015, the NAB debt was finally repaid at the cost of $22,940,570.

10. [167]

    It is therefore apparent that, over time, the NAB debt changed as payments were made and the limit varied as the purposes for which it was used were expanded. The changes continued to occur after the hypothetical joint venture would have commenced on 29 March 2010 and included the payment of $2,118,294 made to the NAB on 30 April 2010 and the further drawdowns after that.

11. [168]

    Against this background, Mr Dyson adopted $22.65M as the hypothetical cost to the joint venture of repaying the NAB debt. Having regard to the payment of $2,118,294 and the final payment of $22,940,570, he might have used a higher figure. Mr Dempsey, Mr Eversgerd and Mr McGuiness have all proceeded on Mr Dyson's $22.65M figure. Mr Dyson was cross-examined about this figure.

12. [169]

    HWLE complain that the plaintiffs now say that the figure should instead be $20.5M because that was the actual amount of the loan at one particular time, namely when planning approval was obtained. HWLE submitted that, given the hypothetical nature of the costs and the fact that Mr Dyson has adopted $22.65M, this submission ought not to be accepted.

13. [170]

    HWLE dispute that they have ever accepted the $20.5M figure. During the trial there was a dispute about another figure, namely the figure to be used for "LA" in the formula for the final equity payment under clause 4.4(b) of the Facility Agreement. The correct amount for "LA" is a question of contractual construction. Under clause 4.4(b), the final equity payment was to be paid upon planning approval being obtained. In that context, "LA" is defined as "the amount owing by the borrowers to other lenders and secured by the Security Property in priority to the Securities."

14. [171]

    In those terms, "LA" fell to be determined at a specific point in time at which "the amount owing" had to be ascertained. HWLE accepts that this is the proper construction of clause 4.4(b) and that therefore $20.5M is the correct figure for the purposes of "LA". However, HWLE insists that they never accepted that $20.5M is the correct figure for any other purpose, including the cost of paying the NAB debt which the hypothetical joint venture would have to make. This figure was not an issue at trial. HWLE's position is that the hypothetical cost of repaying the NAB debt is the same as Mr Dyson's $22.65M.

15. [172]

    HWLE submitted that I ought to determine this new issue by finding that the figure of $22.65M is to be used for the purpose of assessing the "Land Debt - NAB" as a cost of the hypothetical development and that no adjustment to the calculations of any of Mr Dyson, Mr Dempsey, Mr Eversgerd or Mr McGuiness is required for this hypothetical cost.

16. [173]

    In my view, the correct figure for this purpose is $22.65M. That was the figure I adopted in my earlier judgment. Mr Dempsey, Mr Eversgerd and Mr McGuiness have all proceeded on Mr Dyson's $22.65M figure. I see no basis for altering that figure now.

Issue 12 – is the 5% discount rate a compound rate or a simple rate?

1. [174]

   The plaintiffs contend that the 5% discount rate should be simple, not compound. Their submissions were as follows.

2. [175]

   I determined the discount for non-diversifiable risk at 5% in the reasons at [353], after traversing the question whether any discount should be applied at all: see at [346] to [352] of my earlier judgment. HWLE’s submissions that promote the discount being applied on a compound basis may be reduced to one proposition, namely, that the accounting experts in this case and other cases have taken that approach. No other conceptual or legal (or, indeed, accounting) basis has been proffered to support a finding that the discount rate for non-diversifiable risk should be compounded. The plaintiffs ask rhetorically why a different approach should be taken in applying a discount for specific risk (as per Sellars) and general market risk? The plaintiffs submit that a 5% discount rate for non-diversifiable risk should be applied on a simple interest basis, in the same way that pre-judgment Court interest is applied.

3. [176]

   HWLE contend that the 5% discount rate should be compound, not simple. Their submissions were as follows.

4. [177]

   HWLE submitted, somewhat hopefully in the context of this litigation, that it “ought to be uncontroversial that the discount rate for non-diversifiable risk is to be applied on a compound basis”. HWLE submitted that it has been “common ground” that it must be compounded. The plaintiffs' own expert applied the discount rate in that way. HWLE submitted in those circumstances that it was not surprising that I made no finding on the issue.

5. [178]

   HWLE submitted that this issue is the subject of direct expert evidence. The purpose of the discount rate, in part, is to adjust sums for the time value of money. Unsurprisingly, according to HWLE, Mr Eversgerd has repeatedly expressed the opinion that it is to be compounded. He applied his discount rate on a compound basis: see paragraph [7.1.5] of the joint report of the forensic accountants dated 3 March 2022.

6. [179]

   Mr Eversgerd expressed the opinion (at [3.4.1]) that "court interest is added using simple interest, discounting is performed using compound rates". At [3.4.3(a)] of his reply report, Mr Eversgerd stated that "losses are discounted to the date of breach at a discount rate which reflects the time value of money and the risks associated with those cash flows. The discounting is performed using compound interest”.

7. [180]

   At [4.4.9] of his reply report, Mr Eversgerd states that "[t]he objective of applying an annual, compounding discount rate is to equate dollars in the future to dollars today (or some other day in the past) to account for the time value of money and the risks associated with accurately estimating future lost cash flows". Further, at [4.4.2(a)], Mr Eversgerd explained that he adopted the same approach in his original report of compounding discount rates. The only dispute related to the quantum of the discount rate (that was to be applied on a compound basis).

8. [181]

   Mr McGuiness specifically expressed his agreement that "discounting of estimates of expected cash flows uses a compound method of discounting" (paragraph [C5.1.2] of the joint report of the forensic accountants dated 3 March 2022). Mr McGuiness was not cross-examined on this issue.

9. [182]

   HWLE submitted that it is not open to the plaintiffs to raise this issue at this stage of the proceedings, but in any event there is nothing to support the contention that simple interest should be applied and it is otherwise contrary to the approach of their own accountant.

10. [183]

    Nor is there anything in the authorities which would support the application of a discount rate on a simple basis. On the contrary, it is plain that discount rates are to be applied on a compound rather than a simple basis: see, for example, About Life Pty Ltd v Maddocks Lawyers [2021] NSWSC 1370 at [627]-[628] where Rees J recorded that (as in the present case) it was common ground between the experts that the discount rate was to be compounded; see also E Co [a pseudonym] v Q [a pseudonym] (No 4) [2019] NSWSC 429 at [496] at where Ward CJ in Eq noted that a discount rate was a compound rate.

11. [184]

    The plaintiffs have somewhat audaciously criticised HWLE’s approach upon the basis that that they have sought to rely upon the fact that the accounting experts in this case and other cases have taken a particular approach. Moreover, the plaintiffs say critically that “no other conceptual or legal (or, indeed, accounting) basis has been proffered to support a finding that the discount rate for non-diversifiable risk should be compounded”. By the same token, the plaintiffs have offered no principled basis for their contention that the discount for non-diversifiable risk is to be applied on a simple basis. It seems to me to be very difficult in the circumstances for the plaintiffs to disown their own expert whose opinion does not align with their submissions on this issue.

12. [185]

    I consider that the discount for non-diversifiable risk is to be applied on a compound basis.

13. [186]

    The parties have also sought that I explain my decision for the choice of 5%, which is currently unsupported by reasons.

14. [187]

    I have taken the parties’ references to non-diversifiable risk to refer to the risk inherent in the entire market or a particular asset class that cannot be eliminated through diversification. It is influenced by external and macroeconomic factors affecting the overall market. I observe that I have been provided with no expert or other principled assistance with the benefit of which I might approach the calculation of an appropriate discount for this type of risk in this case.

15. [188]

    At the date of the plaintiffs’ loss, they were deeply involved in a significant development project. The nature and extent of that project is well known to and understood by the parties. It involved, in the crudest terms, the subdivision of land and the construction of dwellings and other buildings for sale at a profit. The viability of that project was subject to a combination of risks such as interest rates, inflation, international political influences on the economy and the market for housing in Australia in general and in greater western Sydney in particular. An historical analysis of these factors at the date of the plaintiffs’ loss, based upon my uninstructed observations, reveals a relatively, if not considerably, stable market over the (then) recent decades with steadily rising prices in the real estate sector and consequential economic optimism. Although the joint venture was locked into a single outcome project, I nevertheless consider that the risk attending the project, as at the date of the loss, as a captive of risks over which the parties had no control, or no ability to reduce or eliminate by diversification, was low.

Issue 13 – how is the Sellars discount to be applied?

1. [189]

   The plaintiffs submitted that the Sellars discount should be applied to the lost development profit. That is simply calculated by subtracting the difference between the net profit from the actual sale (discounted to the date of loss), from the adjusted net development profit (also discounted to the date of loss) and discounting the result by 15%. According to the plaintiffs, HWLE’s approach of applying the Sellars discount only to the adjusted net development profit is wrong in principle and should be rejected.

2. [190]

   The question that arises is whether the discount should be applied to both the hypothetical profit and the actual profit, before deriving the lost development profit. The basic principle that supports such an approach is that any discount should be applied to both sides of the ledger. Moreover, in this case, the adjusted net development profit is discounted to the date of breach on 29 March 2010, so the net profit from the actual sale needs to be similarly discounted to the same date, in order to determine the value of the loss as at 29 March 2010.

3. [191]

   The plaintiffs referred to the following decision. Hartle v Laceys (A firm) [1999] Lloyd's Rep. P.N. 315 concerned a claim for professional negligence against a solicitor. The plaintiff had purchased a piece of land that was burdened with a restrictive covenant. The plaintiff complained and proved that the solicitor had failed to advise him as to the effect of the non-registration of the covenant. The claim was for a loss of the chance of making a sale that was higher than what was ultimately achieved.

4. [192]

   In calculating the plaintiff's losses, Ward LJ (with whom Beldam LJ and Schiemann LJ agreed) considered that a 40% discount should be applied to the damages for the plaintiff's loss of chance (at 329). His Lordship said (at 330):

5. [193]

   That approach was followed by the Court of Appeal in Ministry of Defence v Wheeler [1998] 1 All ER 790; [1998] 1 WLR 637 (a later case but reported earlier). Wheeler concerned claims by servicewomen, who had been wrongfully dismissed on account of pregnancy and who had therefore lost the chance of earning in the armed forces after maternity leave but had obtained other employment at lower rates of pay. Swinton Thomas LJ at 643 (with whom Hirst LJ and Mantell LJ agreed) affirmed the principle set out in Hartle and illustrated the flaw in any approach that would have the discount applied only to one side of the ledger. His Lordship said:

6. [194]

   The approach of the Court of Appeal in Hartle and Wheeler was followed by Kenny J in Walker v Citigroup Global Markets Pty Ltd (2005) 226 ALR 114; [2005] FCA 1678 at [132]. Her Honour considered that the discount must be applied to the difference between the plaintiff's hypothetical income and actual income: at [133]-[136].

7. [195]

   The plaintiffs submitted that, as the authorities show, the approach of applying a discount to only one side of the ledger may lead to unusual and unfair results, where damages calculated on the hypothetical scenario are reduced to nil or to a negative figure after the deduction of the actual profit (that is not similarly discounted). That is the result for which HWLE contend.

8. [196]

   HWLE submitted that the purpose of the Sellars discount is to assess the value of the lost chance having regard to the possibilities and probabilities. The plaintiffs are not being compensated for loss of profit from any particular hypothetical development but for the lost chance. In those circumstances, a Sellars discount is necessary to ensure that the plaintiffs are not overcompensated. On the other hand, the profit actually made is an historic fact. No discount is required to that sum when it is brought to account in reduction of the plaintiffs' loss.

9. [197]

   HWLE’s submissions effectively distil to a criticism of the strength or breadth of the authorities to which the plaintiffs’ detailed submissions refer. HWLE submitted that in “none of these cases did the Court intend to lay down an inflexible rule to be applied in all cases”. The submission continued to contend that “despite these authorities…[HWLE’s] approach better accords with the proper compensation of the plaintiffs in this case”.

10. [198]

    It seems to me that the authorities upon which the plaintiffs rely clearly support their position. If it were not otherwise apparent, HWLE does not refer to any authorities to the contrary, nor do they suggest that the cases are distinguishable having regard to the facts in this case. I consider that the plaintiffs’ submissions should be accepted.

11. [199]

    Also, in relation to the Sellars discount of 15%, the parties have not unreasonably suggested that they would be assisted with further reasons for my decision on the quantum of the discount, in the context of a foreshadowed appeal.

12. [200]

    The development of a very large greenfield site adjacent to existing or planned public transport links was a potentially very profitable endeavour in which the parties in joint venture agreed to proceed. The plaintiffs bear the onus of proving on the balance of probabilities that the commercial opportunity they lost as the result of not being able to prosecute that agreement to its anticipated conclusion had some value, that was more than negligible.

13. [201]

    In Sellars v Adelaide Petroleum, Mason CJ, Dawson, Toohey and Gaudron JJ said:

14. [202]

    In Berry & Anor v CCL Secure Pty Ltd (2021) 271 CLR 151; [2020] HCA 27, Bell, Keane and Nettle JJ said this at [32]:

15. [203]

    What has now become known as the Sellars discount is thus to be understood as an informed judicial estimation of the degree to which the calculated (estimated) gross value of the lost opportunity ought to be modified (reduced) in order to allow for the risk that the hypotheses or possibilities, used in that calculation, may be speculative or not capable of proof to the civil standard. The discount that is then applied to the value of the lost opportunity, which will have been determined in the first instance without taking account of such uncertainties, operates as a brake upon an award of damages that may otherwise be excessive. For reasons that may be obvious, no particular guidance concerning how the discount is to be assessed is to be found in the authorities.

16. [204]

    In forming my view about the quantum of an appropriate discount, I have been influenced by the prospect that the development of the land had always appeared likely to be successful and highly profitable. The material available does not suggest that the joint venture parties were ever going to be confronted with insurmountable environmental, political or economic obstacles that could have significantly delayed or derailed the planned development. The apparent disharmony between them, to which my earlier judgment refers, would have been managed. The hypothetical nature of the exercise involved in assessing future unknowns means that nothing is certain. The various scenarios factored into the respective experts’ assessments and predictions, and the final analysis that I have accepted, are moderately conservative, certainly realistic and potentially achievable.

Conclusion

1. [205]

   I direct the parties to approach my Associate when convenient with a view to relisting this matter when they have had an opportunity to consider my findings. It is to be hoped that the final calculation of the plaintiffs’ loss, with the benefit of my latest conclusions, will then be possible.