Bassal v Savills (NSW) Pty Limited

On 27 November 2007, a joint venture agreement was entered into between Campbelltown Factory Outlet Limited as trustee for the CFO Unit Trust (“CFO”) (40% interest) and Pacific Street Properties Pty Ltd as trustee for the Pacific Street Properties Trust (“PSP”) (60% interest). The joint venture agreement (“the JV”) concerned the construction, maintenance and management of a discount designer shopping outlet centre at 32 Queen Street, Campbelltown (“the Centre”).

Terry Bassal (“the first plaintiff”) and his father Albert Bassal (“the second plaintiff”) were the directors and shareholders of CFO. Dr Jerry Schwartz was the director and shareholder of PSP.

The Centre was to be a “greenfield” site which meant it had to be developed as a concept, then built, then leased to retail tenants, and then opened to the shopping public. It was fully funded by a $47.8 million loan from Suncorp Metway Limited (“Suncorp”) with the first (non-capitalised) interest payments due in May 2010.

In July or August 2008, the JV partners signed an Exclusive Leasing Agency Agreement (“the ELAA”) with Savills (NSW) Pty Limited (“Savills”) (“the defendant”). It was proposed, inter alia, that Savills would identify appropriate tenants and refer them to the JV partners for approval. Savills was and is a commercial real-estate agency.

The Centre opened on 10 December 2009 by which time it was known as “Brands on Sale”. It was only 55% let as at that date. When the first repayment fell due in May 2010, PSP was able to meet its obligation to Suncorp but CFO was not and defaulted. PSP defaulted shortly thereafter and liquidators were appointed on 25 November 2010. Neither company survived. Both entities were deregistered in early 2018.

There is no issue that the JV failed. This case concerns whether the loss suffered by the JV partners was caused by negligence or breach of contract on the part of Savills.

The plaintiffs sue as assignees of the causes of action which are said to have accrued to CFO and PSP as the entities that retained Savills. The validity of such an assignment was raised as an issue in the proceedings. Although it is a threshold question for determination it was agreed that it would not be necessary for me to consider the validity of the assignment unless I was of the view that the plaintiffs ought to succeed in these proceedings. I have come to the view that they cannot. For that reason I do not propose to say anything more concerning whether the assignment of the causes of action in this matter was valid.

The cause of action was brought both in contract and tort. The plaintiffs claimed that Savills had a duty to provide a specific outcome to the JV, namely, that the Centre would be 90% leased at opening with high-end outlet retailers spending at least $400/m2. It was claimed that due to Savills’ breach of contract/negligence those tenants were not introduced to the JV. If those tenants had been introduced to the JV by Savills, it was argued, the Centre would have been a success.

The proceedings were commenced in 2011 and have had a most unfortunate procedural history characterised by the plaintiffs’ decisions to change their legal representatives a number of times. This did not end once the hearing commenced. When the hearing commenced Ms M Painter SC appeared with Mr G Stapleton for the plaintiffs and Mr M McCulloch SC appeared with Mr T Marskell for Savills. On day six of the hearing, senior counsel for the plaintiffs, Ms M Painter SC, informed the court that her retainer had been terminated. Mr Terry Bassal sought an adjournment to obtain new counsel. That adjournment was refused and Mr Terry Bassal proceeded to appear for both himself and his father after that time. It will be necessary for me to set out this procedural history further below to explain why this complex hearing proceeded with a self-represented litigant and why the plaintiffs’ submissions did not always coincide with the pleadings.

The evidence comprised a 16-volume court book. In addition to the expert and lay evidence (the plaintiffs relied upon five lay witnesses and the defendant on one), the court book largely comprised the business records of the parties. Those records included loan documents, building contracts as well as correspondence between the relevant players in this failed business venture. A significant portion of the court book comprised email correspondence between the plaintiffs and others and Savills’ employees and others including the lender, marketing and other participants. Letters of offer, leasing schedules and leases pertaining to the retailers who were approached in relation to taking up rental space in the Centre were also before the court.

The plaintiffs’ case relied heavily upon expert evidence. Eight expert witnesses provided reports in this matter, six of whom gave evidence in court. The expert evidence came from land valuers, market economists, financial accountants and leasing experts. Four expert conclaves were conducted. Much of this evidence went to questions of loss and causation rather than breach. Despite this extensive expert evidence, the plaintiffs ultimately failed to establish how the damages claim could be assessed.

To the extent that the large volume of contemporaneous documents did not always correspond to the evidence of the lay witnesses I have had regard to the observations of Sackar J in Campbell v Campbell [2015] NSWSC 784 at [74] and [76] where his Honour observed:

A significant aspect of the contemporaneous documentation was the minutes taken at each meeting of the partners of the JV and Savills in 2009 and 2010 which were routinely prepared and circulated by the JV’s solicitor. The principal witnesses of fact for both parties, Mr Terry Bassal and Mr Thomas Brown, both accepted the accuracy of these minutes. Although I was required to make some findings of credit in this matter, for the large part the factual findings could be determined based on the contemporaneous documents.

Before I turn to consider the evidence, it is helpful to first understand the nature of outlet centres generally. Expert evidence was given about them which can be briefly summarised as follows.

Outlet retailing is a concept whereby manufacturers dispose of their surplus and seconds merchandise at discount prices. Traditionally, they were owned and operated by one manufacturer, which allowed for substantial discounts due to the elimination of the middle person. The outlet concept in Sydney first started in Surry Hills and South Sydney and then moved to Homebush and Drummoyne. Factory outlet retailing represents a very small proportion of Australia’s retailing industry. Only 11 such outlets existed in Australia in 2013.

In general, factory outlets sell discounted branded goods across broad catchment areas. They have been in operation in Australia since 1997 and are typically around 18,000 square metres with an anchor tenant such as a department store or supermarket, although one of the valuation experts, Mr Mike Steur’s, evidence was that factory outlets may lack major anchor tenants and still be successful. Sixty to 80% of factory outlet centres are clothing retailers. The mix of retailers acts as a key destination within their surrounding region. Key success factors of outlet centres include a high-profile location with a population catchment area of at least 700,000 persons within a 30-minute drive-time. Birkenhead Point and DFO Homebush are both examples of factory outlets which have been successful whereas outer-suburban centres in low-income areas like Mt Druitt and Parramatta have not succeeded and have either been closed or redeveloped.

The occupancy costs for any tenant in a shopping centre is usually made up of the following outgoings: a base rental (also referred to as a “net rental”), which is an agreed dollar amount for the floor-space that the tenant is renting; rates, electricity, cleaning etc., which tenants typically pay a proportion of based on their total floor-space in the centre; and a marketing levy. The key difference between gross rental and net rental is that gross rental includes outgoings and marketing on top of the net or base rental level.

As will be seen below when discussing the evidence of the market economists and the leasing experts, in comparison to Victoria where there were many outlet stores which were successful, there were in 2008 (and still are) far fewer outlets stores in NSW.

The relevant individuals involved with the Centre were as follows.

Terry Bassal, the first plaintiff, was a director and shareholder of CFO and the company’s representative with the day-to-day involvement in the development of the Centre between 2008 and 2010. He was also a shareholder in another company named Saxon Developments Pty Limited (“Saxon”) which also worked on the development of the Centre prior to the JV being entered into. Given that Mr Terry Bassal and his father share the same surname, unless I specify otherwise, a reference to Mr Bassal will mean Mr Terry Bassal. Mr Bassal swore three affidavits in the proceedings, on 19 September 2013, 17 September 2014 and 30 July 2016, and was cross-examined.

Albert Bassal, the second plaintiff, is Mr Bassal’s father and a director and shareholder of CFO. Mr Albert Bassal was also a director and secretary of Saxon. He was not called as a witness. It was agreed between the parties that he had no day-to-day involvement with the Centre and I do not propose to draw any adverse inference against the plaintiffs by reason of his absence.

Dr Jerry Schwartz was the principal of PSP and the decision-maker on behalf of PSP in respect of the JV. Dr Schwartz was not called as a witness.

Mr Albert Hadid was an intermediary in the JV. He held a casting vote under the JV Agreement in the event of a deadlock between CFO and PSP. The contemporaneous documentation indicates that he also had some involvement in managing the development of the Centre. Mr Hadid was not called as a witness.

Mr Peter Grant was an in-house solicitor employed by Schwartz Family Co. Pty Limited. He provided legal advice to the JV in respect of the leasing of the Centre. He was the person who prepared all of the leasing documentation for the tenants and proposed tenants. Mr Grant was not called as a witness.

Mr Thomas Brown was at the relevant time the New South Wales director of property management at Savills. He was also responsible for retail leasing. He assumed overall responsibility in a “supervisory role” for Savills’ leasing of the Centre in around April 2008. Mr Brown swore two affidavits in the proceedings, on 25 August 2014 and 4 May 2015, and was cross-examined.

Mr Bill Kanellopoulos was the divisional director of retail leasing for Savills between July 2008 and January 2010. He left Savills in January 2010 and took up employment with another real-estate agency. He reported to Mr Brown. He swore two affidavits in the proceedings for the plaintiffs, on 19 September 2013 and 15 February 2016, although only the 19 September 2013 affidavit was read. He was briefly cross-examined.

Ms Tamar Zabloudilova was a leasing executive, retail leasing, employed by Savills from 15 September 2008 until 13 March 2013. She was assigned to work on the leasing campaign for the Centre on a full-time basis from February 2009. She also reported to Mr Brown. She was not called as a witness.

Ms Vivian Xu was a leasing executive, retail leasing, employed by Savills from at least mid-2008 until 14 August 2013. She reported to Mr Brown and was assigned by him to work on the leasing campaign for the Centre for 50% of her time, subject to Bill’s discretion. She was not called as a witness.

Ms Jan Boyd was an employee of Savills (Qld) Pty Limited. She had some limited involvement with the leasing campaign for the Centre and is now deceased.

Mr Phil King was employed by Savills as the divisional director, retail leasing, until 11 April 2008. He was Mr Brown’s predecessor as the person within Savills with ultimate responsibility for the Centre. Mr King was not called as a witness.

Mr Kevin James was employed by Savills as the divisional director, retail leasing, until 4 March 2008. He had some involvement with the Centre on behalf of Saxon from 2006 until early 2008. Mr James was not called as a witness.

Mr Nicholas Bradbury was employed by Savills as a leasing executive, retail leasing NSW, until 27 April 2007 and was involved with Centre on behalf of Saxon in 2006 and 2007. Mr Bradbury was not called as witness.

Mr Francois George was a leasing executive employed by Savills between mid-2006 and July 2008 and was involved with attempts to lease the Centre by Saxon in 2006, 2007 and early 2008. Mr George swore an affidavit in the proceedings dated 26 May 2014 relied upon by the plaintiffs but he was not required for cross-examination.

Mr Darryl Ashworth was the principal of a retail leasing agency trading as Metier which became involved with the leasing campaign for the Centre in mid-2009. Mr Ashworth swore two affidavits for the plaintiffs in these proceedings but was not cross-examined.

Messrs Troy and Jeff Deviesseux were the principals of Retailspace, which was a retail leasing agency which became involved in the leasing campaign for the Centre in April 2009. Neither was called as a witness.

Ms Julie Childs and Ms Ivana Maljkovic were employees of Balmain Commercial, the finance broker for the JV. One or both of these women were copied into a large number of emails and attended all meetings of the JV partners. Neither was called as a witness.

Mr Fouad Deiri was the principal of DeiCorp Constructions Pty Limited (“DeiCorp”). DeiCorp was the company retained by the JV to build the Centre and also to provide tenancy co-ordination services. Mr Deiri was not called as a witness.

Mr Andrew Daniele was an employee of Mosca Pserras Architects (“MPA”). MPA was the firm of architects retained by the JV to design the Centre. Mr Daniele was not called as witness.

Mr Robert Hartman was the managing director of Stenton Creed Pty Limited trading as Stenton Capital, a boutique management consulting business retained by several brand-name retailers for site selection and lease negotiations. Mr Hartman swore an affidavit in the proceedings for the plaintiffs dated 10 February 2015 but was not required for cross-examination.

The lay evidence comprised the evidence of Mr Bassal, Mr Kanellopoulos, Mr Hartman, Mr George, Mr Ashworth and Mr Brown. For the most part the affidavits of these witnesses annexed a large number of contemporaneous documents. Unless I state otherwise I am satisfied of the following facts.

After leaving high school, Mr Bassal worked in various businesses including a service station and tobacco shop. In July 2000 he and his father incorporated Saxon for the purpose of purchasing and developing commercial and residential properties. Between 2000 and 2005 Saxon developed an industrial complex at Ingleburn, a residential housing project at Prestons and obtained a development application (“DA”) for construction of 84 residential and six commercial units at Campbelltown.

In or about mid-2006, Saxon entered into an option agreement to purchase land comprised in Lot 2 DP 539856 and Lots A & B DP 403363, known as 32 Queen Street, Campbelltown, in the State of New South Wales. It was a term of the option agreement that Saxon would be granted permission to lodge a DA in respect of the land with the Campbelltown City Council.

The land is located in a suburban main-road, service-orientated area. The site was previously used as a motor vehicle showroom and servicing facility from around 1980 to 2000. Neighbouring developments included a medical centre, Officeworks, Sam’s Warehouse, a former bowling alley and Colonial Motor Inn.

On or about 28 September 2006, MPA lodged, on behalf of Saxon, with the consent of the owners of the land, a DA (2537/2006/DA-C) with Campbelltown City Council in respect of the land. It was lodged for the purposes of demolishing the existing buildings on the land and constructing, in their place, a fashion outlet and bulky goods centre with a multi-deck car park.

In or about October 2006, Savills provided Saxon with a proposal for the leasing of the Centre. The proposal was headed “Outlet & Bulky Goods Centre Campbelltown NSW Submission 2006” and it outlined Savills’ preferred strategy of establishing a target list of retail operators. The leasing team was to include Mr James, divisional director of retail leasing, and Mr Bradbury, retail leasing executive. Mr Bassal’s evidence was that Saxon was considering a number of leasing agents but ultimately chose Savills.

On or about 19 October 2006, Savills and Saxon entered into an “Exclusive Licence and Agency Agreement” (“First Saxon ELAA”). It was a term of the First Saxon ELAA that, in return for a leasing fee, Savills would find and introduce to Saxon such one or more persons as Savills considered might be acceptable as a lessee to Saxon. The agreed leasing fee was 12% of the first year’s gross rental plus GST excluding any incentives.

Although neither Mr James nor Mr Bradbury was called as a witness in this matter, Mr George gave evidence for the plaintiff. He was a leasing executive at Savills from about mid-2006 as part of Savills’ “new projects division”. He was employed to find tenants for the Centre and reported to Mr James, who in turn reported to the managing director. He also worked under Mr King until just before Christmas 2007 after which time he reported to Mr Brown.

Mr George described two methods he used to find new tenants, one being his connections and previous relationships with retailers who he would call to see whether they were interested and the other being “cold calling” prospective tenants or visiting them in person at shops or stores or head offices.

Also in or about October 2006, Saxon obtained a “Statement of Environmental Effects Retail Outlet Centre, Campbelltown” report from Urbis for the DA (“First Urbis Report”). The report was obtained for the purpose of analysing the proposal in relation to its compliance with the relevant policies and statutory controls. That report concluded, inter alia, that the outlet development would be consistent with established land use activities and the established character and future land use direction of the precincts; that the site was “highly suitable and desirable for retail use”; that the site would not result in any significant unacceptable impacts on existing centres; that the development presented an excellent opportunity to significantly increase the number of jobs available in the Campbelltown town centre; that the site was well separated from any existing sensitive land uses; and that “the proposal has been assessed as fully satisfying and consistent with key government planning strategies and statutory plans”.

On 20 November 2006, there was a meeting where Savills adopted an agenda summarised as follows: 77 retail sites would be leased over four levels. The target would be “Notable National and International fashion & Homewares brands.” The objective was to “Maintain a strict adherence to retail plan consisting of notable national/international brands”.

On or about 10 November 2006, Savills advised Saxon that the land was unimproved and with local authority approval and DA approvals would have a market value in the range of $25 million to $30 million plus GST. The advice was provided in writing by letter written by Mr James.

On 22 November 2006, Mr Bradbury of Savills sent a list of proposed retail tenants for the Centre to Mr Bassal and in late 2006 Savills produced and distributed to various prospective retail tenants for the Centre a document titled “The Outlet Centre 32 Queen Street Campbelltown Leasing Pack”.

On or about 11 December 2006, Kevin James at Savills advised Saxon of the projected rentals income for the Centre. The projected rental income for the Centre was in the order of $600/m2 net.

On 21 December 2006, Charter Hall Group sent Mr Bassal an email outlining interest in investing alongside him in the Centre. Charter Hall Group expressed the opinion that the average net rents per square metre the Centre was expected to achieve were below the rents forecasted by Savills in 2006 (more likely between $400 and $450/m2 gross).

In February 2007, Savills prepared certain documents and shared them with Mr Bassal, including documents showing target milestones and rental levels for leasing space in the Centre. The documents indicated Savills’ projection for leasing 90.9% of the space in the Centre by the time it was to open. Savills also prepared a number of documents for Saxon indicating a general timeline of leasing space in the Centre that indicated at opening a percentage of leased shops between 86.5% and 90.9%.

By the time the option to acquire the land came to be exercised, the Bassals had incorporated CFO as a corporate vehicle of which they were the directors and members. On 7 March 2007, the land on which the Centre was to be built was purchased for $6.4 million.

Also in March 2007, Charter Hall Group reiterated interest in investing in the development of the Centre.

On or about 3 April 2007, Campbelltown City Council granted development consent for two years for construction of a fashion outlet, bulky goods centre, multi-deck carpark and the demolition of existing buildings. (A modification of consent was issued on 15 January 2008 for additional basement car parking, reduction of bulky goods stores, deletion of car parking on level three and an increase in retail floor area.)

In April 2007, Savills prepared a “leasing pack” for Saxon in respect of the Centre for distribution to various retailers: “The Outlet Centre 32 Queen Street Campbelltown Leasing Pack” (“original leasing pack”). The original leasing pack included details about the trade area with its demographics, income statistics and population forecasts, the location and layout of the site, and proposed plains. Savills also prepared and distributed a media release in respect of the Centre that described that the appointment of Savills was to establish the right mix of national retailers for the Centre. That media release was headed “Exciting New Outlet Centre approved for South West Sydney”.

On or about 17 May 2007, Mr Ron Bransdon of LandMark White prepared a valuation report in respect of the Centre (“First LandMark Report”) for the National Australia Bank Ltd for first mortgage security purposes. This report was produced so that the lenders could assess the loan-to-value ratio of any loan they might provide.

Mr Bransdon valued the Centre at $87.8 million at completion excluding GST and valued the land with the existing DA at $20 million excluding GST. He was generally positive in 2007. He stated that the “demographics of Campbelltown and the Macarthur region generally seem ideal to support a discount factory outlet.” He noted that it was “critical that a project the size of the subject is expertly managed through the development and leasing program. In this regard the leasing co-ordinator, Kevin James of Savills is understood to be a highly experienced retail negotiator and in addition has lived in the Macarthur Avenue [sic, area] for over 20 years.”

The basis of Mr Bransdon’s valuation was the vacant land value with DA approval and gross realisation “as if complete”. Savills prepared a schedule of estimated budgeted rents and targeted rents. The net value of each rental was respectively $7,273,445 and $8,813,705. He stated that “[t]he estimated rentals are slightly higher than those currently achievable in the nearest comparable centres namely Homebush DFO and BrandSmart Parramatta where analysed recent rental have been in the vicinity of $585/m2 gross after incentive (generally 6 months rent free) for typical 100 m2 – 150 m2 shops.” Mr Bransdon took a more “conservative outlook” on estimated rentals based on the budgeted net rentals.

On or about 15 June 2007, CFO completed the purchase of the land at 32 Queen Street, Campbelltown.

In or about late October 2007, MPA (on behalf of CFO) lodged with the Campbelltown City Council an application to vary the development consent for the Centre. On or about 15 January 2008, the Council approved the modification of consent in respect of DA 2537/2006/DA-C.

On or about 1 November 2007, Savills and Saxon entered into a second ELAA related to the leasing of the Centre. It was again a term of this second Saxon ELAA that, in return for a leasing fee, Savills would find and introduce to Saxon such one or more persons as Savills considered might be acceptable as a lessee to Saxon in respect of the Centre. It was also a term of this second Saxon ELAA that the leasing fee would be 12% of the first year’s gross rental plus GST, excluding any incentives. Savills continued to provide to Saxon leasing services in respect of the Centre.

On or about 27 November 2007, CFO and PSP entered into the JV arrangement to develop and own a shopping centre at 32 Queen Street, Campbelltown, which the JV intended to operate as a factory outlet centre. From that time Dr Schwartz, as the primary director at PSP, became involved in the project. He had a previous professional relationship with Savills and Mr Brown. The correspondence shows that he conducted much of the written communication with Savills whereas the Bassals’ energies were directed more at the building work.

PSP acquired an unencumbered 60% interest in the land. Notwithstanding that PSP had a greater interest in the JV, it was a term of the JV agreement that each of PSP and CFO had equal 50% voting rights. In the event of a deadlock Mr Hadid had a deciding vote. The development of the Centre was to be fully debt funded with some allowance for the possibility that the CFO and PSP would have to inject their own funds should the circumstances require that.

After the JV was entered into Dr Schwartz started seeking finance for the development of the Centre. He was assisted in this regard by Balmain Commercial.

On or about 21 December 2007 Mr Brown from Savills attended a meeting with a representative from Suncorp regarding an application for finance by CFO and PSP in respect of the Centre.

In or about January 2008, Savills instructed a retail design consultant Retail Workshop Pty Ltd to review approved plans for the Centre and provide recommendations for asset value and functional efficiency improvements.

On or about 18 January 2008, Mr Bransdon of LandMark White prepared a second valuation report in respect of the Centre (“Second LandMark Report”). This report was prepared for Balmain Commercial for first mortgage security purposes and provided market valuation for gross realisation “as if complete”. It was in similar terms to the first report, although the JV had since obtained approval pursuant to s 96 of the Environmental Planning and Assessment Act 1979 (NSW) (as the Act was then numbered: see s 4.55 in the current version) to modify the consent for additional basement car parking, reduction of bulky good stores, deletion of car parking on level three and for an increase of the retail floor area. Mr Bransdon noted that the s 96 modification “increases the number of tenancies by 13.5% from 89 in the original DA to 101 (not including 2 cafés and 4 kiosks) and the lettable area by 14% from 13,469m2 to 15,388m2.”

On 30 January 2008, Dr Schwartz informed Mr Brown that the JV was “at the stage of finance” and enquired about “renewed offers to the prospective tenants”. He informed Mr Brown that the financiers needed to know what percentage had been leased and that the financiers sought 30% which the JV had negotiated down to about 20%.

The first meeting of the JV was held on 31 January 2008. The minutes of that meeting record that it was decided that Mr Fitzgerald, a retail consultant, should be engaged to provide a report in relation to changes to be considered by the JV such as traffic flow, design, food court, reducing the number of escalators etc. Once his report was approved it was to be provided to the architect along with the existing plans. This was to obtain a quote to redesign the Centre and create a new plan incorporating the changes suggested by Mr Fitzgerald. It was agreed that Dr Schwartz would deal with Savills on behalf of the JV. Dr Schwartz indicated that he would be asking Savills to consolidate the customers that expressed interest in leasing and begin to get them to sign “an intent and subsequently a lease” with as many as possible needed for financing. Thirty per cent was described as “great” and “15-20%” described as “okay”.

Also on 31 January 2008, Dr Schwartz emailed Mr King, who was the person responsible at Savills at that time, and told him that he should not “assume that Savills is going to be the leasing agent” for the JV. That is, although Savills had been the leasing agent for Saxon, a decision needed to be made as to whether it would go on to be the leasing agent for the JV. There was then a negotiation about what fees Savills would charge in the event that they became the leasing agent for the Centre as opposed to just for Saxon.

The contemporaneous documentation is then somewhat sparse until about July 2008.

Mr George’s evidence was that in around February/March 2008 he was at a meeting with Mr Brown when the Centre was discussed. Mr Brown told him that Savills did not know where the project was going at that moment and that if he could do something for the Centre then he should do it, but that he should concentrate on other work. This is consistent with the contemporaneous documentation indicating that Dr Schwartz had other projects he was seeking to develop at the same time. It was common ground that finance had not been secured by that time. I am satisfied that during this early part of 2008 the development was on hold until finance was secured although Savills was still obtaining more letters of offer (“LOOs”) from prospective tenants.

By May 2008, Savills had obtained pre-leasing commitments for approximately 30% of the Centre. A document titled “The outlet Centre – Campbelltown, as of 12/5/2008” notes that 16 offers awaiting disclosure statements were signed by that time (Genesis 53, Outlet Books, Bag Scene, Baku, Bright Eyes, Linen Choice, 2 Fuse, MS Menswear, Tommy Franks, Marco Gianni, Red Rooster, Hobbies R Us, two Gloria Jeans shops, Greenapple Kids and Valley Girl).

It is significant to note that these pre-leasing commitments were not contracts per se. Rather, they were expressions of interest by retailers who were interested in principal in leasing at the Centre provided other specified preconditions were met, the most important of which was that a suitable mix of tenants leasing at the Centre including large brand names and “nationals”. These LOOs were relied upon by Suncorp in its decision to provide finance to the JV. As will be seen below, most of those names did not ultimately take up the offer.

A number of significant events then occurred from June 2008.

On or about 23 June 2008, DeiCorp submitted a tender for the construction of the Centre in the amount of $34.48 million. On or about 30 June 2008, the JV accepted DeiCorp’s tender. On or about 7 July 2008, the JV and DeiCorp entered into a building contract with a completion date of 1 September 2009. Construction of the Centre commenced in July 2008.

On or about 6 June 2008, CFO and PSP accepted an offer of finance from Suncorp (“the Loan”). It was a term of the Loan that PSP and CFO grant a mortgage over the land to Suncorp and that the Bassals enter a personal guarantee together with Dr Schwartz limited to the sum of $5 million. The Bassals’ guarantee was limited to $2 million and Dr Schwartz’s to $3 million. It was also a term of the Loan that both CFO and PSP grant to Suncorp a New Registered Company Charge over all of the assets and undertakings of the company including uncalled and unpaid capital.

The finance which Suncorp agreed to provide to the JV was $47.8 million across three facilities:

The facilities provided for two different interest rates: a “Lower Rate” and a “Higher Rate”. The Higher Rate was a 3% premium on the Lower Rate which was payable if interest was not paid by a due date or there was an unremedied event of default.

Facilities 1 and 2 were to assist with the construction whereas Facility 3 was a development finance loan being the total of 1 and 2. The Term Loan Facility 3 is described in the expert evidence as a “Corporate Facility”. I too will adopt that terminology. The difference between the Construction Facility and the Corporate Facility was that the latter did not allow for capitalised interest, meaning that the JV would be required to make interest payments in cash once the Centre was, theoretically, up and running.

From 30 July 2008 to 30 June 2010 interest accrued and was capitalised under the Construction Facility, meaning that interest was not paid in cash but was instead added to the principal. The capitalisation period was to be for a period of 22 months from the first drawdown on 30 July 2008 until 30 May 2010. For some reason, not apparent on the evidence, the interest continued to be capitalised for 23 months. This is inconsistent with the loan documentation. Under the Construction Facility, interest could be capitalised up to a value of $3,796,780 provided there was no unremedied event of default.

In summary, the JV was not required to pay interest in cash until 1 July 2010 and the Corporate Facility was due to be repaid in full 36 months from drawdown of this facility. That meant that $47.8 million was due to be repaid or refinanced on 30 June 2013.

On or about 9 July 2008, Mr Bransdon prepared a third valuation report in respect of the Centre, this time for Suncorp, for first mortgage security purposes. Mr Bransdon estimated that the market value of the site had decreased to $14 million given, “[e]conomic conditions are considered to be at their lowest point since the early 1990s.” A characteristic of the Sydney commercial market in 2008, he noted, “has been the absence of significant sales, although the major agents report that there remains good enquiry for quality investment properties but secondary properties are attracting little enquiry.”

Mr Bransdon again adopted “a conservative rental base below the budget estimates of the owner and leasing agent”, this time “at an average if $400/m2 per annum net ($500/m2 per annum gross approximately)”. He reiterated that it was critical the project was expertly managed through the development and leasing program. He noted that, “[i]n this regard the leasing is being co-ordinated by Tom Brown of Savills.”

His estimate of the gross realisation from the property “as if complete” had weakened to $83 million (free of GST) based on a higher capitalisation rate of 7.75% per annum net compared with 7.25% and 6.75% in his previous reports. Accordingly, he estimated that the development profit after interest had decreased to $16,301,737.

In either July or August 2008, the JV entered into an ELAA with Savills in which Savills agreed, inter alia, to “find and introduce” to the JV “such one or more persons as they consider might be acceptable as a lessee to” the JV. This ELAA is the contract in relation to which Savills’ duties to the JV are to be found. The version tendered was not dated.

Mr Bassal’s evidence was that the ELAA commenced in July 2008 whereas Mr Brown’s evidence was that it commenced in August 2008. During the hearing of the matter, senior counsel for Savills indicated that it was content to proceed on the basis that the relevant date was July 2008 because very little turned on it. I also propose to proceed on that basis. I shall set out this ELAA in more detail below at [332]. It is the alleged breach of this contract which forms the basis of the plaintiffs’ claim.

July 2008 thus marked the beginning of the contractual relationship between the JV and Savills. It was also the month that the financing was finalised and the building work commenced.

Shortly after the building work commenced the Global Financial Crisis (“GFC”) occurred. The expert evidence was that this was in about August/September 2008 before any leasing had actually commenced.

The reason for the delay in the commencement of the leasing formed a critical dispute between the parties at the hearing. It was one of the particulars of negligence relied upon and considerable time was devoted to this issue at the hearing. The plaintiffs’ case was that Savills breached their contractual duty by delaying this process. Savills’ case was that it could not commence the leasing until four matters were attended to, none of which were within their complete control. Those four matters were: waiting for the JV partners to sign off on the budget, waiting for the JV solicitor to provide them with the lease, waiting for the final MPA (architectural) drawings and waiting for an updated report from Urbis. The question of whether the leasing should have commenced without these documents was the subject of expert evidence (see below at [364] to [405])

In or about July 2008, Mr Kanellopoulos commenced employment with Savills in the role of divisional director of retail leasing and projects. His supervisor was Mr Brown. His evidence was that shortly after he started work at Savills he was told by Mr Brown at a meeting with Dr Schwartz that Savills was going to “take on” the leasing of the Campbelltown property. Mr Brown told him after the meeting that there were “about 100 shops” in the Centre which was due to open in “September/October 2009”.

Mr Kanellopoulos’ evidence was that Mr Brown told him not to follow up any of the retailers on the list of LOOs provided to Suncorp at that time (August–September 2008). He further stated that, “[d]espite Tom telling me that I should ‘leave it for now’”, he did in fact start to follow up the retailers mentioned in it. There was no evidence in the documentation of any specific retailer he followed up on, although on 13 August 2008 he sent an email to Rivers Super Store following an enquiry regarding leasing space, in which he stated, “we have a number of Greenfield and existing projects coming on line this year, in particular Campbelltown Factory Outlet, comprising of some 90 outlets stores (approx) and we anticipate to commence leasing the centre in the coming weeks”. Nor was there any evidence from Mr Kanellopoulos or any contemporaneous documentation as what happened when these retailers in the LOOs were contacted by Mr Kanellopoulos.

Mr Brown’s evidence (in cross-examination by Mr Bassal) was after the signed the July 2008 ELAA was signed:

Mr Kanellopoulos’ evidence was that from July until November 2008 he had expressed concerns to Mr Brown that he, along with another leasing executive, Ms Zabloudilova, would not be able to have the Centre leased “fully occupied, or close to fully occupied” by the deadline if they did not start working on the project immediately. He told Mr Brown at a meeting in November 2008 that they would only be able to achieve “60 out of 100” tenants by the deadline. Mr Kanellopoulos estimated that Savills would need to get about four leasing executives to meet that deadline. I shall return to the issue of how many were necessary when considering the expert evidence.

As for the provision of a lease to Savills, on 14 August 2008 Mr Bassal wrote to Dr Schwartz in which he stated:

On or about 19 August 2008, Mr Grant provided the first draft of the lease for prospective tenants of the Centre to Savills but it did not have a “discount clause” in it. This is a clause in which the tenant agrees to always have stock on sale at discount prices in keeping with the purpose of the Centre.

On 26 August 2008, Mr Bassal wrote to Mr Brown and asked whether he had received the lease. He then stated, “we also need to start meeting on a weekly basis so that we can discuss offers.”

On 28 August 2008, Mr Bassal sent an email to Mr Brown chasing up whether he had received the lease yet.

In August 2008, Mr Brown suggested a further proposed alteration to the plans for the Centre (by moving the escalators). Emails show ongoing discussion of this issue between Savills and the JV. The revised plans were provided by Mr Daniele on 18 September 2008. The proposed alteration was never actually made. Instead, new floor plans were made that included revision of egress passages. They were provided to Mr Bassal by Mr Mosca on 23 September 2008 and created approximately 200m2 of floor space on each level.

On 23 September 2008, Dr Schwartz sent an email to Mr Brown stating simply “Thomas, why do you send this to HIM!” (referring to Mr Bassal). This was in relation to approval of a quote that was sent to Mr Bassal. It is clear from the tone of a number of Dr Schwartz’s emails that he did not get on with Mr Bassal and had a very blunt approach to his email correspondence in general. I do not place any particular significance on this.

On 25 September 2008, Mr Daniele provided various architectural drawings to Mr Bassal which were then forwarded by Mr Bassal to Mr Brown and described as the “final drawings”. Mr Brown responded and asked for a copy of the plans with the “new areas” on them. That request appears to be a reference to the size of each individual tenancy in square metres.

There was disagreement between Mr Bassal and Mr Brown as to when the relevant budget was signed off. The budget included, inter alia, agreement between the JV and Savills as to how much rent the JV partners wanted. It allowed Savills to know what deals they could make with prospective tenants and still generate the income the JV partners sought.

The first document in evidence concerning the budget was an email on 26 September 2008 from Mr Brown to Dr Schwartz requesting a meeting to “approve the budget”. Dr Schwartz responded that Mr Brown should just meet with Mr Bassal and “get his signature” on the basis that Mr Bassal could be told that Dr Schwartz had already approved the budget.

On 29 September 2008, Mr Brown sent the following email to Mr Bassal:

The content in this email is consistent with discussions about the budget for the Centre having occurred prior to 29 September 2008. It also suggests that Mr Bassal was seeking a total rent of $6.8 million which was higher than the proposed budget put forward by Savills.

There was no budget attached to that email or any earlier emails.

On 3 October 2008, Mr Brown, Mr Kanellopoulos and Mr Bassal went to lunch at Wild Fire, a restaurant. Mr Brown’s evidence was that this was to discuss the budget. Mr Bassal’s evidence was that he attended this lunch with Mr Brown and Mr Kanellopoulos but does not recall any discussion concerning the budget, only discussion about the Centre. Mr Kanellopoulos did not give any evidence about this lunch. I do not consider that anything turns on the question of whether the budget was discussed at the lunch but given the timing of the lunch in the context of the contemporaneous documents I am satisfied that the topic would have come up. To this extent I do not accept Mr Bassal’s evidence that it did not.

Mr Bassal’s evidence was that he discussed the budget with Mr Brown and Ms Childs a number of times between 3 October 2008 and 31 October 2008 and that Mr Brown suggested that a budget be set at $5.3 million. His evidence was that he had an issue with that but there are no emails or minutes that these reasons were ever communicated to Savills.

On 27 October 2008, Mr Brown sent an email to Dr Schwartz, Mr Bassal and Mr Hadid attaching a budget and a letter regarding sign off. It contained proposed “budget” rentals and “target” rentals for each shop with the total net rental income projected to be $5,383,151.30 and the total target income projected to be $6,183,385.80. These rentals represent the upper and lower parameters for negotiations as to rent by Savills, on behalf of the JV, with prospective lessees. The letter accompanying this budget sought the signature of each of PSP and CFO to signify their acceptance and was in the following terms:

There were no versions of any budget created prior to 27 October 2008 contained in the court book.

On 29 October 2008, Ms Childs indicated to Savills that she had spoken to Mr Bransdon, and he had indicated that average market rents for the Centre remained in line with his earlier opinion of “around $400 net”.

On 30 October 2008, Mr Bassal wrote an email to Mr Brown, Dr Schwartz and Albert Hadid in these terms:

Dr Schwartz then forwarded the email to Mr Brown. He described the subject of that email as “Fun & games” and the content of the email was simply “#@!*”.

On 31 October 2008, Savills issued a further budget spreadsheet stating the new proposed budgeted net income of $5.97 million and targeted net rental income of $6.474 million.

It was not until 3 November 2008 that the JV finally approved the budget. Savills’ case was that the leasing could not commence until the budget was finalised and that Mr Bassal was the cause of the delay. Mr Bassal’s evidence was that the budget had already been finalised in “early 2008” (that is, before the JV ELAA).

Mr Bassal was cross-examined about his assertion that there was an earlier version of the budget prior to 27 October 2008. He not able to locate any version of the budget despite being given the opportunity to do so.

As for the reasonableness of Mr Bassal’s suggested budget, Mr Bassal submitted that the budget parameters were established in Mr Bransdon’s Landmark White report in January 2008. He recalled that Mr Kanellopoulos proposed for it to be reduced from $5.9 million to $5.3 million at one stage. Mr Bassal explained that he refused to agree on a lower budget because it clashed with Mr Bransdon’s valuations and he knew that the Birkenhead Point outlet centre was achieving much higher rents.

As for Mr Brown’s letter dated 27 October 2008 to the JV seeking the JV’s approval of the budget in order to commence the campaign, Mr Bassal submitted that he thought the leasing and marketing campaign was well under way by that time. He denied both that it was difficult to prepare the budget and Mr Brown’s reasons for that. He submitted that his view that the budget should be approximately $6.15 million was based on Mr Bransdon’s valuation report and the signed LOOs. He noted that the revised budget as at 28 July 2009 was $6.4 million.

The plaintiffs have failed to establish both that there was any earlier version of the budget. I am satisfied that the budget was not agreed upon by the Bassals until 3 November 2008.

On 30 October 2008, Mr Brown wrote to Dr Schwartz and asked “have you had a chance to get an idea if the project can be delayed by year”.

Dr Schwartz replied to this email stating, “[w]e did discuss your idea of postponement last night (Peter, Julie, Chris Curtain from Melbourne), and generally agreed to bite the bullet and keep moving. A dilapidated building site is a huge turnoff.” Mr Brown responded to this email shortly afterwards by asking, “[i]s it possible to slow the project down as the Retail leasing market is very difficult at present and I don’t want the Centre to be opened half full.”

On 11 November 2008, a meeting was held attended by Mr Brown, Mr Kanellopoulos, Mr Bassal, Mr Hadid and Mr Deiri. Mr Brown again asked for the project to be delayed to allow for a proper leasing campaign to be conducted. The JV partners refused to delay but Mr Bassal offered another 2% commission to Savills for additional resources to be dedicated to the leasing campaign. Mr Brown’s evidence was that Albert Bassal was also in attendance at this meeting. The minutes disclose the following comment by Mr Kanellopoulos at the meeting:

The outcome of the meeting was recorded in an email from Mr Brown sent that day which records the following:

Mr Kanellopoulos did not dispute this aspect of Mr Brown’s evidence.

Despite the fact that Mr Bassal accepted the veracity of the minutes of the JV meeting, he disagreed that Mr Kanellopoulos had said anything about negative feedback at that meeting. He also denied that anyone said that retailers were asking for up-to-date demographics. He contended that it was Mr Brown’s idea to get the updated report from Urbis. He further denied that it was Mr Deiri who suggested a staged opening and said that that came from Mr Kanellopoulos. As for the rebranding of the Centre he denied that Mr Brown approached him first rather than Dr Schwartz.

I am unable to accept Mr Bassal’s version of what was said at this meeting and the reason for the updated Urbis report being sought. It does not correspond with the contemporaneous records. As with much of his evidence, Mr Bassal’s evidence on this issue was self-serving. His complaint that he did not believe the updated Urbis report to be necessary was not communicated by him to anyone at the time. As will be seen, Mr Bassal’s belated complaint in this regard is no doubt the result of the fact that this second Urbis report was pessimistic regarding the immediate success of the Centre.

On or about 12 November 2008, DeiCorp wrote to the JV seeking assurances that the project would not be delayed and explaining the problems that delay would cause.

On 14 November 2008, there was an email exchange between Mr Brown and Dr Schwartz in which Dr Schwartz accused Mr Brown of taking advantage of his absence at the JV meeting to increase Savills’ rates. Dr Schwartz wrote to Mr Brown and said “you need to put your best effort into this project anvway [sic], especially with the economic downturn”. There was a further heated exchange between the two of them the result of which is that Dr Schwartz refused to increase the commission. Thus, the additional 2% in commission foreshadowed by Mr Bassal ultimately was not forthcoming as Dr Schwartz refused to agree to it.

On or about 16 or 17 December 2008, Dr Schwartz expressed concern to Savills about its performance in leasing the Centre.

On 25 November 2008, Mr Brown emailed Dr Schwartz to discuss the rebranding of the Centre further. He suggested moving away from the name being an “outlet” and instead calling it “Queen Street, Your Discounted Brands”. Dr Schwartz agreed with this then stated, “I know Terry (whom you did not CC) would NOT like this because he has future ambitions of more centres.” Mr Brown then emailed back “Do you have a problem if I upset Terry?” to which Dr Schwartz replied “you want to earn some brownie points?”

On 5 December 2008, Mr Brown forwarded to Mr Bassal, Dr Schwartz and Mr Hadid an email received from Verve Creative attaching a new name and logo. Mr Brown stated simply: “What about this …: ‘Brands on sale with tagline the centre name?’”

On 15 December 2008, Mr Bassal “replied all” to this earlier email asking what was happening with the new logo and other matters including the rubbish compactor and then stated this: “Thomas I have emailed you twice with no answer, if you are unable to supply some simple information how are you ever going to lease 100 shops?”

No reply by Mr Brown was included in the evidence before me although Dr Schwartz responded to Mr Bassal indicating that he had approved the new logo and was “eager to commence our marketing campaign as quickly as possible”.

On 16 December 2008, Dr Schwartz emailed Mr Brown and copied in Ms Childs and Mr Grant (but not Mr Bassal). The email was in these terms:

On or about 17 December 2008, Campbelltown City Council approved the modification of consent in respect of DA 2537/2006/DA-C/B.

On 17 December 2008, Mr Grant enquired of Mr Brown as to whether he had any comments about the proposed Agreement for Lease that Mr Grant had drafted and that, if anything was required, it could be attended to quickly so “everything can be in place for Agreements for Lease”.

On the same day, Mr Grant sent a letter to Mr Brown referring to a telephone discussion that morning and enclosing a “further draft Agreement for Lease”.

On 14 January 2009, Mr Bassal emailed Mr Brown (copying in Dr Schwartz and Mr Hadid) in the following terms:

Mr Bransdon estimated that the site value remained at $20 million but that the market value had increased slightly to $89 million (gross realisation “as if complete” free of GST). He estimated that the development profit after interest had increased to $19,117,557.

On 27 January 2009, Mr Kanellopoulos raised several issues in his email to Mr Brown about the preparation of the documentation that would be needed so Savills could “approach the market” and that a meeting with the JV was required to discuss the leasing and the timeframe. No written response to this email is in evidence.

Following the 11 November 2008 JV partners meeting, a consultancy firm, Urbis, was instructed by Savills to conduct an assessment on the potential retail market for the outlet centre. Mr Brown’s evidence was that reports from Urbis and similar organisations were typically used in the promotional material provided to prospective tenants. He stated that an update was needed because the January 2007 Urbis Report was not as comprehensive as usual and was almost two years out of date. Mr Brown also indicated that an updated report would confirm whether the rentals sought by the JV were commercially reasonable and realistic. Mr Brown was not challenged about this explanation in cross-examination.

The 2009 Urbis report stated that its purpose was to “provide a market assessment which looks at the likely trade area to service the new centre as well as the amount of expenditure generated by the trade area.” This report was the subject of heavy criticism by Mr Bassal and significant reliance was placed on it by Savills. It is thus necessary to set out its findings in some detail.

The executive summary of the report identified its major findings. It was noted that the trade area for the subject site has been defined to include three sectors. The main trade area with the majority of trade will be drawn from the Local Government Areas (“LGA”) of Campbelltown, Camden and Wollondilly. The tertiary trade area consists of the LGA of Wingecarribee and the Wollongong sector which is made up of the LGA’s of Wollongong Shellharbour and Kiama. As the trade area is not a traditional retail centre, with no provision of fresh food and grocery retailing, it does not lend itself to a primary trade area. Due to the unique tenancy mix, the subject site lends itself to a wider trade area than a traditional non-leading sub-regional centre.

The total trade area was found to consist of 575,720 individuals in 2008, with 245,580 individuals residing in the main trade area, 45,810 in the tertiary trade area and the Wollongong sector comprised of 279,330 individuals. The trade area’s demographic characteristics can be summarised as being made up of young Australian-born families whose incomes sit below the Sydney average. Per capita, the total trade area spends $10,529 per annum on retail goods which is 7.4% below the Sydney average. The main trade area spends slightly less on retail goods per annum with the average per capita being $9,925.

The report went on to state that using benchmarks based on the average turnover for regional shopping centres, as well as other factory outlet centres, most outlet centres’ turnover is somewhere in the order of $3,500 and $4,500/m2. In order for the Centre to reach a minimal sustainable turnover of say $4,000/m2 (approximately $56 million in 2008) the Centre would need to achieve a market share of approximately 5% of the outlet-centre-type merchandise market including Wollongong and close to 10% of the broad trade area’s market share excluding Wollongong. The report stated: “This is considered to be very high, based on Urbis’ previous work, market share is generally in the order of 3% and places into question the short term potential of the Centre to reach a sustainable trading level.”

Later, at 5.2.2 of the report under the heading “Centre Potential”, a number of difficulties with the proposed centre are set out. The opinion that the typical market share of an outlet centre is in the order of 3% was repeated and then it was observed:

Under the heading “Conclusion” it was noted that:

On 3 February 2009, a meeting of the JV partners was held at Rydges World Square in Sydney. Dr Schwartz, Mr Bassal and Mr Haddad were present as were Mr Brown, Mr Kanellopoulos, Mr Grant, Ms Childs and Ms Maljkovic. The notes taken at that meeting disclose a number of issues were raised at that time.

Mr Kanellopoulos addressed the meeting and stated that the “dilemma” for the JV partners was the “rental expectation of the dollars per square metre gross which may differ from market sentiment and expectation”. He said that the previous budget could not be achieved on the current figures as reported by Urbis in its report.

Mr Kanellopoulos also stated that realistically the market would expect a rental of $400/m2 “it is definitely not realistic to expect $550 or $600 per square metre gross”. The notes record that both “BK and Thomas Brown were at pains to explain this to the meeting.”

The notes also record that “both TB and AH make comments critical of the delays in commencing the leasing activities. The representatives of Savills countered that the Urbis report was a necessary preliminary step to achieve and now that this was obtained the way forward could be planned in a uniform way to avoid a confused marketing plan.”

The notes go on to record that the “Savills representatives indicated … that they needed a clear direction from the meeting, it had taken six months to agree on a budget and now that the branding was agreed and the Urbis report obtained it was easier to take the next forward step.”

Mr Kanellopoulos’ evidence was that he and Mr Brown met with the JV partners in late 2008/early 2009 and Mr Kanellopoulos suggested to them that the Centre open in two stages. Dr Schwartz said, “[t]hat’s not going to happen” and Mr Bassal asked, “[w]hat have you guys been doing all this time?” It is unclear precisely where this fits into the chronology.

The leasing commenced shortly after this meeting. By that stage all outstanding matters had been attended to, namely, the budget had been agreed upon, the leases had been provided by Mr Grant, the designs had been provided by MPA and the Urbis report had been provided.

The next meeting of the JV parties was on 20 February 2009 with similar persons in attendance. The notes recall that “BK reported that a target list of likely tenants had been prepared - 400 names are on the primary hit list”. Ms Xu and Ms Zabloudilova were approaching those persons. Ms Zabloudilova indicated that “while the ‘high-end’ Retailers were not doing a whole lot at this point in time, those National tenants that had been approached have expressed interest and as soon as some National tenants are definitely interested anchor tenants will be approached by a two prong attack by both Ms Xu and Ms Zabloudilova to co-ordinate interest and get the best possible tenancy mix and placement in the Centre”.

Ms Zabloudilova also explained “that the Nationals want to know which anchors where in the Centre and the anchors will want a complete package ready to go which will help build the profile of the Centre for future trading in any case.” The notes also disclose that “the Savills representatives explained that the market mix was crucial to not only enticing new tenants but for the continuing and future viability of the Centre.”

None of the documentation records any instruction provided by the JV at or following this meeting about the inconsistency between the projected net rental of $400/m² and the findings in the 2009 Urbis Report.

On 25 February 2009, email correspondence involving Mr Kanellopoulos, Ms Xu and Ms Zabloudilova indicated that Rip Curl was interested but they would like Quicksilver, SDS (aka Surf Dive “n” Ski) and Billabong as their neighbours. There were other similar emails to this but I have included this one as an example of the expectations of prospective tenants. It is clear from the emails that the “info pack” for tenants was still not ready by this time.

A “Summary of Feedback” document dated 2 March 2009 prepared by Savills shows a long list of retailers who were not interested in any negotiations until they had received confirmation of which “big names” that had already signed up.

On 4 March 2009, Mr Kanellopoulos emailed the architect at MPA, Mr Daniele, and copied in, inter alios, Mr Bassal, Mr Hadid, other Savills employees, and Mr Grant. The purpose of the email was to see if there was an area within the Centre that could accommodate David Jones if they came on board. He then stated this:

The next meeting of the JV partners was on 6 March 2009. In attendance were Mr Bassal, Mr Hadid, Ms Childs, Mr Kanellopouls, Ms Xu, Ms Zabludilova, Mr Grant, Mr Daniele and Mr Deiri. Topics discussed included the proposed brochure for the Centre. Mr Kanellopoulos warned that there needed to be adequate parking. Other matters discussed were fit-out guides, food in general and the fact that a tenancy coordinator would need to be appointed to design, review and coordinate the shop fit outs. It was noted that David Jones had indicated interest and wanted to take 1400m². The lack of storage in the Centre was addressed as was the question of external signage.

The next meeting of the JV partners was on 20 March 2009. Present were Mr Grant, Ms Childs, two representatives from DeiCorp and Mr Bassal. From Savills there was Mr Brown, Mr Kanellopoulos, Ms Xu and Ms Zabloudilova.

The notes show under the heading “Leasing Update” that the brochure was now in final form and was ready to distribute. The following was then noted:

Mr Kanellopoulos gave a brief summary of meetings that had already taken place or were scheduled and indicated that a particular tenant was interested but would need to have their current premises lease paid out. Mr Kanellopoulos indicated “that this was now unfortunate industry practice and it was known for operators to buy out key retailers in order to entice them from existing leases to new Centres.” Both Ms Xu and Ms Zabloudilova then went through retailers they were targeting. There was then a discussion about David Jones. It was discussed that there would be likely relocation costs involved in getting them into the Centre but that this was a worthwhile investment as David Jones would anchor the Centre and attract many second-tier tenants who would pay good rents for the chance of being at the Centre.

On 24 March 2009, Mr Kanellopoulos emailed the JV partners and others about a difficulty with the tenancy fitout manual: it was standard industry practice for the lessor to provide the basic shop front. Thus the tenancy fitout manual had to be amended. This was to be done as soon as possible as they were preparing offers to 12 named retailers.

On 2 April 2009, an interested tenant emailed Ms Xu and advised that in order to determine whether it would be viable to lease at the premises they needed to know, inter alia, what the committed tenancy mix was.

The next meeting of the JV partners was on 3 April 2009. The JV partners were present (not Dr Schwartz but Mr Hadid) as well as Mr Grant, Mr Kanellopoulos, Ms Xu and Ms Zabloudilova (but not Mr Brown).

The fact that MPA needed to reissue tenancy plans was discussed. It was noted that the target list of retailers was updated and presented. It was further noted that: “The reaction has been favourable but some retailers are waiting to hear of other leasing progress before committing to the Centre”.

It was also noted that

On that same day Ms Xu emailed Mr Bassal to advise that 11 letters of offer had been issued to named brands.

On 8 April 2009, Mr Kanellopoulos emailed Mr Bassal, Mr Albert Bassal, Mr Grant and others at Savills. He urged that there cannot be too many generous leases and that those that are negotiated should only be for “key essential retailers” which have the ability to draw patronage to the Centre. He also urged against too many short-term leases as this may result in large fallout after two years. He also noted that he had lengthy conversations with two well-matured leasing executives to assist and that he hoped to bring them on.

On the same day Mr Kanellopoulos sent another email to the same recipients advising that David Jones could not get out of their current leasing at Macarthur Square at Campbelltown and thus were no longer interested. I pause here to note that although David Jones expressed some interest in March, by April it was clear that it could not get out of its lease at Macarthur Square. There is no evidence that this was due to any failure on Savills’ part.

On 8 April 2009, a prospective tenant emailed Ms Xu asking for an updated tenancy plan showing what nationals had already shown interest.

On 14 April 2009, Mr Hadid emailed Dr Schwartz, Julie Childs and Mr Grant agreeing that extra resources should be utilised. He stated:

On 15 April 2009, Ms Xu emailed the JV partners to indicate that she had a signed LOO from Industrie and had achieved above the target rent by $674.73 per annum (Industrie did not ultimately take up this lease).

Mr Kanellopoulos’ evidence was that by April/May 2009, he had told Mr Bassal that he did not “have the authority to provide the extra resources” to get the plaintiffs where they needed to be. This is consistent with the 14 April email. Further, the minutes of the next meeting of the JV partners on 16 April 2009 record that Mr Kanellopoulos said the following:

The other Savills agents at the meeting went through the list of contacts made and responses received.

The next meeting of the JV partners was on 1 May 2009. Mr Bassal, Dr Schwartz and Mr Hadid were all present as were Mr Kanellopoulos, Mr Brown, Ms Xu and Ms Zabloudilova, Mr Grant, Ms Childs and others. The notes record that a number of named tenants were interested and a number of brands were mentioned as being interested. Those brands included Converse, Nike, Sheridan, Pumpkin Patch, Oxford, Wittner Shoes, Perfume Connection, Shoe Box, Strand Bags and OshKosh. The notes then record the following:

On 7 May 2009, Ms Zabloudilova emailed the JV partners and others and indicated that the existing website needed to be taken down. She wrote that “[t]he whole website is portraying the wrong information, based on the graphics and branding the website portrays three failed outlet centres and the current message that is being sent is advertising a completely different product”. (The website had not been created by Savills.)

In or about May 2009, Retailspace Australia was appointed as an additional leasing agent to assist with the leasing campaign for the Centre. The relevant agents were Jeff and Troy Deviesseux.

In or about June 2009, Darryl Ashworth from Metier was also appointed as an additional leasing agent to assist with the leasing campaign for the Centre. Mr Ashworth’s evidence was that he had received a phone call from Mr Kanellopoulos seeking assistance. He understood the Centre to be a three-quarters-built, greenfield project that was due to be opened in October/November 2009. He stated that in his experience it would take approximately 18 months to lease 90–100 shops with a minimum of four to five leasing executives on the project.

Mr Ashworth’s evidence touched on his own practices. He stated that his 27-year career had been focused on retail leasing and on the leasing tenancies in outlet centres. In his experience the success of an outlet centre depends on a high concentration of well-known brands trading from the centre that would feed consumer traffic to the lesser known brands. Having a good relationship with well-known, brand-name retailers is important in retail leasing. His practice in leasing an outlet centre included researching particular retailers he was not familiar with, phoning them to gauge their interest which would be followed up by sending more information, organising face-to-face meetings that may be followed by a letter of offer if there is an interest, and making further follow-up phone calls on the letter of offer. He first stated that in his experience well-known retailers would take between two to nine months to make a decision given their organisational structures. He corrected this in his second affidavit by stating that in his experience it would take between three weeks and six months for a retailer to make a decision and between two and nine months to have the lease signed. Mr Ashworth stated that higher profile retailers that would operate as “anchor tenants” would be approached when the floor plan was close to being fully finalised as it would give an idea of how the centre would operate.

On 12 June 2009, Mr Ashworth received an email from Ms Xu that contained a “Quarantined List” that Metier was not to approach given Savills’ various stages of negotiations with them. He stated that the list contained every well-known, brand-name retailer in the market. He was “perplexed” as to why his assistance was needed. In mid-2009 he already had a relationship with 86 retailers on the list.

Mr Ashworth stated that the GFC had a negative impact on the retail leasing at that time and it was more difficult to secure leases. Despite this, the GFC did not prevent shopping centre projects from being successful. The reason for this was that, in his experience, the $900 stimulus package was spent by many recipients on retail items.

On 1 June 2009, there were further emails between Mr Kanellopoulos, Mr Hadid, Mr Terry Bassal and others about renaming the Centre as “Brands on Sale @ The Outlet Centre”.

On 3 June 2009, Mr Hadid emailed Mr Kanellopoulos and Mr Bassal in the following terms:

On 8 June 2000, Dr Schwartz emailed Mr Kanellopoulos and Mr Brown and copied in Mr Bassal and Mr Hadid. The email was in these terms:

On 15 June 2009, Mr Hadid emailed Bill copying in Mr Terry Bassal. That email included the following:

The next meeting of the JV partners was on 26 June 2009. Dr Schwartz was not present but all other relevant persons were. The minutes record that Mr Ashworth from Metier stated that “the Joint Venture partners really only have the one chance to get the Centre right due to the current financial conditions [emphasis added] and the increased number of opportunities being opened up for retailers not only by factory outlets but also by more mainstream retail outlets such as Westfield which are finding it harder to fill vacancies.” It is to be noted that this contemporaneous account does not correspond entirely to Mr Ashworth’s evidence that the GFC did not prevent the project from being successful. He was not called as a witness.

Jeff and Troy Deviesseux from Retail Space Australia reported on their leasing activities. They were off to Melbourne to meet 20 to 30 retailers and they went through a list of retailers they had approached. Some were still undecided and some were still considering a location within the Centre and their preferences. Ms Zabloudilova then reported on her progress and noted that with “some of the larger retailers it was very difficult to obtain a decision as each layer of executives have a different idea as to how they wish the company to go ahead.” It was also noted that “some of Vivian’s contacts were waiting until they could have an on-site inspection of the Centre before making a decision on whether or not they are interested in a lease.”

It was also noted that Mr Kanellopoulos had trimmed the incentives and this would add approximately $500,000 to the bottom line.

On 30 June 2009, Mr Kanellopoulos sent an email to the JV partners with a proposed revised budget of $6.46 million based on net rental income. This budget was higher than the previous ones. No clear evidence was before the court as to why this was. Although it is to be inferred that this was due to pressure from the lender, I am unable to resolve this issue on the evidence before me.

On that same day Mr Hadid emailed Mr Grant and copied in Mr Bassal. Some of the email was in these terms:

At this time there are still emails discussing what the Centre should be named.

On 6 July 2009, Peter McMillan from Metier emailed Mr Kanellopoulos with a list of retailers potentially interested in leasing at the Centre.

On 8 July 2009, Ms Xu confirmed that Perfume Connection was signed off at above budget per square metres. In the email correspondence on 9 July 2009 that followed between Mr Grant, Mr Bassal, Mr Kanellopoulos and Ms Xu, Mr Grant explained that if the new budget was adopted it would be below it.

On 9 July 2009, Ms Zabloudilova emailed the other leasing agents seeking updates on certain tenants that she had handed over to the new leasing agents as they said they had a better relationship with them.

Also on 9 July 2009, Dr Schwartz emailed Mr Brown copying in Mr Grant. The email was in these terms:

The next meeting of the JV partners was on 10 July 2009. The notes of this meeting reflect that “Jeff and Troy reported that generally retailers are awaiting to see who else has signed in the Centre before they commit”. Each agent reported on their enquiries but there was very little in the way of firm commitments.

On 13 July 2009, Mr Kanellopoulos emailed the JV partners seeking confirmation as to which leasing budget he was to use. He enquired whether it was the original budget of $5.9 million net with incentives of 12 months of the first year’s net rent or the revised budget of $6.4 million and incentives reduced to $3 million approximately. Dr Schwartz replied that the original signed budget was to be used. Mr Bassal emailed himself (by way of a file note) stating, “Thomas not knowing which budget to use in late July 2009”.

On that same day, Dr Schwartz wrote a letter to Saxon and Mr Hadid. Some of the letter was as follows:

Dr Schwartz inquired whether CFO could inject additional funds into the project.

On 22 July 2009, Mr Ashworth emailed the other agents indicating that he and Mr Bassal had been “hitting the phones” and that they appreciated that they may have “stepped on people’s toes” in doing so. He then provided a list of retailers who responded “more on the positive” and they required further information on the project. A list of 13 retailers was then provided.

A telephone meeting of the JV partners was held on 27 July 2009. The only persons in this conversation were Dr Schwartz and Mr Brown. The notes were then distributed to the other JV partners. At that time Dr Schwartz advised Mr Brown that Mr Bassal would be closely examining and monitoring the progress of the individual tenants and discussing any issues or concerns directly with Mr Kanellopoulos.

On 1 September 2009, Mr Kanellopoulos sent an email to the JV partners and leasing agents summarising the current condition. He indicated that there was only one signed lease, 20 signed LOOs, 50 LOOs issued and four shops were in advanced discussion.

On 3 September 2009, Ms Zabloudilova emailed Mr Ashworth copying in Mr Kanellopoulos and indicated that she had had a “good meeting” with Fossil that morning and they wanted to rent next to other brands such as “Country Road, French Connection, Oroton, Nine West, CK” etc. I note that this was typical of the position of most of the prospective retailers. That is, they were only interested in leasing at the Centre if it was confirmed that a large number of retailers had already committed to the Centre.

On 7 September 2009, the JV partners held a meeting. Present were Dr Schwartz, Albert and Terry Bassal, Mr Brown, Mr Kanellopoulos and Mr Grant. The notes record that Mr Kanellopoulos informed the others that:

On 9 September 2009, Mr Kanellopoulos wrote to the architects noting that there was only six to seven weeks until handover and that “retailers will leave everything to the last minute and there is nothing anyone can do about it, with over 70 retailers to juggle, I anticipate up to 20% will require changes to the original plans. Delays are unacceptable …”

On 9 September 2009, Mr Kanellopoulos emailed Dr Schwartz copying in Mr Bassal, Mr Grant and Mr Brown. He referred to a prospective tenant that had not as yet been approved by the JV partnership. He stated:

On 11 September 2009, Ms Zabloudilova emailed Dr Schwartz, Mr Bassal, Mr Kanellopoulos and Troy Deviesseux saying that her retailers were asking for the confirmed marketing plan to assist them in the process of making a decision and that she was advised by Balmain commercial that “the JV partners have STILL NOT agreed on the strategy.”

On 14 September 2009, Ms Zabloudilova emailed Mr Kanellopoulos, Mr Bassal, Dr Schwartz and Mr Grant regarding a proposed tenant, ICE Design. Due to the lack of critical mass in the centre they would not agree to their original terms and wanted better terms. Dr Schwartz responded that “at the best of times, 100% occupancy is unrealistic” and that “full occupancy is impossible”.

On 23 September 2009, Ms Zabloudilova suggested a potential tenant but Mr Grant suggested it would not be a good tenant as he was not familiar with the name. He went on to state:

On 24 September 2009, Mr Kanellopoulos wrote to Dr Schwartz, Mr Bassal, Mr Grant, Mr Brown and Ms Zabloudilova and stated that “we have 4 weeks remaining to do the impossible”. He confirmed that only one lease was signed but that offers had been issued. It was anticipated that there would be 37.7% committed and another 15% would come on board. He then stated:

On 25 September 2009, Mr Kanellopoulos emailed the JV partners recommending that they endeavour to secure second-tier fashion merchants. He wrote, “I strongly recommend you consider both Halt and 2 Fuse. If we say no now, their ask will be greater later. Please note we went to them, not them to us.”

On 28 September 2009, Ms Zabloudilova emailed Colliers asking where the CBA ATM at the Centre would be located. (The significance of the correspondence about the ATM machine arises from a specific complaint by Mr Bassal at the hearing about the delay in an ATM machine being available at the Centre).

A document headed “Leasing Strategy” prepared by Savills showed that as at 29 September 2009 there were still ongoing negotiations with a number of agents where a common comment next to the retailer is “trying to structure a deal”.

On 30 September 2009, Mr Kanellopoulos emailed all of the persons actively trying to lease the Centre. Ms Xu, Ms Zabloudilova, Darrell Ashworth, Troy and Jeff Deviesseux and the JV partners were copied into the email. It commenced in these terms:

The email goes on to encourage everyone to keep working and that the market would be re-approached in February or March 2010 and that a co-ordinated effort is required by all.

On 7 October 2009, Mr Grant emailed Mr Brown, Mr Kanellopoulos, Mr Bassal, Dr Schwartz and Ms Childs. It is clearly in response to criticism of him as he refers to receiving telephone calls that he was “responsible for the delay in converting signed LOOs to signed leases”. He went on to state “the fact that the signed LOOs are not being converted has always been explained by retailers not wishing to commit without other retailers committing so please tell me how I contributed to any delay?”

On 12 October 2009, Mr Kanellopoulos emailed Mr Grant and Ms Zabloudilova. In it he stated:

On 12 October 2009, Mr Kanellopoulos emailed Mr Grant confirming that there were now two leases signed.

On 13 October 2009, Bill emailed Ivana Maljkovic at Balmain Commercial, copying in the JV partners indicating that although they could open with just one level they would rather open with two.

On 22 October 2009, Mr Grant emailed Mr Kanellopoulos copying in the JV partners. He stated:

On 22 October 2009, Mr Kanellopoulos emailed Mr Grant copying in the JV partners. He stated:

On 23 October 2009, Mr Grant emailed Mr Brown and stated “it is the wish of the Joint Venture Partners to continue to press for the Centre opening on 3 December 2009”. The email then went on to state:

On the same day Mr Grant sent an email to the “leasing team” including Mr Kanellopoulos, Ms Zabloudilova and others stating that:

On 26 October 2009, Ms Zabloudilova emailed the JV partners and others. She noted:

On 26 October 2009, there was an email exchange between Mr Bassal and Ms Zabloudilova in which Mr Bassal rejected an offer on the basis that the tenant was a “2nd or 3rd tier tenant”. Ms Zabloudilova replied “you are running a serious risk of loosing [sic] the current first tiers to lack of occupancy …”

After that time there are a number of emails from tenants who had already signed indicating that they had accepted the deal because they were told the Centre would be 75% leased at trading. A number of emails during this time also show that potential tenants were being suggested to the JV partners but being rejected because the terms were too generous and they were not known brands or nationals. I will return to this issue further below.

On 12 November 2009, a small retailer emailed Ms Xu chasing up further instructions or documentation. He expressed frustration in the letter indicating that he was not happy with the way he was being treated. He concluded “even though I am the smallest tenant, but I deserve full respect. Let me know if there is any other person or other agency handling tenancy.”

On 13 November 2009, it was confirmed that the ATM would cost $10,000 but approval was waiting from the JV partners.

On 19 November 2009, Mr Kanellopoulos provided an update to the JV partners in which he asked them to accept all offers that were being put. He stated that currently it would only be 51% leased. It was noted that Brands on Sale at Parramatta had opened at 40% and failed. He explained that if the other leases he was putting forward were accepted they would be at 70% and, even though they were not brand names, it was better to have tenants rather than be unoccupied.

On 23 and 24 November 2009, there was an exchange of emails, culminating in Mr Kanellopoulos emailing Dr Schwartz and stating:

On 24 November 2009, Greg Colbran from Deicorp inquired of Ms Zabloudilova by email how she was doing with the CBA ATM questionnaire and she indicated it would be done that night.

On 3 December 2009, Mr Bassal emailed Mr Kanellopoulos copying in Mr Brown, Dr Schwartz and others stating that “a number of tenants have expressed to me that when they were try to finalise or lease at shop and our centre Savills never returned there calls and the tenant had to chase Savills for long periods of time to sign document. This is very disturbing explains the position we are in [sic, as in original].”

On 4 December 2009, Mr Kanellopoulos replied to the above email and stated:

On 16 November 2009, the JV partners and Savills entered into a property Management Agreement (“PMA”) which set out the relevant contractual obligations once the Centre was opened. Clauses 15.1 and 15.2 are as follows:

Savills claims that cl 15.1 limits claims for all loss, damage or costs said to be suffered or incurred by the JV partners to $2 million and that cl 15.2 excludes all liability for indirect, incidental or consequential expense, loss, damages or costs, loss of profits or revenue, business interruption or loss of data arising in any way out of or in relation to the services.

Savills relied upon the existence of the PMA to contend that its duty of care under the ELAA ended at 16 November 2009. For reasons that will become apparent I do not consider it necessary to consider this question in order to resolve this matter.

The Centre was opened as a factory outlet on 10 December 2009. It was 55% leased. There were no retailers in the food court area and only one food retailer.

After the Centre opened it struggled.

There was email correspondence in January to suggest that an ATM had not as yet been installed.

There was further correspondence from Ms Zabloudilova still seeking to get new tenants that were invariably refused by the JV partners in January and February.

A meeting of the JV partners was held on 10 February 2010 by way of a conference call where a number of prospective and present tenancies were discussed.

On 23 February 2010, Mr Grant gave Ms Zabloudilova the go ahead for an ATM. Subsequent email correspondence shows that by 10 March 2010 it had still not been installed as the JV had not signed a license agreement for the CBA and returned it to Minter Ellison.

The notes taken at the meetings of the JV partners on 24 March 2010, 7 April 2010, 22 April 2010, 2 May 2010, 20 May 2010, 3 June 2010, 17 June 2010, 24 June 2010, 1 July 2010, 8 July 2010, 22 July 2010, 29 July 2010, 12 August 2010, 19 August 2010, 26 August 2010, 9 September 2010, 16 September 2010 and 3 October 2010 were all in evidence. They all showed that, during that period, efforts were made to continue to lease the Centre and various strategies were discussed. The 29 July 2010 meeting notes record the following:

During this same period Mr Bassal began requesting a lot of documents from Savills and making a lot of accusations. He sent emails to himself by way of file notes. These all appear to be in preparation for the litigation he commenced shortly thereafter and I have not had regard to them.

Much of the remaining correspondence in evidence pertains to continuing efforts to lease the Centre in 2010. There was a conflict between Metiers and the JV partners as to who owed them money. When Metiers stopped being paid in April they ceased to continue with the leasing. Meanwhile the correspondence between the JV partners, Mr Grant and those at Savills becomes increasingly accusatory.

The contemporaneous records showed that there was a good trading month in May and the Centre was definitely busier. It was suggested this coincided with Mother’s Day.

On 9 May 2010, Dr Schwartz wrote to Mr Brown stating that “[i]t looks like Albert Bassal really wants to sell me his 40% shares. For 10.5 million staged over 18 months. A premium, but then you really need to help me out to ensure that I get a cash flow ASAP. This should change ALL the dynamics big-time …”

On 14 May 2010 there was a terse exchange between Dr Schwartz and Mr Bassal (Thomas Brown was copied in) in which a number of accusations were made as to why the Centre opened so poorly. In it Dr Schwartz agreed that he was willing to buy out the Bassals but the bank would not provide him with the finance. In this email and a subsequent email on 27 May 2010 Mr Bassal suggested that it was Dr Schwartz’s fault that the business failed because he was to look after the leasing whereas Mr Bassal was to look after the construction side of the project.

In the chain of emails from 4 August 2009 until 30 July 2010 a number of tenants were introduced to the JV partners to approve but Mr Bassal either refused them or delayed responding. A schedule of this email correspondence was in evidence and recounted 18 such occasions when this occurred. I do not consider it necessary to identify all of these transactions. They were not disputed by Mr Bassal. Mr Bassal acknowledged that he did not approve many tenants but indicated that he did so believing that it was not in the best interests of the Centre moving forward to have second- or third-tier tenants as opposed to name brands or nationals.

On or about 30 May 2010, the monthly interest payments became due under the Facility.

In June 2010, Mr Bransdon was retained to provide a valuation of the Centre. On 8 June 2019 he indicated that he would like to withdraw from the brief without any cost to the parties because he was unable to provide a valuation at that time. In his summation he noted that the leasing program “coincided with the worst period of the global financial crisis and this has obviously been a factor in the current less than satisfactory tenancy status.” He noted that the strength of the Centre would largely be dependent on the ability to attract some “name” tenants appropriate for the demographic of the area.

On 15 June 2010, Dr Schwartz sent an email to Mr Bassal and Mark Bassal (Mr Bassal’s brother), Mr Grant and Ms Childs. The subject of the email was “proposal for Suncorp regarding finance”. Dr Schwartz indicated that Mr Bassal stated that he would not pay its proportion of the mortgage as he could not afford to do so. He wanted Dr Schwartz to pay the mortgage. Dr Schwartz indicated he would only pay his portion.

On or about 21 June 2010, CFO emailed Savills and required that all future leases entered into required the payment of rent of at least 10% of turnover for the first year and budget rent for year two with incentives only by way of rent free periods with exceptions only to be made for “top tier one tenants”.

Email correspondence on 25 June 2010 indicated that Mr Bassal was concerned that continuing deals being offered on turnover and averages thereafter were eroding the value of the Centre.

On 7 July 2010, Dr Schwartz wrote to Albert Bassal, who had gone to Lebanon for an extended period of time, explaining that he was required to pay 40% of the interest for July 2010 which was estimated at $339,972.46. It was due by 3pm on 30 July 2010.

On or about 8 July 2010, Balmain Commercial advised the JV partners that there was no prospect of Suncorp advancing any more funds for the payment of interest.

At the JV meeting on 15 July 2010 the fact that Terry had indicated he would no longer approve leases where rents were not “market at option” was discussed.

On 21 July 2010, Dr Schwartz offered to pay out of his own money (not from the JV account) in order to secure a particular tenant.

On or about 1 August 2010, $339,973.53 in interest was charged under the Facility.

On or about 1 September 2010, a further $337,149.50 interest was charged under the Facility.

On 13 September 2010, Stuart Hely, manager of the Centre, wrote to the JV partners indicating that a bill for Integral Energy in the amount of $200,000 was outstanding and a cheque was required. Dr Schwartz responded to this email in these terms:

On 30 September 2010, Dr Schwartz wrote to Mr Hely, Mr Bassal and Mark Bassal and Mr Brown approving the following memo to be sent to all of the tenants:

On 20 October 2010, Mr Brown wrote to Mr Bassal noting that $100,000 was still unpaid in outstanding lease fees. It also noted that some of its staff were receiving serious threats from “persons associated with one of the joint venture partners” such as to convey a “clear impression that their personal safety and wellbeing is at risk”. Finally, it was noted that Mr Bassal had emailed Mr Brown on 27 September 2010 giving notice to terminate the agreement. It was then proposed that the management agreement between the parties be terminated by mutual consent with effect from close of the Centre on Friday, 22 October 2010.

On or about 1 November 2010, $461,031.41 interest became due under the facility.

On 25 November 2010, the directors of the JV companies were informed by Suncorp that it had appointed Shaun Fraser and Joseph Hayes of McGrathNicol, chartered accountants, to be receivers and managers of the property.

On 17 January 2011, Suncorp made a demand pursuant to the Deed of Guarantee and Indemnity on both Albert and Terry Bassal. The Suncorp debt was $48.38 million.

On 30 May 2013, the JV was required to repay the entire outstanding balance under the Facility.

In or about December 2015, McGrathNicol exchanged contracts for sale of Centre for $13.5 million by which time the JVs liability to Suncorp was $67 million.

During the hearing it was revealed that Suncorp had settled with the Bassals regarding their guarantee to Suncorp for a much smaller amount.

Included in the evidence was a number of schedules prepared by Savills from February 2009 until opening and thereafter. These appear to have been updated regularly. They all followed the same format. In the far-left column the names of all the retailers it was hoped would lease at the Centre was listed; the next column moving to the right contained the contact details of that retailer; the next column provided the contact date; then the agent posed the question “Interest(Y/N)”, then whether a previous LOO was signed and whether a proposal had been issued. Once a proposal had been returned there was a space for indication of the lessor’s approval with comments in the far-right column.

These schedules were all tendered as part of the business records of Savills without being explained in any detail in the evidence before me. The sheer number and details in these documents which included hundreds of retailers makes it impractical to seek to summarise them. Many of them were undated but all clearly pertain to the period in 2009 and not 2008.

The comments sections of these retailer list summaries disclose that a number of retailers were interested in leasing at the Centre but not until they were advised of other big names that were leasing there. For example, in October 2009 comments include persons knowing that the Centre is not leasing, that they would do a deal but not pay rent until 75% of the Centre was trading. One comment at this stage was “Campbelltown is a dump” and that it is “full of unemployed mums with no money”.

A significant number of these prospective retailers were quite specific about what other retailers they wanted in the Centre before they would be interested in leasing any space.

A document headed “Campbelltown offers” issued in October 2009 had the “comments” section filled with entries such as “dead”, “withdrawn”, a number were described as “dead without critical mass of higher profile names” and that the Centre would not hit 70% occupancy and, as such, a retailer indicated that they would “not review until critical mass attained”.

The plaintiffs relied on the evidence of only one retailer who was contacted and declined to take up space at the Centre: Robert Hartman. He was the managing director of a boutique management consulting practice, Stenton Capital. It specialises in consulting to the fashion and retail industry. He had an interest in outlet centres and had been sourcing clients either for himself or his businesses since 1970 as well as for his clients since he started Stenton Capital in 2001.

Mr Hartman deposed that as at 2006/2007 Stenton Capital represented a number of brands in the fashion and clothing industry, including Oxford, G-Star, Witchery, Mimco, Tie Rack, Chicabooti and Sheridan. In about mid-2007 he met an agent from Savills who wanted to discuss the opening of discount outlet store in Campbelltown and whether any of his clients would be interested in taking space in the Centre.

The agent, who mentioned the names of several retailers who had expressed interested in the proposed Centre and brought a brochure with a floor plan, said that Savills would be managing the Centre. Mr Hartman deposed that he was not aware that Savills had any experience in managing outlet centres as at 2007. From about 2007 to 2009 he had a few phone calls from Savills’ agents inquiring about interest in taking space in the Centre.

Mr Hartman stated that he would not recommend the Centre to any of his clients unless a leasing agent could demonstrate that there were commitments from well-known brands and a tenancy mix of mainly well-known brands. He met Ms Xu in March 2009. She showed him a floor plan and mentioned a few brand names that had committed to taking space at the Centre and told him it was due to be opened towards the end of 2009. He did not indicate to Ms Xu that any of his clients were interested. He did not believe that leasing of the Centre was going well. He did not recommend the Centre to his clients because he did not want them to become tenants in a Centre that he did not believe in.

I shall consider this evidence about approaches made to various retailers who were not interested below when addressing the question of whether Savills had an adequate leasing strategy.

As stated above, there was very little in the way of factual dispute requiring me to make findings of credibility. For the most part the disputes could either be resolved by reference to the contemporaneous documentation or were ultimately not determinative of the real issues in this case. Despite this, I consider it necessary to set out some of the cross-examination of Mr Brown by Mr Bassal. Mr Bassal put a number of matters to Mr Brown that were often in the form of arguments he wished to advance in his case. These were directed at Mr Brown’s knowledge of Saxon’s business and the specific details of the JV funding arrangements, contact with the JV partners, Savills’ experience, and the delay.

Mr Brown’s evidence was that he took instructions on behalf of Savills to lease the Centre for the JV in August 2008. He explained that within Savills there was a property-management side, in which he worked, and a retail-leases side in which he did not. His evidence was that he might have known about the Centre in mid-2007 in a “general sense” or had a “general overview” given that he participated in business development meetings about it. He accepted that he prepared a budget for the Centre but that he did not know any of the rentals and requirements which pertained to it. His evidence was that, in preparing the budget, he only knew that it was an outlet centre. During cross-examination by Mr Bassal, Mr Brown generally repeated the same point represented in the following exchange:

Mr Brown accepted that it would have been around October 2007 when he first saw the earlier plans. He noted that he would need to know the size and the plans when he did his outgoings and accepted that he “maybe” saw the earlier plans while he was doing the outgoings at one of the monthly meetings. He also accepted that he might have had an email sent to him with the plans attached but that he would not have cared about it at that stage because he had so many other things he was doing. “You get 250 emails, maybe something came, but you know, that’s what I’m gathering,” he said.

Mr Bassal asked Mr Brown whether he responds to important emails in relation to developments that he is involved in. Mr Brown replied, “[i]f I’m directly involved with it and I've got carriage of it, I would be – yes I would, I reply to them.” Mr Brown said he would not see Dr Schwartz very often but said that he would reply to all of his emails. He also said, generally, that he would try his hardest to respond to people’s calls within 24 hours.

Mr Brown’s evidence was that he rarely communicated with the Bassals individually but rather through group emails or meetings. “From the beginning of my involvement with the Bassals, Terry was upfront with me and said that he saw me aligned to Dr Schwartz,” he said.

Mr Bassal asked Mr Brown whether he advised Dr Schwartz to go ahead with this development because it was his belief that “it was a good development”. Mr Brown explained that his understanding was that the development was an outlet centre in Campbelltown and that “the leasing team had done leasing on it. That’s probably where I sort of, you know, there was an opportunity. I believed that it would have been a good development.” He accepted that before giving advice to Dr Schwartz, Savills had done their research.

When he gave that advice, Mr Brown’s evidence was that it was based on the earlier plans he had seen (MFI 3). In cross-examination, Mr Bassal put to him that Dr Schwartz had asked him about later plans (MFI 4) in late 2007 and that he had given him advice on those plans. I noted at the time that MFI 4 indicates, on its face, that it was not prepared until 2008. Mr Bassal responded as follows:

After a brief, further exchange, Mr Bassal rephrased his question. He put it to Mr Brown that he had seen a document “similar” to MFI 4 in late 2007. Mr Brown said that he would need to refer to his affidavit to refresh his memory. At this point Mr Bassal was content to “get back to that”. He did not return to this topic.

Mr Bassal also suggested to Mr Brown that, at the time of the Centre’s development, Savills did not have another greenfields development of the same size. Mr Brown replied that he could not remember as there were always “lots of balls in the air”. He accepted, however, that Savills did not have “another huge development” it was working on at that stage.

Mr Bassal called on Mr Brown to “clarify” his relationship with Dr Schwartz. Mr Brown replied that Savills managed a shopping centre at Deepwater Plaza for him:

Mr Brown did not accept Mr Bassal’s suggestion that his role was “very minimal” in relation to the management of the Centre. He said he was involved in a number of things, including “the leasing and the higher strategy, getting involved with major deals and, you know, the leasing side of things …” Mr Brown accepted that he had never been the leasing executive for a greenfields site and that he was “very busy” at the time. Mr Bassal asked Mr Brown whether he felt he had sufficient expertise to be their retailing manager. He responded that he believed he did. He explained he had good, experienced staff who were allocated to the developments he was working on. Mr Bassal pressed him on “whether they were experienced enough, they had the relationships in place, they had the contacts and that retailers would trust them when being approached for [a] lease”. Mr Brown accepted that in retail leasing relationships are “paramount” but that leasing will also depend on “what you’ve got to lease”.

Mr Bassal again asked about the experience of the people Savills had leasing the Centre. Mr Brown replied that:

Mr Brown explained that “Tamar came on through Bill and I don’t know if Tamar had any outlet experience or not. I know Bill did.” Mr Bassal questioned whether Mr Kanellopoulos’ experience at Mount Druitt was truly comparable. Mr Bassal also put it to Mr Brown that he “must have been still under-resourced if you were giving a role as retail leasing director when you were already quite busy under the retail management”, that Savills put him under “significant pressure”. Mr Brown responded that he believed that he could do the role and that is why he said yes to it.

Mr Basal asked how long it would normally take Mr Brown to have a meeting with a national retailer like Coles or Woolworths. Mr Brown reiterated that “it depended how much they wanted the site”. Mr Brown asked about what it took to secure an anchor tenant. His evidence was that “[a] lot of the time” that role of securing an anchor tenant “would’ve been done years before. Five years prior a Greenfield site”. In answering when a letter of offer would be signed, he said that “[s]ometimes it would two years out, sometimes one years out, three years out.”

Mr Bassal later again questioned the leasing experience of Ms Xu and Ms Zabloudilova. Mr Brown responded:

When asked whether a site’s plans will ever expand during development because of the interest in it, Mr Brown explained “that does happen, and it happens on the other side, where you get smaller. It just depends on the market characteristics at that time.”

Mr Bassal asked about the importance of budgets to owners, including the reliance that they place on them. Mr Brown said, “[o]ur primary concern is to get a … a budget and lease the centre … in circumstances to ensure that a centre would get to that income necessary.”

Mr Brown’s evidence was that Savills did not approach any tenants in April 2008 but that he was not aware that the Centre was going to open in 2009. He said that, his understanding in early 2008:

In response to his evidence, Mr Bassal put it to Mr Brown that the Centre was never for sale. In doing so he submitted that it “was advertised for a JV partner, but it was never advertised for sale”. Mr Bassal asked why Savills stopped leasing the Centre from November 2007 to April 2008. Mr Brown replied, “I don’t know if they did or not. Because I wasn’t the director at that stage.” Mr Bassal then showed Mr Brown several pieces of correspondence to show that in February, other people, not Mr Brown, had LOOs from three food outlets to be in the food court at the Centre in February 2008. He said that they first needed plans, a budget, draft lease, signed agency agreement and fit-out guide. Mr Brown emphasised that without a signed agency agreement Savills would not have got paid.

Mr Brown accepted that he knew that the Centre had to obtain income to pay the bank their interest. When asked if he knew the JV was relying on sales at the Centre with retailers and that a specific mix of retailers, he responded, “we contracted to do that as to the best of our abilities.”

Overall, Mr Brown had a poor recollection of some of the specific matters put to him by Mr Bassal. On those occasions he relied almost entirely on the contemporaneous documents.

As the evidence summarised above discloses, there were many persons closely involved in the project who were not called as witness in this matter. Dr Schwartz, Mr Grant, Ms Xu and Ms Zabloudilova were just some of them. Although submissions were made as to various inferences that could be drawn regarding the absence of certain witnesses, I am not persuaded that I would do so. In any event, as I have already indicated, I have relied largely on the documentary evidence.

Before turning to consider the plaintiffs’ case in this matter it is necessary to outline some of its unfortunate procedural history. I delivered separate judgments on 17 August 2018 and again on 29 August 2018 refusing further adjournments in this matter in order for the plaintiffs to obtain legal representation. Although what appears below is a repetition of some of the matters I identified in those judgments, I consider it necessary to set out the full history here.

These proceedings were commenced on 30 October 2011. The following year the receiver assigned the causes of action said to have accrued to both CFO and PSP to both of the plaintiffs.

By consent orders made by Nicholas J on 2 August 2012, CFO (receiver appointed) was removed as the plaintiff and Terry and Albert Bassal were substituted into the proceedings as plaintiffs. At the same time the plaintiffs were given leave to file the amended statement of claim which they filed on 6 August 2012.

Between December 2011 and April 2016 the matter was case managed by the Common Law Registrar. Thereafter it was case managed by the Chief Judge of the Common Law Division, Hoeben CJ at CL, up until 18 April 2018 and thereafter by the Civil List Judge, Fagan J, from 7 June 2018 until the hearing commenced.

Six directions hearings were held before a defence was filed on 8 January 2014. Ten further directions hearings were held before the plaintiffs filed a notice of motion on 30 July 2015 seeking leave to file a second further amended statement of claim. That notice of motion was heard by Button J on 15 October 2015. In his judgment on 27 November 2015 his Honour granted the plaintiffs leave to file the second further amended statement of claim and made timetable orders in relation to its service and the filing of defence as well as that any further evidence to be adduced by the plaintiff’s to be done by way of a notice of motion: Bassal v Savills (NSW) Pty Limited [2015] NSWSC 1779.

A second further amended statement of claim was filed by the plaintiffs on 3 December 2015 with a defence filed on 18 December 2015.

On 15 January 2016, the defendant filed a notice of motion seeking transfer of the proceedings to the Commercial List of the Equity Division. At the directions hearing on 2 May 2016, Hoeben CJ at CL, who took over case management in April 2016, made orders that included an order that the matter remain in the Common Law Division. Following that decision, the motion seeking transfer of the proceedings was refused by Hammerschlag J on 6 May 2016.

A further 13 directions hearings were held by Hoeben CJ at CL before the matter was allocated a hearing date on 10 October 2017. At that time it was listed for a four-week hearing to commence on 6 August 2018. His Honour held four more directions hearings before June 2018 when Fagan J took over case management of the matter and held further six directions hearings before 6 August 2018 when the hearing of the matter was due to commence before me.

In total 53 directions hearings were held in order to case manage this matter before it could proceed to a hearing.

The plaintiffs changed their legal representation seven times since 2 August 2012 (when they were substituted in the proceedings as plaintiffs). They did so in April 2015, July 2016, March 2017, November 2017, May 2018, July 2018 and during the hearing before me on 16 August 2018.

On 20 July 2018, after the plaintiffs changed their solicitors two weeks out from the hearing, Fagan J observed:

The final hearing did not commence until 9 August 2019 for a variety of reasons including my availability and outstanding issues with the court book.

As I have stated above, on the sixth day of the hearing, 16 August 2018, Mr Bassal sacked his legal team and made an application for the adjournment so that new legal representation could be obtained. Given the history of the matter I refused the application and adjourned the matter to 17 August 2018 to ascertain the status of the plaintiffs’ legal representation.

On 17 August 2018, Mr Bassal confirmed he would proceed unrepresented as well as represent the interests of his father and I delivered my reasons for refusing the adjournment application.

On 23 August 2018, a somewhat different application for adjournment was made on behalf of the plaintiffs by Mr Cook of counsel who was granted leave to appear and file in court a notice of motion with the supporting affidavit of solicitor Tom Howard. An adjournment was sought for the plaintiffs to obtain legal representation for final submissions or alternatively that leave be granted for the parties to file further written submissions after the hearing. I dismissed that application and provided my reasons on 31 August 2018 when the hearing was concluded. Acceding to the application would have required a 2–3 month adjournment.

After the hearing concluded on 31 August, I gave leave to Mr Bassal to email the particulars in his closing submissions that he relied upon in the court book by close of business on 3 September 2018. Those particulars were provided by email that day.

As events unfolded Mr Bassal appeared for both of the plaintiffs for the majority of the hearing including final submissions, although final written submissions prepared by Mr Howard were also relied upon.

The second further amended statement of claim (“SFASC”) filed on 3 December 2015 is extensive. Much of it particularises the factual background to the plaintiffs’ claim in detail with a particular focus on events in 2006 and 2007 and the particular knowledge Savills possessed of the JV’s business model prior to July 2008.

The plaintiffs’ case in negligence is pleaded first. It is claimed that in addition to the duty to take reasonable care, Savills also owed the JV a “special” duty to obtain the best possible outcome for it. The particulars of negligence for breaches of both duties are set out under these headings:

The case in contract is pleaded thereafter relying on the same particulars.

Particulars of Loss and Damage Suffered by the Plaintiff in both Contract and Negligence are pleaded as Loss of Value of the Centre; Indebtedness to Suncorp; Loss of Profits; and Expenses Incurred.

The relevant contract from which the plaintiffs’ cause of action arises in the July 2008 JV ELAA. This is a short pro forma document. Given its significance to the plaintiffs’ case I propose to set it out in full. There were 11 clauses to the agreement as follows:

In addition to these express terms, Savills accepted that it owed CFO/PSP a duty to exercise reasonable skill and care in performing its obligations under the ELAA. It was submitted that this duty was concurrent and co-extensive with its contractual duty of care to exercise reasonable care and skill in performing its obligations under the ELAA. It was contended, however, that it did not owe this duty after 16 November 2009 due to the PMA.

Under the ELAA Savills was authorised to find and introduce to CFO and PSP one or more persons as Savills considered might be acceptable as a lessee to CFO/PSP (Clause 2.1). Further terms of the ELAA were: if required by CFO/PSP, Savills would obtain execution by such prospective lessees as CFO/PSP shall accept of a lease or agreement for lease prepared by CFO/PSP or the solicitor of CFO/PSP (Clause 2.3) and that the leasing of the Centre be advertised and otherwise promoted through an active leasing program as agreed in writing between the parties (Clause 3.0).

The ELAA contractually required Savills to introduce the JV partners to suitable tenants for their approval. The ELAA did not specify that adequate tenants needed to be introduced in order for the Centre to open successfully in December 2009. Nor did it specify anything about the Centre being leased at 90% capacity. In effect, it authorised Savills to act exclusively for the JV partners. No other contractual arrangements were relied upon besides this document.

In her opening address, senior counsel for the plaintiff explained that Savills owed the JV a “special” duty under the ELAA to obtain the best possible outcome because of its previous experience with Saxon in 2006 and 2007. Counsel submitted that along the path to the JV Savills acquired detailed business knowledge about the project that remained a constant – to build and lease an outlet centre at Campbelltown. Ms Painter submitted that that experience placed Savills in a position of significant insider knowledge of the companies that became the JV, namely their funding, intentions, needs vulnerabilities and exposure. As a result of that unique relationship the plaintiffs were in a position of vulnerability as Savills were aware of the “broader percentage targets” and the consequences of it.

Reference was made in the opening address to various documents pertaining to Saxons and Savills in 2006 and 2007. Those documents included projections that “90.9% of the space in the Centre could be leased by the time it was to open and 100% within six months of opening”.

It was also submitted that Savills’ failure to perform “caused it to abandon the strategy it had sold the JV partners on” and that they began to canvas tenants from a pool well below target type of retailers, yet still failed to lease out the Centre. It was submitted that, as a result of this, by October 2009 the Centre was not pre-leased to the level it could and should have been had Savills resourced the task properly and applied itself as it was obliged to do.

Savills denied from the outset that it owed any “special” duty to the JV to secure the best possible outcome. Following the plaintiffs’ opening address Mr McCulloch sought clarification of the plaintiffs’ case in two connected regards. First, how did the claim in negligence arise in 2006 or 2007 when the ELAA was not entered into until July 2008? Second, what is the basis for pleading a “special duty” arising during that time?

On the third day of the hearing, at which time the plaintiffs were still legally represented, senior counsel for the plaintiffs tendered a document in response to the questions raised by Savills. This document was marked MFI 8 and later became Exhibit 3. That document is in these terms:

Despite the clear terms of Exhibit 3, Mr Bassal continued to argue his case on the basis that the negligence first arose in 2006–2007 after the plaintiffs’ legal representatives withdrew from the matter. That is, that a special duty to achieve a particular outcome was owed by Savills due to the events from 2006. Prior to final submissions he briefed a solicitor, Thomas Howard, to provide written closing submissions. Unfortunately, those submissions did not reflect the way the case had proceeded after Exhibit 3. This is no criticism of Mr Howard, who was not present during the hearing and had obtained his instructions from Mr Bassal.

The plaintiffs are bound by the way the case was run prior to them terminating their counsel’s retainer. There was no suggestion Exhibit 3 was provided without instructions being obtained. On this basis, there is no need to consider this issue any further. Despite this, and given the fact that Mr Bassal was self-represented (and that Mr Howard appears to have prepared his final submissions on instructions that may have misconceived the way the case proceeded), I propose to consider the plaintiffs’ submissions concerning the special duty to achieve a particular outcome.

The plaintiffs’ final submissions were that the contractual duty did not arise from July 2008 but commenced well before that time when Savills was first engaged by Saxon. Reliance was placed on the fact that Savills assisted the JV to obtain finance and was also aware that the JV had borrowed a large sum to begin construction. It was submitted that Savills was “in a position of significant insider knowledge of the plaintiffs and the project with which they were concerned”.

The plaintiffs’ contention was that there was an implied condition in the ELAA that “Savills needed to do what was necessary to find the right quality of tenants, in the appropriate mix, in order to achieve an occupancy (with the right quality and mix) of 90% by the time of the scheduled opening of the Centre in 2009.” The plaintiffs relied upon events from 2006 to establish that Savills had “particular knowledge” that was relevant to the duty owed under the ELAA.

It was submitted that the ELAA was “not a lengthy or comprehensive contract”, which meant that regard must be had to the surrounding circumstances known to both parties at the time of contracting: Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 352; [1982] HCA 24. That knowledge was said to include events in 2006 and 2007.

It was submitted that the JV was entitled to expect an “elevated” standard of care from Savills by virtue of the company having extensive experience in retail leasing. Savills had earlier held out to Saxon that it had the largest retail leasing team in Australia, that it was widely recognised as being the fastest growing commercial real estate agency business in Australia and that it had a proven track record for retail leasing and management.

In circumstances where Savills did not deny that it made certain representations as to their relevant experience in leasing, it was submitted that this then extended Savills’ liability and it “was obliged to exercise an elevated level of care and skill to avoid the relevant harm suffered”. This was because the representations made by Savills induced PSP and CFO into believing that Savills was experienced in the field of retail leasing and consignment and had the relevant staff to undertake the services noted in the ELAA. Furthermore, Savills had particular knowledge of the large sum which was borrowed to finance the construction, the Centre’s opening date, tenancies, lease costs and likely worth if it was fully leased.

The plaintiffs urged the court to reject Mr McCulloch’s submission that a “paper guillotine” should be brought down severing away all the background which occurred prior to 1 July 2008. The plaintiffs sought to emphasise that “Savills was a key player and advisor”.

In light of the surrounding circumstances, the plaintiffs submit that Savills’ contractual duties, express (under cll 2.1 and 3) and implied, “necessarily required that Savills needed to do what was necessary to find the right quality of tenants, in the appropriate mix, in order to achieve an occupancy (with the right quality and mix) of 90% by the time of the scheduled opening of the Centre in 2009.” The plaintiffs submitted that, in order to achieve this, Savills needed, inter alia, to commence the leasing campaign at least 18 months prior to the opening date, allocate a sufficient number of experienced leasing executives to the campaign, follow up leads or respond to interest from potential tenants and have in place whatever was necessary “including finalised contract [sic]” to ensure that the right mix of tenants were signed up to make the Centre appealing to brand-name tenants.

The plaintiffs’ submissions, by Mr Bassal orally, by Ms Painter SC (opening written and oral submissions) and Mr Howard’s final written submissions, included assertions, inter alia, that there had been a “significant over-promise” by Savills or that Savills “sold” the JV partners on the basis that they would lease the Centre to 90%. It was never explained how these assertions were relevant to the case brought in contract/tort based on the ELAA.

On Savills’s case, the relevant chronology of events spans from the execution of the JV Agreement on 27 November 2007 until the opening of the Centre on 10 December 2009.

Savills accepted that it was involved in earlier pre-leasing prior to July 2008 at a time when the Centre was different in layout (and smaller) and was to be built on the same land then owned by Saxon. However, Savills submitted that the only relevance of this prior involvement is the extent, if any, that this may have assisted Savills to perform the ELAA once it was executed in July or August 2008. It denied this gave rise to a “special” duty.

Savills submitted that the events prior to July 2008, at its highest, only assisted the plaintiffs’ case to the extent that they show that Savills’ previous involvement should have placed the JV in a position to start the leasing campaign for the Centre under the ELAA earlier than February 2009.

Based on Exhibit 3, the plaintiffs’ case must be that the leasing campaign on behalf of the JV should have commenced upon the execution of the ELAA in July 2008. This is consistent with the clarified allegation that Savills was in breach of the ELAA from its inception. Such an argument will be determined on the basis of the expert evidence.

Even if I did not consider the plaintiffs to be confined to the case as reflected in Exhibit 3, it was never properly explained how the “special” duty owed by Savills arose. Although Mr Bassal at times appeared to suggest that Savills owed this duty because of earlier representations made to Saxon in 2006 and 2007, that was not the way the case was pleaded or argued.

At the commencement of the final day of the hearing I indicated to Mr Bassal that, given there was no dispute that the two relevant conditions in the ELAA were cll 2.1 and 3, he should address me on what Savills agreed to do under the contract. He responded, not to my point, by referring to Mr Brown’s evidence that plans and ownership will change throughout the leasing process. Accordingly, in Mr Bassal’s submission, it was “not satisfactory” for Savills to maintain that Savills could not commence the leasing (I infer while the plans and ownership were still being settled).

I asked again, “what do you say that Savills agreed to do under the contract?” Mr Bassal responded as follows: “So we say Savills agreed to lease the centre at least to 90% occupancy. Most importantly, with the right tenancy mix.” The exchange continued as follows with Mr Bassal repeating his point:

As this exchange demonstrates, in referring solely and repeatedly to common sense and Savills’ state of awareness, Mr Bassal failed to identify the clauses in the ELAA which supported his submission that Savills agreed to lease the Centre at least to 90% occupancy with the right tenancy mix. In his closing oral submissions Mr Bassal maintained that achieving 90% tenancy was a contractual obligation despite the fact that this was not the way the case was run by his lawyers before they withdrew. This was an ongoing problem throughout the hearing: Mr Bassal and/or his solicitor Mr Howard made final submissions inconsistent with earlier arguments and the pleadings.

Even putting Exhibit 3 to one side, this cause of action was pleaded in contract and tort arising out of the July 2008 ELAA. Given the date of the ELAA, I am satisfied that Savills’ obligations to the JV commenced in July 2008.

As for the scope of the duty, Savills relied upon the decision in Platform Funding Ltd v Bank of Scotland Plc (formerly Halifax Plc) [2009] QB 426; 2008] EWCA Civ 930 on the question of the relevant duty. In that decision Rix LJ surveyed the relevant authorities and concluded, inter alia, at [48]:

Rix LJ had earlier observed at [45] that insofar as the “basic” obligation to exercise reasonable professional skill and care is concerned:

Even putting Exhibit 3 to one side, the plaintiffs have not established that Savills owed any “special” duty to the JV, inter alia, to secure a particular outcome, such as 90% rented with a particular class of tenant.

The relevant obligations under the ELAA for Savills to perform were to introduce possible tenants to the JV (cl 2.1) and to promote an active lease strategy (cl 3). The allegation that Savills breached the “implied contractual term that the defendant exercise reasonable care, skill and diligence in providing its services under the Agreement” thus applies to these two terms of the ELAA. The question of breach of the contract/negligence is to be assessed in this way only.

The plaintiffs were not confined to bringing a claim exclusively in contract. There was duty to used reasonable care and skill implicit in the relationship between the JV partners and Savills. Nor was there any specific provision in the ELAA which excluded liability for breach of such a duty.

I shall consider the expert evidence in determining whether Savills breached its duty to take reasonable care and skill in its duties under the ELAA.

Expert evidence was adduced across four areas of expertise: commercial leasing, valuation, market economics and financial accounting. Two experts were obtained in relation to these four areas: eight witnesses in total. Six of the eight experts also gave viva voce evidence at the hearing in pairs following conclaves on their respective areas of expertise (all except the financial accountants).

The main point of contention for the leasing experts was whether Savills failed to exercise reasonable skill and care in the discharge of its obligations and/or whether such conduct was below that expected of a commercial leasing agent. The main point of contention for the valuers was the value of the Centre, which required findings as to the market rent. The main point of contention for the market economists was whether the Centre would ever have been able to meet the JV’s expectations regarding income generated. This included disagreement on issues such as the defined trading area, demographics and market rent. There was no significant point of difference of opinion as between the two financial accountants; they had simply been asked to provide their opinions based on different assumptions.

The witnesses had all read and agreed to be bound by Sch 7 of the Uniform Civil Procedure Rules 2005 (NSW) – Expert Witness Code of Conduct. There was no challenge to any of their expertise. That is, it was accepted that each of them had “specialised knowledge” based on their person “training, study or experience” to be able to provide admissible opinion evidence: s 79(1) of the Evidence Act 1995 (NSW).

Mr Carnovale was engaged by the plaintiffs. He is a Retail Leasing Executive with Vicinity Shopping Centres. His experience is in leasing retail space and newly developed space in the shopping centre industry for more than 25 years.

Ms Cunningham was engaged by Savills. She is the owner and director of bdp Retail Leasing Pty Ltd which provides retail leasing services to shopping centre landlords and developers in all aspects of the retail leasing process. She had been in the industry since 1995 prior to commencing with bdp Retail Leasing Pty Ltd in 2004.

Mr Vince Carnovale provided three reports dated 1 November, 26 February 2015 and 26 July 2016.

His opinion as to why “interested retailers” did not lease space in the Centre was that:

Mr Carnovale’s opinion was that Savills’ failure to communicate the Centre’s potential and retail market credibility caused a loss of confidence in the minds of retailers. Without confidence, no credibility was established. He argued that strong, consistent levels of communication were required to be maintained throughout the leasing campaign and the course of the project. If the agenda of 20 November 2006 (referred to at [50] above) had been adhered to by Savills then more retailers were likely to have leased space. It is to be noted that this agenda was created nearly two years earlier when market conditions were different.

In relation to whether the tenancy mix of retailers introduced by Savills played any role in deterring other retailers from leasing space at the Centre, Mr Carnovale opined that Savills “did not secure a critical mass of pre-commitments in the required timely manner”. Accordingly, “the perception of this development as a genuine retail Outlet Centre in the marketplace subsequently became catastrophic.” His opinion was that the tenancy mix of retailers introduced by Savills did not make the Centre a retail “destination” that people would travel “quite a distance” to get to.

Taking into account the “inferior” retail mix and 55% occupancy rate at opening, Mr Carnovale said that this limited the benefit that foot traffic normally presents in highly occupied malls. The potential to achieve the maximum sales levels was significantly disadvantaged. Mr Carnovale was unaware of any other high-profile shopping centre developments opening with a vacancy factor of less than 90%. He expressed he had “seen nothing like the results delivered by Savills at Campbelltown”.

In Mr Carnovale’s opinion, Savills had the opportunity to lease space to the “interested retailers” but failed to deliver a “quality mix”. The attitude by many of the retailer groups was that they were not interested in opening stores at the Centre based on the high level of vacancies and the prevailing poor reputation the Centre had in the marketplace. Savills did not impress the market place nor provide any confidence based on the mix that opened at the Centre.

Ms Kelly Cunningham provided reports dated 9 September 2014 and 26 June 2015. She did not consider that Savills had failed to act as a reasonable and competent leasing agent as alleged by the plaintiffs. Her conclusion was based on the following non-contentious assumptions. Savills entered into the ELAA for a project due to open in late 2009, with a fee allowance of $100,000 as a retainer plus 10% commission on all deals concluded by Savills. They allocated two full-time and one part-time leasing executive to fulfil this project in the 16-month leasing program. This is suitable, as long as the leasing operatives are suitably skilled and experienced. This would have cost Savills approximately $250,000 per annum, assuming these leasing executives were paid around $100,000 each per annum, including on costs.

Ms Cunningham’s opinion was that Savills recognised that the market had changed during 2008, the GFC had hit and retailers were approaching these types of projects with more caution, therefore they prepared a budget to reflect these changed market conditions and presented this to the JV for approval.

Savills communicated the tools they needed in order to commence leasing on the project with the JV Partners in terms of plans, the budget and the Urbis report. They recognised that given the limitations put on them by the JV in not having the necessary tools available, they would be stretched to meet the original opening date, so they requested a delay to the opening. Despite their request for more time being declined, and the subsequent pressure they would now be under to deliver the said outcome by December 2009, they did not resign from the project. They continued on with a view to completing the leasing. This is the behaviour of a professional agency. There are plenty of less professional agents who would have resigned at this point.

Savills continued leasing the project along with other agencies and achieved a 50–60% occupancy level on opening, which was extraordinary, given the limitations they had to work with. Savills continued leasing the project after the opening, despite the JV putting unrealistic expectations on them, in terms of the rentals now expected.

In Ms Cunningham’s opinion, Savills acted reasonably and competently in their engagement to lease the Centre: “They were able to secure a 55% occupancy by opening, after a very short leasing campaign of only 9 months, which was half the time they originally allowed. Within a further 6 months, they were able to secure an occupancy level of around 70%.” She opined that any comments suggesting that the reason behind Savills not “securing”, “converting” or “delivering” more than the 55% occupancy on opening was a result of their incompetence or failure are pure speculation only and have not been substantiated by Mr Carnovale.

In addition to providing the expert report, Ms Cunningham also prepared an affidavit on 26 June 2015 in which she deposed that on 30 October 2008 she had had a meeting with Terry and Albert Bassal that lasted about 30 minutes. Her advice was sought about a leasing strategy that had already been developed. Following the meeting, she sent her routine leasing proposal and bdp capability statement to Saxon, which Ms Cunningham understood to be the client. She could not recall whether she was told in that meeting that the JV was the owner of the outlet centre at that time.

Ms Cunningham denied saying to Mr Bassal: “I’d love to take it on. It’s great idea and great location”. Her practice at that time was to assess a project and understand more about it before commenting whether it was good or bad. She further deposed that the proposal was never accepted or even responded to but that there was nothing unusual about it. In such a situation she would assume a loss of interest on part of the developer or owner.

It was not suggested by the plaintiffs that Ms Cunningham’s expert evidence was undermined by this previous interaction with them.

On 20 April 2018, Mr Carnovale and Ms Cunningham attended a joint conference. They were in agreement as to the general principles and practices of retail leasing, including the research to be undertaken, the preliminary discussions with financiers and tenants that would be required, and that pre-commitments from tenants would need to be sought. While all the necessary documentation, including a marketing strategy and fit-out guide, is being prepared, the leasing team should be compiling lists of potential retailers to canvas each of the tenancies and can start contacting potential retailers about the opportunity.

As to the state of the retail leasing market in 2008, 2009 and 2010, the experts agreed that the “market was tough”. Retailers generally became more cautious. Many failed during this time. They also agreed, however, that irrespective of the GFC other centres were being constructed, redeveloped and offered to the market.

As for whether it was possible to lease 90+ shops to true outlets and achieve 90% occupancy by November 2009, the experts agreed it was “highly unlikely, due to the limited pool of operators … and the very successful DFO Homebush less than an hour away.” They agreed that 60+ true outlet stores “could be achievable” but that the shops were more likely to be second-tier operators, which are not true outlets.

As to whether Savills allocated sufficient resources to the leasing task, the experts agreed that two full-time resources and one part-time resource was adequate provided they “were experienced, highly skilled project leasing executives”. The experts agreed this level of resourcing “would have been widely accepted as standard agency practice” but that it was also standard agency practice to review the resource level if the leasing program was behind schedule at any stage. The experts agreed that, had the leasing campaign commenced immediately in July 2008, the leasing campaign “most likely would have been achieved within an 18 month period”. Where the experts parted company on this issue was whether the actual personnel appointed by Savills were all experienced, highly skilled project leasing executives.

Mr Kanellopoulos’ relevant experience was not disputed. The plaintiffs took no issue that he was an experienced leasing agent. The situation was different in relation to Ms Xu and Ms Zabloudilova. Ms Cunningham was not provided with any evidence as to their skill or experience and thus could not provide an opinion on this issue. Although Mr Carnovale ventured that he did know them and did not believe them to be particularly experienced, I excluded this evidence as the basis for it was not established.

As to whether Savills could have commenced the leasing campaign any earlier than February 2009 for a December 2009 opening, the experts disagreed. Mr Carnovale was of the opinion that the appointed leasing resources could have started leasing the Centre in September 2008 using plans which were provided by the JV to Savills in late September 2006. Ms Cunningham was of the opinion that they could not represent an accurate offer to prospective retailers prior to having been provided with a plan, an approved budget and the marketing collateral. Her opinion was that Savills needed more than a plan to go to market. The experts also disagreed that Savills should have been more proactive in completing the retail plan enabling them to go to market sooner.

As to whether there was an effect on the commencement of the leasing campaign by the absence of a professional project manager, the experts agreed that it is standard professional industry practice for a suitably qualified, experienced project manager to be appointed by the owner of the project. There was no evidence that Mr Bassal was appointed as the project Manager (he denied he was), although Ms Cunningham thought he performed that role. No specific project management techniques or project planning tools were adopted.

As to whether the JV’s insistence on opening the Centre at 50–60% occupancy compromised the chances of ever fully leasing it, the experts were in agreement to the extent that, once a centre is open and it is clear that only half the shops have been leased, potential retailers visiting the centre would be suspicious as to why. They will apply a high level of caution and will be reluctant to be part of it. Mr Carnovale was of the opinion, however, that Savills provided the JV with mixed messages proposing a staged opening of the Centre, as referenced in the Savills Leasing Minutes dated 1 September 2009 and 7 September 2009. The status report update included the potential for a good retail mix to be delivered and Mr Brown recommended the opening date remain at 3 December 2009.

Overall, as to whether Savills were competent and professional in their efforts to lease the Centre, the experts agreed that Savills should have identified to the JV that not allowing further time nor providing additional funding for additional resources, would potentially result in a project failure. Whilst Savills did bring these matters to the attention of the JV they did not succeed in persuading the JV to take any affirmative action. Savills did not then resign from their appointment when their requests were denied and it was clear that the end result could be failure, without these changes.

In summary, the experts offered the following points of disagreement:

Mr Carnovale and Ms Cunningham gave evidence on the tenth day of the hearing.

These leasing experts were asked whether Savills could have started the leasing any earlier than February 2009. Mr Carnovale stated that Savills had been in discussions with a number of tenants in the marketplace and had compiled a list of preliminary agreements with a number of tenants. He observed that “the process of formulating a critical mass of agreements … was well underway” and that the pre-commitments suggested the campaign was “well advanced at that point in time”. His evidence was that the preliminary leasing campaign in the form of a Savills “Leasing Status Report” dated 12 September 2007 was part of the continuous chain of events. Ms Cunningham disagreed. Her evidence was that the discussions Mr Carnovale referred to were relevant to a “different campaign” under the earlier ELAA with different parties. In her view, that contact was “stale” by the time of the July 2008 ELAA.

As to the issue of whether the leasing could have commenced with the leasing pack that was prepared in 2006, Ms Cunningham did not think it would have been responsible of Savills to use that leasing pack because the information represented in it was not accurate; the plans and size of the Centre were very different such that it was “quite a different offering”. Mr Carnovale disagreed. His view was based on his own involvement with projects. During construction, he noted “it’s quite likely that changes occur in terms of floor space and design”. Although Savills might be “concerned about what they’re representing”, he accepted that in his view it was “possible to deal with changes” through disclosure, criteria in lease offers and leases themselves which made reference to variations.

As to whether the budget or retail plan could have been finalised earlier in time, Mr Carnovale’s opinion was that “cursory feasibility” can be done. During construction, feasibility may not have been signed off but, in his view, there was a cursory number for the rent based on a valuation report, and the client’s expectations and instructions to the agent. Ms Cunningham’s opinion was that for the leasing executive to be able to be effective and go to market, he or she cannot get a deal approved by the owner with a “blanket number”. Rather a leasing executive needs to have done a line-by-line retail plan, and have identified what the rent is for that. She pointed to the varied rates for different tenancies, for example, the higher rate for kiosks and lower rate for anchor tenants.

Mr Bassal questioned Ms Cunningham about her opinion that Savills could not start leasing until the plans were finalised. He also asked whether if a centre is going to be slightly increased in size she believed that is a disadvantage or advantage for a centre’s critical mass. She answered that it depends on the individual retailer and what their strategy is. Mr Bassal then asked her about whether Savills could have started leasing in early 2008 prior to signing the ELAA. Ms Cunningham explained that, “[a]ny competent agent would not commence work on any project until they had a signed fee agreement in place.” Provided they had the plans, budget and other material as necessary to go to market and “present an accurate picture”, she accepted that “as soon as the ELAA was signed, yes, they could have gone to market.”

Mr Bassal was given the opportunity to re-examine the witnesses. He sought to ask about when relevant information, like the budget, should have been requested by Savills to start leasing. He sought to make the point that Savills did not press to get that information “straight away”. I disallowed the questioning on the basis it was not a matter for expert evidence because the chronology speaks for itself. Mr Carnovale also suggested that the list of documents that Savills provided Ms Cunningham was limited, stating she was only aware of documents that have “occurred” after July 2008 or February 2009 and that she was not aware of anything prior to that. On the contrary, Ms Cunningham said that she was provided with all of the affidavits, including Mr Bassal’s, and the exhibits.

Mr Carnovale was cross-examined about whether you could start leasing without an agreed upon budget. His evidence was that even though it sounded “a bit irresponsible”, the absence of a budget was not a barrier to the leasing campaign because “in leasing you can wing it” when talking to retailers. His evidence was that the absence of a budget was not something which should “hold up the troops”. Mr Carnovale’s evidence was that a prudent agent should not go to the market until the budget had been signed off whereas Ms Cunningham’s evidence was that you needed to wait for the budget before you could commence leasing.

Mr Carnovale accepted that under the Retail Leases Act 1994 (NSW), a leasing agent was required to have a copy of a proposed retail shop lease in written form before they could indicate in writing or by any form of advertisement that a retail shop was for lease. He accepted that such a lease required preparation and settling by a qualified lawyer and would include a discount clause. He also accepted that a reasonably competent leasing agent would recommend to the lessor that all legal matters, such as the drafting of a lease, be the subject of advice from a solicitor.

Mr Carnovale was cross-examined about the question of delay generally and his evidence was as follows:

The experts agreed that if a centre is not full upon opening, that can deters persons from wanting to return there and make it difficult to secure the next round of tenancies. Mr Carnovale’s view was that opening with 50% occupancy would be a “catastrophic result”. Mr Bassal cross-examined him on the percentage that would need to be leased to avoid that problem. Ms Cunningham explained that, in her experience, “unless you had - in a centre of a hundred shops, ideally you’d be looking for ten shops or less to be vacant.” She accepted the vacancy rate should be no more than about 10%.

Mr Bassal asked her to assume that the fit-out of the shops had already started. She accepted on the basis of that hypothetical that “it would be difficult to stop the opening happening”. She opined that it would, however, be possible to manage the financial consequences by cordoning off part of the Centre or adjusting the advertising campaign to be a “staged” one.

The leasing experts were not critical of Savills during the period from 10 December 2009 and 25 November 2010. On that basis I am satisfied that there is no evidence to establish any breach after the Centre was opened on 10 December 2010.

Ultimately, there were only three areas of disagreement as between the leasing experts. First, as to whether Savills’ leasing executives were “suitably skilled and experienced”. Second, as to whether Savills’ inability to convert the LOOs into secured leases demonstrated professional incompetence and inexperience. Third, whether Savills was incompetent for not starting the leasing campaign sooner than February 2009. I shall address these three areas in my consideration below.

Mr Bassal relied upon the opening written and oral submissions of Ms Painter SC and the closing written submissions of Mr Howard. Mr Bassal made final oral submissions as well.

Unhelpfully, a significant part of the plaintiffs’ written submissions continued to approach the proceedings on the basis that Savills owed the JV a special duty to secure a particular outcome. Those portions of the submissions that addressed the duty to use reasonable skill and care were as follows.

It was submitted that Savills was aware that “time was of the essence” and that a period of approximately 18 months was required to achieve what was promised.

The breaches of the ELAA were said to be the late start, their approach to the budget, failing to use the old leasing pack and putting on insufficient and inexperienced leasing agents to the campaign.

Very little expert evidence was relied upon in the plaintiffs’ final submissions. The focus of the closing submissions was that there must have been a breach by Savills because the Centre was not fully let with high-paying tenants at the time of opening. Reliance was placed on the fact that in the Leasing JER the experts agreed that two full-time resources and one part-time resource would have been adequate to perform the task provided that those resources were “experienced, highly skilled project leasing executives”. It was submitted that they were not. This was based on Mr Brown’s evidence (in cross-examination by Mr Bassal) that neither Ms Zabloudilova nor Ms Xu had any experience in leasing outlet centres. It was also suggested, based on some identified emails, that Ms Zabloudilova may in fact have been working on other leasing jobs during the relevant period.

It was further submitted that Savills failed to follow up leads or respond to interest from potential tenants; allocating agents to the campaign who did not have the time and/or did not appear to have the interest, resources and/or ability to deliver what was promised; and not using a previous draft lease available to it. The plaintiffs submitted that the JV cannot reasonably be said to have “failed to agree to a budget” for the leasing campaign in a timely fashion and, consequently, this cannot be said to breach any causal link. Rather, the plaintiffs’ position was that there was a budget in place from the outset and, if there was any doubt about its sufficiency, it could and should have been raised in the early stages by Savills.

The plaintiffs also submitted that the JV could not reasonably be said to have failed to provide Savills with documentation necessary to commence the leasing campaign. Savills had available to it a generic lease under the Retail Leases Act from Marsdens Law Group, as well as a “discount clause”, which would have enabled them to approach tenants and secure anchor tenants.

Objection was made to many aspects of Mr Bassal’s evidence on the basis that the assertions were submissions. I upheld many of these objections but permitted those aspects of Mr Bassal’s affidavit evidence to be considered as submissions. Some of those assertions were as follows.

Mr Bassal believed that the outlet centre at Campbelltown would be successful given that a shopping centre that was opened in the adjoining suburb of Liverpool was successful. As for the GFC impact, he relied upon the fact that the outlet centre at Birkenhead Point was still successfully leasing during the GFC.

A number of Mr Bassal’s complaints went to communications with Savills including the fact that he felt Mr Brown preferred to deal with Dr Schwartz with respect to JV matters. He also complained about not being informed that David Jones had enquired about the timelines for the construction and completion of the Centre nor that they indicated they were no longer interested. This latter complaint is contradicted by the email he received from Mr Kanepoullos on 8 April 2009 referred to above at [177].

Mr Bassal disputed that the Centre had a negative market perception and explained that he did not believe that a professional project manager was necessary. He was under the impression that leasing activities were well underway as at 26 August 2008. He was critical of the proposed change in relation to the position of the escalators and Savills’ requiring updated plans in order to lease out the Centre. A number of individual complaints were made such as positioning of the garbage compactor and other matters. He disputed the opinion in the Urbis report in January 2009. He denied that the leasing campaign for the Centre could not begin until 3 February 2009. He complained about Savills’ “Quarantine List”, as described by Mr Ashworth in his evidence.

Mr Bassal went through a number of specific leases and explained why he did not consider the conditions advanced to be appropriate. This was before and after the Centre opened.

Savills submitted that the way to approach the question of breach was to first identify what Savills agreed to do under the ELAA. Secondly, it needs to be identified what Savills did in performing the ELAA. Thirdly, an assessment needs to be made as to whether Savills in fact did what it agreed to do. In this case, the relevant standard is to be established through expert evidence. Savills’ final written submissions addressed the expert evidence in some detail.

It was also submitted that this assessment is informed by s 5O of the Civil Liability Act 2001 (NSW) (“the CLA”) which prevents Savills from incurring any liability in negligence provided it performed its obligations under the ELAA in a manner that “was widely accepted in Australia by peer professional opinion as competent professional practice”.

Mr Carnovale’s evidence was directed towards the proposition the leasing campaign had already been underway for some time by July 2008 or, if it was not, should have been started earlier than February 2009. Savills says that both propositions should be rejected by the Court for the reasons given below on the topic of breach. It was submitted that in the absence of any criticism by Mr Carnovale, there is no basis for the plaintiffs to submit that Savills breached the ELAA, or was negligent in its performance, between 10 December 2009 and 25 November 2010.

I am satisfied that the question of whether the plaintiffs can establish the relevant breaches on the balance of probabilities is to be determined by my assessment of the expert evidence based on the facts I have found.

Savills was required to provide its services under the ELAA with reasonable care and skill (Astley v Austrust Ltd (1999) 197 CLR 1; [1999] HCA 6 at [47] per Gleeson CJ, McHugh, Gummow and Hayne JJ). The question of breach thus turns on whether Savills used reasonable skill, care and diligence by it as a professional leasing agent in finding and introducing to the JV (as the principal) such one or more persons as Savills considered might be acceptable to the JV as a lessee of the Centre, as contemplated by cl 2.1; and in creating and implementing an active leasing campaign as contemplated by cl 3.0.

The first question is whether Savills breached the contract by:

The plaintiffs contend that Savills ought to have commenced leasing the Centre at least 18 months prior to the proposed date the Centre was due to open. The SFASOC particularised this claim as follows: the defendant ought to have commenced leasing the Centre at least 18 months prior to the proposed date the Centre was due to open; and it failed to commence leasing the Centre in a timely fashion.

A difficulty with this aspect of the plaintiffs’ case is that the contractual relationship did not commence until July 2008 and the building was to be constructed by 1 September 2009. There was never going to be 18 months’ time to lease the Centre. It was also common ground that the period from November until Australia Day is a period of inactivity in the leasing market.

I am satisfied that in August 2008 Mr Bassal was aware that there was not 18 months left to rent the premises before opening. In his email on 14 August 2008 he told Dr Schwartz that “we only have 8-9 months to lease the centre” and asked Peter Grant to “forward the lease to Savills so they can start leasing”. When Mr Bassal was cross-examined about his email, his responses were as follows:

Savills’ case was that the leasing could not commence until four matters had been attended to:

Having regard to the findings I have already made in relation to the expert evidence on these four issues, their application to the question of breach based on delay are as follows.

As for finalisation of the budget, I have already found that the delay was not the fault of Savills. As for whether Savills could have commenced the leasing without the budget, the high point of the plaintiffs’ case was Mr Carnovale’s evidence that it would be irresponsible to do so but that you could “wing it”. Based on this expert evidence I am satisfied that the leasing of the Centre could not commence until after the budget had been finalised. The budget issue was not resolved until 3 November 2008 when Mr Bassal finally accepted it.

A further delay was the receipt of the final architectural plans from MPA in late September 2008. Again, the high point of the plaintiffs’ case was Mr Carnovale’s evidence that Savills could have gone to market with the 2006 leasing pack. The effect of his evidence was that this could have been done even though the plans were different. The plaintiffs have not established that Savills breached their duty by waiting for the plans before the leasing commenced.

As for the provision of the lease, this again was not the fault of Savills. I have already set out the evidence concerning the delay in getting a lease. A draft of the pro forma lease was first provided by Mr Grant on 19 August 2008. The absence of a discount clause was unresolved as at 8 September 2008. A further version of the lease was provided by Mr Grant on 17 December 2008 and a final version, with a reference schedule and disclosure statement, was provided by Mr Grant to Mr Kanellopoulos on 11 February 2009.

Mr Carnovale’s evidence was that under the Retail Leases Act a leasing agent is required to have a copy of the proposed lease. His evidence was that a reasonably competent leasing agent would ensure that such matters be the subject of advice from a solicitor.

I am satisfied that Savills could not commence leasing without the lease. Although it is to be accepted that they could have placed more pressure on Mr Grant about this, in the context of other events occurring at that time, even if they had done so, there were other matters that still needed attending to.

The final matter which caused the delay was obtaining the Urbis Report. The notes of the 12 November 2008 meeting (the authenticity of which Mr Bassal did not dispute) record that it was agreed at that meeting that an updated report was required in order to market the Centre. The first report obtained by Urbis had been obtained in order to satisfy requirements of the DA that, for example, such a centre would be sympathetic with the local area and create employment opportunities. The second report was needed to update the market conditions/demographics.

The second Urbis report obtained in draft in late January 2009 raised concerns as to the viability of the Centre being almost fully let at opening. Mr Bassal was critical of this report throughout the hearing. He denied that it was ever necessary to obtain the report and also submitted that it was a flawed report. The relevant question, however, was whether it was needed before the leasing could commence.

I am satisfied it was prudent of Savills to obtain an updated report for marketing purposes given that the GFC meant that the market was very different to the time at which the first Urbis report was obtained. I am satisfied that, although it was one of the relevant matters to be attended to prior to leasing, it would not on its own have constituted a complete barrier to commencing the leasing. Once it was obtained, however, Savills was aware that there would be difficulties fully leasing the Centre and were in a better position to manage the expectations of the JV partners.

On the question as to whether the leasing campaign could have started in July 2008 I prefer the evidence of Ms Cunningham for the reasons stated above. Mr Carnovale’s evidence to a large extent appeared to work backwards. His evidence was that Savills breached its duties because the Centre was not leased with the right tenants. Following cross-examination it emerged that his evidence was that although Savills largely did what a prudent commercial leasing agent would do, they could have tried harder and must have been in breach. In any event, the question was not whether the leasing could at a stretch have started earlier but, rather, whether Savills’ approach in waiting for the relevant documentation was not one that a “reasonable and competent” leasing agent would take.

The SFASOC pleaded the following particulars in relation to this breach: At all material times, the defendant knew, or ought to have known, of the effect of the GFC upon the retail leasing market. The defendant failed to allocate any adequate or sufficient human resources to provide the services it was obliged to render in accordance with the ELAA and to utilise senior leasing staff to provide the services it was obliged to render in accordance with the ELAA. The defendant utilised staff that were: inexperienced with leasing of greenfields developments and inexperienced in leasing premises branded as factory outlets, with similar uses to the proposed use of the Centre. In appointing Mr Brown, who was experienced as a property manager, but inexperienced with greenfields developments to oversee the leasing of the Centre the defendant failed to appropriately allocate human resources to the leasing of the Centre. The defendant also failed to put in place an adequate leasing staff structure that would have included, sufficient leasing executives.

When the leasing campaign for the Centre began in February 2009, Savills allocated Mr Kanellopoulos, Ms Zabloudilova and Ms Xu (up to 50% of her time) as the leasing executives. The experts agreed that these resources were sufficient if there was 18 months to lease the Centre and if they were highly skilled.

The problem with the expert evidence was twofold. First, there was not an 18-month time period for a number of reasons. Savills had sought more time and was refused. It was not Savills’ fault that they did not have 18 months; it wanted to defer the opening but the JV ignored this advice. Second, the evidence of the degree of skill of the Savills’ employees was somewhat unsatisfactory.

Mr Bassal took issue at the hearing with the expertise of Ms Zabloudilova and Ms Xu but, as stated above, no evidence was satisfactorily put before the Court as to what that experience was. No resumes were ever provided of these two agents. One of the emails between Mr Kanellopoulos and Mr Brown in 2009 suggested that Ms Xu had to be spoken to on one occasion for coming to work late but again none of the correspondence with the JV partners reflects any criticism of her efforts at the time.

It is to be accepted that Ms Zabloudilova and Ms Xu were not senior in the organisation but they were leasing executives experienced in commercial leasing. Although Mr Brown’s evidence was that they did not have previous experience in outlet centres specifically, they were familiar with the retail clients who might be interested in the Centre. The skill of any employee is not to be assessed solely by the number of years in the job: an employee may have been involved in the industry but not have been particularly good at his or her job and the converse may also be true. Despite this, it is to be accepted that a very senior, well-known leasing executive in the industry may well have more gravitas when seeking to persuade persons to take up space in a new development. The difficulty is that there was no expert evidence on this issue so it was left as a matter of speculation only.

Mr Bassal complained during the hearing that when Saxon first approached Savills in 2006 Mr James was involved in the leasing. Mr Bassal was very satisfied with his work but by 2008 he had left Savills as had others he was working with. The fact that those who took over the leasing over time did not impress Mr Bassal in the same way as the earlier agents did does not of itself suggest that the agents working on the leasing of the Centre in 2009 were unqualified to do so. Even if there was evidence adduced that these earlier agents were more skilled (which there was not), that does not mean that the leasing agents ultimately used were of insufficient skill. It is left as a matter of speculation only.

As for the number of leasing agents involved, both experts agreed that once it became apparent that the leasing campaign could not be commenced within a short period after the ELAA was entered into, Savills, acting competently, should have requested additional resources. The evidence is that Savills did so in November 2008 but were refused. When they asked again in 2009 Retailspace and Metier were appointed.

By well into 2009 there were over nine leasing agents involved in the leasing of the Centre.

Mr George’s evidence was that on an occasion in 2008 (he did not indicate when) Savills was due to have a meeting with the Bassals. Mr Brown called him into his room beforehand with other Savills employees and said words to the effect that:

Mr Brown denied this happened. It seems to me that, even if in fact this did occur, all it establishes is that Mr Brown on this occasion wanted to put on a show of support for the client. There was transparency as to how many Savills employees were working on the leasing at the relevant time. It is not the plaintiffs’ case that Savills misrepresented to them that there were more people working on the project than the JV partners knew of at the time.

I do not accept that it was the fault of Savills that a period of 18 months was not available to lease the Centre. They tried on a number of occasions to forestall the opening but were unsuccessful. As problems mounted other agents were brought in. I am not satisfied that the plaintiffs have established any breach of their obligation in relation to the resources devoted to the leasing given the time constraints.

The SFASOC pleaded the following specific particulars under this head: the defendant failed to implement any or any adequate leasing strategy, in a timely manner or at all; the defendant knew, or ought to have known that achieving an appropriate mix of lessees was vital to the success of the Centre; the defendant failed to identify, find and introduce lessees for an appropriate mix of lessees for the proposed use of the Centre; the defendant knew, or ought to have known, that for the Centre to be successful, the defendant needed to identify, find and introduce national and international retailers as lessees that would attract other lessees; the defendant failed to identify, find and introduce any or any sufficient national or international retailers to attract other lessees to the Centre; the defendant knew, or ought to have known, that for the Centre to be successful, the defendant needed to identify, find and introduce at least one anchor or high-profile elite retail lessee; the defendant failed to identify, find and introduce any, or any adequate, anchor or elite lessee for the Centre; the defendant failed to implement any, or any adequate strategy for identifying, finding and introducing an anchor or high profile elite lessee for the Centre; the defendant knew, or ought to have known, that for the Centre to be successful the defendant needed to identify, find and introduce a critical mass of lessees; the defendant failed to identify, find and introduce a critical mass of lessees in the Centre by the date the Centre was due to open; the defendant failed to implement any, or any adequate strategy to identify, find and introduce a critical mass of lessees in the Centre by the date the Centre was due to open; the defendant failed to implement a project delivery timeline; the defendant failed to identify, find and introduce sufficient lessees to enable the Centre to have been between 86.5% and 90.9% occupied by the date the Centre was due to open; the defendant failed to implement any, or any adequate strategy to identify, find and introduce sufficient lessees to enable the Centre to have between 86.5% and 90.9% occupied by date the Centre was due to open; the defendant failed to prepare and provide any or any adequate executive summary for the Centre.

Many of these particulars went to Savills’ knowledge of industry practice. Savills did not dispute that it knew achieving an appropriate mix of lessees was vital to the success of the Centre. This is reflected in the JV partners’ meetings on a number of occasions. Nor was it disputed that national and international retailers would attract other lessees and that a critical mass of lessees was vital. The fact that Savills proceeded on this basis is reflected in the contemporaneous documentation. The question is not whether Savills proceeded to adopt this strategy – it did. The question is why those retailers could not be persuaded to lease at the Centre.

As for the specific failures alleged, the claim that there was no adequate leasing strategy is, in effect, a claim that that the desired tenants were never introduced to the JV partners. The specific complaints of failing to implement both a “project delivery timeline” and any “adequate executive summary for the Centre” were not addressed at the hearing. I shall proceed on the basis that they are different ways of alleging that Savills failed to implement the adequate leasing strategy.

The remaining particular complaints can be distilled to the general complaint that Savills failed to secure an almost fully let outlet centre with high-profile tenants as at the date of opening. The failure was said to be to identify and introduce to the JV an appropriate mix of lessees, national and international retailers, at least one anchor or high-profile elite retail lessee; a critical mass of lessees and sufficient lessees to enable the Centre to have been between 86.5% and 90.9% occupied by the date the Centre was due to open.

It was this aspect of the plaintiffs’ case that I found to be the most difficult to assess and it was not adequately addressed by the expert evidence. The plaintiffs did not fully explain this aspect of their case in either written or oral submissions because they persisted with a case that the relevant duty under the ELAA was to secure a particular outcome. Thus, it was submitted, the fact that the desired outcome was not obtained means that Savills must have breached its duty. As I have already stated above, that is not the proper test.

The evidence satisfies me that none of the LOOs provided to Suncorp recorded in the report dated 12 May 2008 amounted to solid agreements to lease in the Centre. All of them were conditional on other recognised retailers also being in the Centre. The plaintiffs’ complaint is that they represented “viable opportunities” that should have been pursued and converted into executed leases but the evidence is that they were all approached again but they were not ultimately interested. Mr Brown’s evidence (extracted above at [287] to [307]) was that after the July 2008 ELAA was signed he did speak to those who had signed LOOs and got their feedback at that stage. This is consistent with what was raised at the 11 November 2008 JV partners meeting as to the market being worse post GFC.

The expert evidence in relation to shopping centres generally was to the effect that in a more traditional shopping centre the leasing strategy would be to first obtain an anchor tenant such as a large supermarket store. Those anchor tenants would be offered reduced rent on the basis that their presence in a centre would lure other smaller retailers to lease at the centre. In the January 2009 Urbis report it was suggested that ALDI might be such a tenant. But it was not the vision of the JV to have a large supermarket in the Centre. Rather, although some food outlets were required, the plan was to have the Centre rented out by various “tier one”, name brands and nationals selling their stock, largely clothing, at discounted prices. The aim was to obtain a critical mass of such retailers such that other retailers would want to join that critical mass.

Although the SFASOC claims that Savills failed to secure an anchor tenant it was never suggested who such a tenant would be in the context of an outlet centre rather than a general shopping centre. Although David Jones made an inquiry in March 2009 it was not able to get out of its current lease and that inquiry never went anywhere. I am not satisfied that Savills failed to introduce an anchor tenant for such a tenant because it was never suggested by the JV that one anchor tenant was needed nor who that night be. The complaint as to failing to secure a “high profile elite retail lessee” is in a similar category. It was never suggested that getting one only tenant of this type would lead to the Centre becoming a destination shopping centre. Rather, the real complaint is that a critical mass of high-end tenants was not introduced to the JV partners.

I have already referred to the leasing schedules tendered as part of the court book. They were prepared by Savills on a regular basis from February 2009 until the opening of the store in December 2009 and thereafter. These detailed leasing schedules were not the focus of either party’s submissions. Nor did any of the expert witnesses provide any opinion evidence about them. These schedules show that every possible retailer who could have been contacted was contacted. In fact, the evidence of Mr Ashworth was that when he came on board he was surprised by the Quarantine List as Savills was already in contact with many of the retailers he had sought to pursue.

Despite the fact that no significant reliance was placed on all of these detailed leasing schedules, I have considered them in some detail. What they reveal is that if some well-known “tier one” tenants had been willing to “jump first” and lease in the Centre (without any confirmation that anybody else was going to do the same) then others may well have followed. But in circumstances where this was not a centre that would be hooked by any one anchor tenant, it seems that a critical mass of such “jump first” tenants was needed in order to create the “buzz” required to lead to other tenants following suit. The plaintiffs never articulated why it was Savills’ fault that an insufficient number of tenants could be persuaded to be “jump first” tenants in this period, during which it was common ground the GFC had an impact.

The plaintiffs did not seek to identify any particular tenant who was not contacted by Savills who would have taken a place in the Centre if he or she had been contacted. The extensive schedules indicating the contact made with any possible such tenant excludes such an allegation being made. Even Mr Hartman’s evidence was that he was approached by Savills but was not interested. There was no evidence adduced by the plaintiffs that there were tenants who were prepared to enter leases on better terms than those suggested by the plaintiffs but the plaintiffs failed to approach them. It was common ground that the plaintiffs did not allege that Savills’s failure was to identify find and introduce any “particular” lessees.

The plaintiffs’ case proceeded on the basis that in this particular time period demand for an outlet centre of this nature in Campbelltown was so high that the only explanation for it not being 90% leased with high-paying tenants as at December 2009 must have been the breach by Savills. It was just not properly explained why this was so.

The plaintiffs have failed to establish that Savills failed to implement an adequate leasing strategy.

The particulars of this breach in the SFASOC were as follows: the defendant identified, found and introduced numerous lessees that agreed to leases that contained terms to the effect that rent was not due and payable unless the Centre was 70% occupied; the defendant failed to identify, find and introduce sufficient lessees to enable the Centre to be at least 70% occupied; and the defendant failed to identify, find and locate lessees who would agree to terms that required the lessees to pay rent.

This complaint turns on the fact that Savills continued to introduce tenants who once aware that the Centre was not going to be fully let at opening sought reduced rent or deferral of the payment of rent. The expert evidence on this issue was that it was better to have the Centre leased with tenants than not at all.

As with many of the complaints relied upon by the plaintiffs there was a degree of circularity to this complaint. Had a large number of “jump first” tenants been secured then that would have increased the chances of other tenants having followed. If other tenants had followed then demand may have increased. If demand had increased and the Centre was looking like being almost fully let then it would have been more likely that tenants who would pay rent could have been secured. On this basis the plaintiffs’ separate complaints about failing to identify tenants who would pay rent turns on the question of whether it was the fault of Savills that these “jump first” tenants did not materialise.

In circumstances where the plaintiffs’ have not established that Savills failed to approach any specified tenants, I am not satisfied that this breach has been established either.

The SFASOC pleads these “other failures” to be: that the defendant failed to follow up inquiries made by prospective lessees adequately or at all; the defendant failed to follow up pre-commitments made by prospective lessees under the First and Second Saxon ELAAs adequately or at all; the defendant failed to advise CFO and PSP that the documentation was required to be provided in accordance with the Retail Leases Act prior to any leasing activities being conducted; the defendant recommended to CFO and PSP leases on terms unfavourable to CFO and PSP; the defendant identified, found and introduced to CFO and PSP potential lessees that did not accord with an appropriate tenancy mix for the Centre; the defendant identified, found and introduced to CFO and PSP potential lessees that were not well-known brands and were inappropriate for the proposed use of the Centre; the defendant identified, found and introduced to CFO and PSP several “mum and dad” retailers that were inappropriate for the proposed use of the Centre.

Given the degree of repetition these particulars disclose, they have largely already been addressed. The particulars which claim a breach in the period prior to July 2008 are implicitly not pressed given Exhibit 3. As for the complaints that when the opening drew near Savills recommended second- and third-tier tenants just to get the Centre filled, the expert evidence was that it was better for the Centre to be filled with tenants than empty.

Mr Bassal’s complaint at the hearing was that a discount clause is a simple matter and Savills should have either made do with a previous lease provided by Marsdens or chased the JV’s solicitor up. I have already addressed the question of the lease above.

The plaintiffs have not established breaches based on these “other failures” either.

I have considered the terms of the ELAA and what Savills agreed to do under it as well as what they did in fact do. I have looked at the expert evidence by which Savills’ conduct is to be assessed in order to determine the question of breach. The expert evidence does not establish that Savills breached the conditions of the ELAA. The plaintiffs have not established on the balance of probabilities that Savills departed from the relevant standard.

As stated above, the plaintiffs’ written and oral submissions proceeded on the basis that Savills had made representations to them in 2006 that were not ultimately fulfilled. In framing their submissions in this way the relevant questions in relation to breach were not adequately addressed. Nor did the plaintiffs’ expert, Mr Carnovale, address this relevant question of the standard of care by which Savills’ conduct is to be assessed. Rather, Mr Carnovale’s evidence was to the effect that Savills must have breached its duty because the Centre failed.

The contemporaneous documents show the process of leasing the Centre to be a fraught one. The emails in particular show concern was expressed to Savills by Dr Schwartz and Mr Bassal from late 2008. But, in November 2008, prior to the leasing commencing, Savills was concerned about market responses. This is reflected in the notes of the 11 November JV meeting and also following the Urbis report. Unfortunately for the JV partners, the GFC could not have commenced at a worse time for this development of this greenfields project.

I am thus not satisfied that the plaintiffs have established any breach of contract by Savills.

Given that Savills’ obligation in contract was the same in negligence it follows that the plaintiffs’ case must also fail in negligence.

Part 1A of the CLA provides for the statutory principles governing the law of negligence in NSW. Section 5A(1) provides that Part 1A applies to any claim for damages for harm resulting from negligence, regardless of whether the claim is brought in tort, in contract, under statute or otherwise. Thus, the CLA applies to the plaintiffs’ claim for economic loss said to have resulted from Savills’ failure to exercise reasonable care and skill regardless of whether that claim was brought in contract or tort.

Sections 5B and 5C of the CLA Act provide:

As stated by Leeming JA in Uniting Church in Australia Property Trust (NSW) v Miller; Miller v Lithgow City Council (2015) 91 NSWLR 752; [2015] NSWCA 320 (“Miller”), with whom the other members of the Court agreed:

His Honour went on to observe in relation to s 5B that:

It should be noted that neither party’s submissions addressed any of these specific provisions of the CLA. Savills’ written and oral submissions confined the question of breach to the case in contract. Although the plaintiffs’ written submissions made passing reference to s 5B, there were no submissions directed to why each of the individual precautions were said to be “reasonable” in the circumstances.

I have already provided my reasons as to why I am not satisfied that Savills breached its obligations under the ELAA. Framing that conclusion in the language of the CLA (for the purposes of s 5B(1)), I am satisfied that the relevant “risk of harm” was that the Centre would not be sufficiently leased which would mean loss of rent and the failure of the Centre. Such a risk was significant. Despite this, I am not satisfied that there was a foreseeable risk that the JV would go into receivership (even putting issues of causation to one side).

I have already dealt with the “reasonable precautions” the plaintiffs allege Savills failed to take under the five headings: Delay in Commencing the Leasing; Insufficient Human Resources; Failing to Implement an Appropriate Leasing Strategy; Failing to Identity and Find Leases that required the Lessees to Pay Rent and “Other failures.” It follows from my conclusion that the plaintiffs have not established breach of contract that they have also failed to establish that a reasonable commercial leasing agency would have taken those precautions. In reaching that conclusion I have had regard to the matters enumerated in s 5B(2)(a)-(d).

Even if I had been satisfied that the plaintiffs could have established negligence on the part of Savills, the operation of s 5O of the CLA means that Savills would not have incurred liability in any event. The evidence of Mr Carnovale extracted above at [369] to [374] was that Savills provided its professional service in a manner that “(at the time the service was provided) was widely accepted in Australia by peer professionals”.

The plaintiffs’ case fails at this initial stage. Despite this, a significant focus of the hearing was on questions of causation and loss. I propose to go on to consider these questions in the event that I am wrong in relation to my conclusion that there was no breach of the contractual obligation/duty of care arising under the ELAA in this matter.

My findings in relation to the expert evidence concerning the questions of causation and loss are as follows.

Mr Hack was called by the plaintiffs. He is the Principal of Hill PDA, Land Economists, Planners and Valuers. He prepared a report for the plaintiffs dated 3 July 2017 reviewing the evidence prepared by Mr Duane. At the time of the hearing, Mr Hack had practiced as a land economist for 26 years and as a town planner for 10 years and described himself as a property economist.

Mr Duane was called by Savills. He is a property economist and director of Location IQ, an economics advisory firm which provides advice on location-based decisions to clients including Woolworths, Lendlease, Mirvac and others. It provides site analysis and sales forecasting for major retail stores.

On 21 August 2018, Mr Duane and Mr Hack gave evidence together.

They first addressed the question of the defined trade area. Mr Hack stated this was probably the biggest issue in contention. In about 2009, the Macarthur region, Campbelltown, Wollondilly and Camden had a population of around about 250,000. The Liverpool local government area to the north had almost 180,000 and Wingecarribee had about 45,000 people. In total, roughly 475,000 people. Across the whole of the Liverpool area, Mr Hack opined, you have shorter travel times to Campbelltown than to alternate outlets like Homebush. He accepted however that Liverpool was in the “tertiary trade area” and that “significant dollars” would not come from it.

Where Mr Duane’s opinion differed was that, in looking at trade areas, more factors than drive time must be considered. For example, typical shopping patterns are that people go inbound rather than outbound. Mr Duane argued it is much harder to draw people outbound because it is not in their natural orientation of where they go to work, where they go to school, where they go to shop. Mr Hack disagreed, arguing that “other reasons for travelling there” are important. He also noted (in apparent contradiction to his previous point) that Homebush is not near a regional centre.

Next Mr Duane opined that, although the drive times between the Centre and Homebush DFO may have been comparable, the respective facilities were not. It was also always going to be a stronger pull for shoppers to follow their established patterns to DFO Homebush. In relation to the Illawarra region Mr Duane said he treats that region as “business from beyond the trade area”. Illawarra shoppers would go to the Centre so infrequently (due to the enormous escarpment between Wollongong and Campbelltown) that he did not include them as part of the catchment.

Mr Hack responded that there is a lot of evidence suggesting that brand outlet centres can attract people from more than half an hour’s drive away. He pointed to the congestion getting into Homebush and parking and opined that it would be far more convenient to get to Campbelltown from Liverpool. He accepted that maybe the trade area was, in reality, “thin” in the Liverpool area but that is nothing to do with the potential trader and the potential capture. Mr Hack was “quite confident” that if the Centre had the right mix of tenants then Liverpudlians would shop there. He argued that if a shopper “popped down” to Campbelltown and found the Centre half-vacant, however, they would be more likely to say, “Okay, well, next time I’ll go back to Homebush.” He was “quite confident” that people from the Liverpool area would decide to make Campbelltown their main destination in future for brand outlet shopping if the Centre was fully let.

Mr Duane replied that you cannot assume a centre is going to get the “right retail mix”. In his view, the Centre “wouldn’t and they didn’t” and “shouldn’t have planned for that to happen”. Mr Hack referred to the relative undersupply of outlets when compared with Melbourne which has seven or eight. He also noted that Homebush and Birkenhead Point are overtrading by national standards.

Under cross-examination by Mr Bassal, Mr Duane said that he thought that mid-tier, rather than upper-market, tenants might have considered going to the Centre, but he fell short of saying he believed they would go. He accepted that centres typically have shared, overlapping catchment areas. He reiterated, however, that people do not travel outbound unless there is something “at least comparable”. Mr Bassal put to Mr Duane that people would travel for high-end brands like Royal Doulton, which was a tenant at the Centre. Mr Duane replied that there needed to be a “sufficient scale of a number of brands” and, again, “the right tenant mix”. He expressed that merely because there were only two brand outlet centres in Sydney does not mean “you could put a centre anywhere and say it’s going to work”. He pointed to the failure of centres at Mount Druitt and Parramatta and on the Central Coast.

Mr Duane’s evidence was that the relevant trade area in 2009 was 290,000 people whereas Mr Hack saw it as 747,000 people.

The experts next addressed the relevance of the anticipated population growth in the Campbelltown area to the success of the outlet store in 2009–2010. Mr Hack’s opinion was that forecast population growth is very important in making investment decisions about whether to build shopping centres or, from a retailers’ point of view, whether to move into a shopping centre. Mr Hack raised, as an example, that a large supermarket will go into a centre knowing that they will underperform for the first few years of trading confident that the population growth will happen over time. Mr Duane agreed that growth is an important factor but stated that large supermarkets take 20 to 30 year leases, whereas factory outlet leases are for a much shorter period, typically three to seven years.

Mr Hack accepted Mr McCulloch’s proposition that, whatever may be the population growth, what is more critical is the available spend in the demographics that form that population. Mr McCulloch asked about anchor tenants, in particular the extent to which their internal teams would advise them about forward projections. Mr Hack answered that it was “probably not unrealistic” supermarkets like Woolworths and Coles would looking at forecasts, such as population growth, 10 years in advance.

Mr Duane’s evidence was that population level as determined by 15 and 30 minute drive times was “at the lower end” for an outlet centre. He contrasted the “geographical spread” in Sydney with Melbourne where “there’s a greater number” of factory outlets and “there’s minimal overlap within those 15 minute drive times”. In Melbourne, he explained, outlet centres have been spread such “that their inbound populations aren’t significant, but they have very large outbound populations which sustain them.”

Mr Hack disagreed with Mr Duane because the advantage with Campbelltown was that it was not located “anywhere near” a competing factory outlet centre. He noted that Parramatta and Mount Druitt were “very small in size” and that he never considered them to be “destination shopping centres”. Because the Centre would be third after Birkenhead Point and Homebush it had “the ability to have quite a wide catchment area” not limited to the 30 minute drive time. He expressed that a catchment of 300,000 people was a sufficient trade area for a factory outlet centre.

Mr Duane pointed to the evidence that that the centres at Canberra and Cairns struggled, two centres in Melbourne failed and/or went into administration. In his view, Campbelltown was always going to perform at the lower end of the spectrum. Mr Hack said, by contrast, that Spencer Street was “trading quite satisfactorily” and was “nearly fully leased, if not fully leased”.

Mr McCulloch asked Mr Hack whether DFO Homebush, given its reputation, was truly comparable and whether it was not “an aspirational centre”. Mr Hack accepted that Homebush was “very well known” and had an established mix of tenants in 2009. He also accepted that the market forces behind whether or not a particular tenant or group of tenants were disposed to take space in an offering like Campbelltown was outside the scope of his report. During questioning, Mr Bassal observed that “[o]bviously we all know that Homebush is a superior centre”. Mr Hack’s evidence was that he would never expect Campbelltown to trade as high as DFO Homebush, in particular having regard to his estimate that it had been “doing well over $10,000 a square metre, I think, and I wouldn't expect Campbelltown to get that sort of turnover.”

Mr Bassal cross-examined Mr Duane on the viability of the DFO at Moorabbin in Victoria. He asked why people, on Mr Duane’s view, would travel outbound for that centre but not his in Campbelltown. Mr Duane answered that there are “enough people within the Brand Smart and DFO Moorabbin catchments to sustain a higher trading centre than Campbelltown, even when they do those journeys into the CBD”. Mr Duane’s view as to the overlapping trade area between Campbelltown and Liverpool was that “there’s going to be a lot more people within a 15 to 30 minute drive time of Liverpool then there is within Campbelltown. If you have a look at Campbelltown, those areas within a 30 minute drive time to the east, south, and west are effectively not populated.”

The next area of contention concerned the relevance, if any, of the disposable income of residents in the area of the proposed outlet centre. Mr Hack’s evidence was that the southwest corridor of Sydney has average income levels about 10 to 20% below greater Sydney. He viewed this as an opportunity for factory outlets because they sell merchandise at discounted prices. Mr Duane’s view was that factory outlets are “targeted to the mid-market” where the concept “is not cheap prices but prices at value”. “So when you get to an outer suburban area and you start getting to cheap prices,” he explained, “that reduces the pool of retailers and it reduces the attraction of the centre, which reduces how far the trade area would extend, that’s my view of it.”

Mr Bassal put his theory to Mr Duane that, in contrast to people in affluent areas, people in Campbelltown are likely to have more disposable income because “they don’t have investment properties” and “their cost of living is a lot lower”. Mr Duane explained that when people start investing in property, it is usually once they have paid off their houses and have “money to play with”. Mr Bassal suggested to Mr Duane that there is a “large portion of residents in Campbelltown that are affluent. You have Denham Court, you have Glen Alpine, you have around Bowral …” Mr Duane replied that:

The next contention the experts dealt with was the impact of the GFC on leasing in 2008 and 2009 that explained the basis for their conclusions. Both experts were in agreement that the GFC started in August/September 2008. In Mr Duane’s view, the GFC had a “cumulative effect around tenants and their willingness to be looking for new stores at that time”. Although retail sales growth was strong in Australia in 2009 and early 2010, he explained, “that was a result of government hand-outs”. After 2010 retail sales fell quite dramatically for a period of three years or so; people were looking at closing poor performing stores and, Mr Duane explained, that “would have affected the type of tenant mix you would have got at the centre”.

Mr Duane pointed to the fact that Sydney’s population was always growing in the years leading up to the GFC. He noted however that real growth in retail-spend per person “kind of plateaued” in or around 2006 due to rising interest rates and fuel prices but there was no significant long or short-term trend downwards in retail spending during the GFC.

Mr Hack accepted that the stimulus package stimulated “a bit more consumer spend” and that at no point did retail growth “go negative”. Australia avoided having two quarters of negative growth which would have meant a recession. Mr Duane added that it is “lower than trend growth”.

In cross-examination Mr Hack accepted that once the GFC was accepted in Australia as a real phenomenon by about the third quarter of 2008 that it created a credit freeze. As for the general economic mood amongst retailers during the GFC and whether they were circumspect about expansion, Mr Hack stated:

He accepted, however, that none of those supermarkets or restaurants, or fast food stores were being touted as tenants for the Centre.

Mr Hack did not accept Mr McCulloch’s proposition that the GFC would have been expected to have some impact upon whether or not the Centre became viable. “I wouldn't say it’s a significant impact,” he said.

Mr Bassal put it to Mr Duane that “most of the national retailers that were contacted by Savills wanted to open a store at that time at the factory outlet centre”. Mr Duane replied that he could not speak to the discussions between Savills and the retailers. He stated that the evidence was, in hindsight, that they did not open stores. Mr Bassal then referred the witness to the Jones Lang report in support of his submission that discount stores were “bucking the trend” and “trading well” during the GFC. Mr Duane accepted that discount stores showed stronger sales growth in that period than traditional retail but that it was necessary to consider the individual circumstances of Campbelltown in making an assessment as to whether retailers would open outlet stores there.

In respect of the contention as to the relevance, if any, of the under-representation of factory outlet centres in New South Wales to the potential success of the Campbelltown outlet centre, Mr Hack said that “there’s clear under representation in New South Wales and in Sydney for factory outlet centres”. Melbourne had eight centres when Campbelltown opened; Sydney had only two others despite the fact Sydney’s population has about half a million more people. Mr Hack’s view was that “there was definitely room in the Sydney market for some more brand outlet centres or factory outlet centres. And the last thing you want to do is locate them of course close to the existing ones, so the idea is to try and “salt-and-pepper” them a little bit more across the metropolitan area. Mr Duane did not disagree that you could have further factory outlet centres in Sydney provided they were appropriately located to the market they need to serve. His opinion was that a factory outlet centre was sustainable at Campbelltown, “it just was going to achieve low sales levels”.

Mr Hack agreed that is necessary for any new centre’s operators proposed to obtain a critical mass of retailers. He agreed that tenancy mix is important. He accepted that the socioeconomic profile of the population which a centre intended to serve has “some relevance” but that far more important is the number of people in the trade area. As to why there are only two successful centres in Sydney, Mr Duane said that it comes down to positioning the centres in appropriate locations. “Sydney has a lot of geographical national parks, rivers, which separate areas into discrete locations,” he explained, “which isn’t the same with Melbourne.” Sydney is more continuous in its urban form.

In respect of the contention whether Campbelltown had enough critical mass to make it a destination shopping centre, Mr Hack’s opinion was that if the Centre was close to fully let then there would have been enough critical mass there. Mr Duane neither agreed nor disagreed but added the Centre “was in the lower end for successful centres, so it was at the smaller end”. In his view, it was big enough; it just did not get the tenant mix.

Ultimately, the main areas of dispute were as to the defined trade area (which then had a direct impact on the achievable market rent) and as to how successful the Centre would have been. The difference in the defined trade area opinions was based on the significance of Campbelltown being on the edge of Sydney, with a lower than average socio-economic profile, how frequently people would travel from Wollongong and the existence of a very successful DFO at Homebush.

I am not satisfied that comparisons with DFO Homebush were particularly helpful. Even Mr Bassal ultimately conceded that it was not comparable. The question is not whether if the Centre was as successful as DFO Homebush more tenants would have been attracted to it. Rather, the question is whether it could ever have been that successful. The plaintiffs’ reliance upon the fact that there were more outlet centres in Melbourne than Sydney simply means that there was room for a further outlet centre in Sydney; not this Centre in particular would have been successful. As Mr Duane observed, just because there were only two brand outlet centres in Sydney at that time did not mean “you could put a centre anywhere and say it’s going to work”. It was common ground that a number of outlet centres in Sydney had failed including at Mount Druitt and Parramatta and also on the Central Coast. Furthermore, the evidence was that the centres at Canberra and Cairns had struggled and two centres in Melbourne had failed and/or went into administration.

I accept Mr Duane’s evidence that typical shopping patterns are that people go inbound rather than outbound and that factory outlets are “targeted to the mid-market”. That is, customers seek high quality products at reduced prices rather than cheap products per se. Locating the Centre in Campbelltown not only made it less attractive to travel to but also meant it was in an area with lower disposable incomes. I accept Mr Duane’s evidence that the GFC would have impacted the type of tenant mix at the Centre. I do not accept Mr Hack’s evidence that the GFC would not have had any “significant impact” on the Centre, given other expert evidence given on this topic besides Mr Duane.

Mr Duane’s evidence as to the likely market rent was a product of the fact that he arrived at a low defined trade area. Projected total retail sales are calculated by multiplying the defined trade area by the share of the retail market that the outlet centre could capture. I make findings as the evidence in relation to rent in my consideration below. Mr Duane’s evidence of the defined trading area being 290,000 was lower than Savills was arguing at the time but his evidence was persuasive.

Both experts ultimately agreed that Centre could not achieve a higher market share than 1.4% given the limited competition in the wide trade area but Mr Hack’s evidence was that even applying 1.4% to the wider trade area would arrive at greater sales than Mr Duane’s evidence.

I accept the expert evidence that the Centre had a limited catchment population size and low socio-economic profile of the catchment population.

Mr Ron Bransdon was engaged by the plaintiffs. He is a certified practicing valuer, a fellow of the Australian Property Institute and the Regional Director of LandMark White, an independent property valuation and consultancy organisation. He was initially engaged by various lenders, including Suncorp to assist in the decisions whether to loan the funds to the JV back in 2007–2008. He was then later engaged by the plaintiffs’ solicitors as an expert in these proceedings. This change in roles gave rise to some objections by Savills to which I will refer below.

Mr Mike Steur was engaged by Savills. He is a valuer and property consultant/advisor and Fellow of the Australian Property Institute. He was previously the Executive Managing Director, Valuation and Advisory Services of CB Richard Ellis Limited (CBRE). He had previous valuation involvement with Campbelltown properties including Macarthur Square and Campbelltown Mall and outlet centres including DFO Homebush and Birkenhead Point Shopping Centre.

Mr Bransdon was instructed by the plaintiffs’ then solicitors to provide opinions on the market value of the land, first, as at December 2009 on the assumption that the Centre was “at least 90% to fully let” at a net base rental of $400/m2 with six cafes/kiosks achieving a net rental of $50,000 per annum each; and, secondly, as at 8 October 2013 when he received his instructions, on the assumption that the Centre was “at least 90% to fully let on the basis of the current market rental per square metre achievable

Mr Bransdon was asked to assume all of these matters; he was not asked to provide his expert opinion about them.

Mr Bransdon’s evidence was “[b]y December 2009 the Australian commercial property markets had experienced approximately two years of market downturn” following the onset of the GFC. He provided examples of properties which experienced a significant drop in values following the GFC, including the “Auburn Home Mega Mall” which was purchased in 2004 for $106.7 million and sold in 2013 for $54.75 million. Mr Bransdon noted that it is anticipated, based on “the USA experience”, that there is sufficient demand for the total supply of outlet stores to be increased and “roughly double in size”. The realisation of expansion plans for the sector, on his view, “is partly determined by securing sites and obtaining necessary planning approvals, which is becoming increasingly difficult with increasingly unsympathetic planning legislation …”

Mr Bransdon stated that it was difficult to estimate market rental values for the Centre in 2013 due to the lack of comparable market evidence in the general locality and metropolitan Sydney generally. Leasing evidence at 2013 from Homebush DFO showed the net rent per square metre ranged from $607 to $1464 (including in each case fixed annual rental increases of various percentages and turnover rent thresholds equivalent to various percentages of gross sales). Making a comparison between the rentals obtained at Homebush DFO and the Centre was difficult, Mr Bransdon expressed, “due to the downward adjustment required on account of the inferior location of the subject centre compared with Homebush DFO.” He also stated that comparing the annual gross sales cannot be sustained as an approach “due to the below average trading performance of the subject centre in late 2009 and noting that the basis of valuation is to assume ‘that the Centre was at least 90% to fully let’.”

Mr Bransdon had regard to the list of LOOs provided to Suncorp and adopted a base rental rate of $400/m2 “as if complete” in mid-2008. He assessed the 2013 rate as being $600/m2.

Mr Bransdon also had regard to recent sales evidence relevant as at valuation dates of both December 2009 and October 2013 (noting that the evidence was obtained from third parties and not all details had been formally verified). He explained by way of background that the primary approach to valuation is the so-called “capitalisation method” whereby the current net market income generated by or obtainable from the property is capitalised at an appropriate market capitalisation rate to establish the property’s current market value. The market capitalisation rate is determined by reference to available market sales evidence. Mr Bransdon noted that the nature of the sales evidence was such that it did not afford a high degree of direct comparison with the Centre.

“Having regard to the sales evidence,” Mr Bransdon concluded that, “an appropriate market capitalisation rate range as at December 2009 was between 9.75% per annum net and 10.00% per annum net”. This resulted in a value of $65 million for the Centre as leased at 90% at $400/m2 (plus the kiosks) as at 2009.

At the current date, he assessed a market capitalisation rate as 9.93% per annum net (the rates having stabilised and improved following the GFC). This resulted in a value of $109 million for the Centre fully let on the basis of the current market rental per square metre achievable.

Mr Steur’s evidence was that “[m]arket conditions for leasing retail accommodation in 2008 had become difficult. The leasing and investment market peaked in 2007, with the global financial crisis affecting the Australian commercial property market from 2008 to 2010.” He says that property values began falling and occupancy markets became cautious. Accordingly, it became a lot more difficult to lease retail accommodation with incentives by landlords, particularly in respect to funding fitouts. Centres that were trading well were least affected, helped by government stimulus and existing shopper patterns. Mr Steur gives the example of DFO Homebush. New centres or those under development were much more affected. Looking prospectively, Mr Steur summarised that:

Mr Steur was instructed to provide his opinion as to the average net rental per square metre likely to be achieved by the Centre, first, as at 29 October 2008 and, secondly, during the period from July 2008 to 10 December 2009. He was also asked to estimate the net rental per square metre likely to be achieved by a factory outlet when the Centre entered receivership on 21 November 2013. He was instructed that his opinion should be based on the information available at the date and during the periods of time set out above. Finally, he was instructed to explain the reasons for any difference (to the extent there was any) between the average net rental per square metre likely to be achieved by the Centre during the period from July 2008 to 10 December 2009.

After giving a general description of the Centre, Mr Steur noted that the positives of the “proposed development” included “good prominence and accessibility, plus a good carparking ratio.” Negatives included “a small site area, necessitating multilevel retailing which can have a negative impact on trading, particularly the upper level.”

In referring to the Centre’s market position and demographics, Mr Steur noted that its competition came from Macarthur Square, Campbelltown Mall and Marketfair but also Homebush which draws custom from across Sydney enjoying “high occupancy and trade”. Mr Steur had regard to the Urbis report detailing the market potential for the property.

Mr Steur then went on the make his assessments of the net rental per square metre as at the dates he was instructed to consider. He made his assessments based on overall market comparisons, checked by reference to trading potential. He was asked to assume outgoings of $100/m2 in order to arrive at a net rental estimate. He conceded that he was required to use come information that post-dated the periods considered.

Mr Steur was also provided with the list of the LOOs provided to Suncorp in May 2008. He was advised this related to pre-leasing efforts by Savills over the 2007 period. Gross rental rates per square metre were provided, but no floor areas or shop numbers correlating to the plans were provided. Accordingly, Mr Steur expressed that the only analysis possible was a simple average of the rates per square metre being $713/m2 gross.

Mr Steur’s evidence about the rental rates was that the simple average of the Centre’s lease schedule stands out as being high. DFO Homebush some two years later was only achieving $440/m2 net, and Birkenhead Point less than $350/m2 net. He noted that “[t]hese are considered quite superior centres”. In Mr Steur’s opinion, the rental at the Centre would need to reflect the affordability as well as referencing the market comparisons. He believed the appropriate gross rental range would be in the order of $200 to $250/m2 gross. Due to the high competition in Campbelltown he was sceptical the market share of 5–10% could be reached.

In calculating the net rental on a per square metre basis as at 29 October 2008 and during the period July 2008 and 10 December 2009, Mr Steur subtracted 30% for permanent vacancy due to design and a further $100 for outgoings. The net rental per square metre corresponding to the gross range of $200–$250/m2 was therefore $40–$75. Mr Steur stated that he did not believe that the rental would have deviated markedly over the period December 2009 as the effects of the GFC were still evident.

As for the net rental per square metre as at 21 November 2013, Mr Steur noted that market conditions for retail leasing had generally improved. He stated he was unable to provide an affordability rental range because he did not have access to a Market Potential Assessment as at 21 November 2013.

In relation to the evidence of Mr Bransdon, Mr Steur opined that Mr Bransdon’s valuation did not have regard to: the design of the building and its suitability for its intended use; trends in the specific retail rental and leasing environment in Sydney; consideration of any outlet centres other than DFO Homebush; reference to non-binding pre-leasing and pre-GFC agreements. Further it only utilised the simplistic income/capitalisation model.

As to their respective valuations of the Centre as at December 2009, Mr Bransdon’s valuation was $65 million whereas Mr Steur was not instructed to assess the valuation at this date. Due to his much lower rental assessment at $40 to $75/m2 per annum, it followed that his assessment, if undertaken, would be significantly lower than that assessed by Mr Bransdon.

As to their valuations of the Centre as at 21 November 2013, Mr Bransdon put the figure at $108 to $109 million, reflecting at least 90% to fully let whereas Mr Steur was not instructed to make any assumption of fact. Mr Steur expressed that “the Centre development was not economically viable for its intended use”. Mr Bransdon’s evidence relied primarily on by using DFO Homebush as a comparison.

Both experts agreed that the retail mix is “critically important to the valuation and rental” as it defined the offering and therefore customer attraction to the Centre. “Typically, a range of uses aligned to customer needs in the catchment, featuring the best retailers in each category, will provide an optimal retail mix,” they opined. “Conversely, an inability to secure tenants that meet these criteria will result in a sub optimal offering.”

The experts stated that “a major reason for the difference in valuation opinion as to rental value and hence capital value” was their differing instructions. They expressed that, “[t]his has led Bransdon to bias his assessments based on successful market examples such as the DFO Homebush Centre whereas Steur has used both successful centre comparisons, with a bias toward less successful examples.” As secondary reason, they said, was “the selection and application of comparable market data, being individual comparisons by Bransdon and whole centre comparisons by Steur.” The selection of a capitalisation rate was not considered to by material in the difference of opinion.

Prior to the experts giving joint evidence on the twelfth day of the hearing, Mr McCulloch made application to ask Mr Bransdon some questions prior to the joint evidence so that McCulloch would not be taken by surprise when Bransdon was asked if he adhered to the valuation he gave in the Suncorp reports in 2008.

Mr Bransdon was questioned as to why in 2008 the only comparable centre he referred to in his report was DFO Homebush. Mr Bransdon responded that he formed the view that DFO Homebush provided the best evidence of rental value. It was “the most comparable property” and “the primary comparison” but in the process of completing his valuation, Mr Bransdon stated (although he accepted it is not shown in the report) that he had regard to a much broader range of general retail evidence. He accepted the proposition that, as at 2013, DFO Homebush and the Centre were not comparable to the extent their comparability was considered from a trading perspective. “Physically they were very similar,” Mr Bransdon said; “but the trading performance of both centres at the point in time were [sic] vastly different.” He accepted that the value he gave the Centre in 2013 depended entirely on the assumption he was asked to make: that the Centre was 90 to 100% let.

He accepted the contemporaneous statement he made to Suncorp accorded with his own opinion at that time, in contrast to his reports which assumed that the Centre was 90 to 100% let.

Mr Bassal asked Mr Bransdon how he came to the $400 per square metre figure in his first report. After claiming the figure was his own rather than an assumption, he clarified his answer as follows:

Mr Steur explained that it was “very difficult” for him to know how a centre like the one being considered would perform. He expressed that it was very difficult to “really accurately say what this centre could generate as an income in 2013 and therefore what its value would be on that basis”.

Mr Bassal questioned Mr Steur in relation to the figure of $440/m2 net in his first report. The witness indicated that figure was obtained from sales analysis from CBRE valuers including a tenancy schedule. He said his assessment was based on rents that were achieved as of 2009, including escalations (either fixed percentages or CPI), starting typically from about 2006 through to 2009. Mr Steur accepted that there were “some” rents about $800 to $850 at DFO Homebush in 2009 but that, on average, rents in 2009 were not a lot higher as Mr Bassal suggested those figures indicated.

Mr Steur was asked about the rents in 2010 with reference to Birkenhead Point. He indicated he did not know the 2010 rates but expressed that “the average rental for the outlet component would be higher”. In 2010 there was a David Jones outlet centre which was quite large and paid a very low, concessional rental. It was the anchor for the rest of the shops there.

Mr Steur was then questioned about whether Campbelltown Mall was comparable. He pointed to the fact it had supermarkets, a large pharmacy and discount fashion retailer as anchor tenants. Mr Steur said the comparability would depend “on how good or not the outlet centre is”. He accepted that he had used the Urbis report and a so-called “Mount Druitt report” as benchmarks to come to a rental for the Centre.

Mr Steur was then asked about the factors which are likely to determine why a centre trades well and why it does not. His evidence was that it starts with demographics for the location; the actual location of the property, including its accessibility, the land upon which it sits and its configuration; the design of the centre; the attraction to that location by the range of tenants that create the mix; and, of course, ultimately the ability to pay the rent in that location for the intended use.

Mr Bassal asked Mr Steur to assume the possibility that a retailer would pay $600/m2 if six months’ free rent as a contribution were provided. Mr Steur replied that there was a lot of information he would first need to consider to answer that question: the terms and conditions of the lease contracts, the amount of incentives that would be payable to get those tenants into the centre, the number of tenants what would agree to that sort of rental, and the size of the store.

Mr Steur’s estimate of the achievable rent was even lower than Mr Duane’s, being $40 to $75/m2 per annum. He based this conclusion on a comparison of other centres as stated above. Mr Bransdon’s valuation in July 2008 relied primarily on using DFO Homebush as a comparison. As with the market economists, there was a difficulty with making comparisons with such a highly successful centre. Although Mr Duane’s evidence was based on a smaller defined trading area than what Savills was predicting at that time, I am not satisfied that the rent would have been as high as Mr Bransdon predicted in 2008 because too much reliance was placed on DFO Homebush as a comparator.

The evidence of the financial accountants, Mr Alan Walker and Ryan Carruth, called by the Bassals and Savills respectively, addressed the expenses incurred by and potential financial performance of the Centre.

Ryan Carruth is a chartered forensic accountant. He is a partner at RGL Forensics. In 2017 he prepared two expert reports. His reports disclaim generally that all figures included were rounded to appropriate degrees and may therefore include “immaterial rounding differences”.

Alan Walker is a registered liquidator and chartered accountant. As at the time he prepared his report, 3 July 2017, he had been a specialist insolvency practitioner for over 16 years. In his role as a registered liquidator he is required to determine the financial performance, financial position and solvency of companies for the purpose of reporting to ASIC in accordance with his statutory obligations to report to creditors on potentially voidable recovery pursuant to Part 5.7B of the Corporations Act 2001 (Cth).

Mr Carruth was instructed by Savills to prepare a report on the feasibility of the Centre having regard to its obligations to Suncorp. He was not provided with any financial information indicating the financial performance of the JV such as bank statements or profit and loss statements. His analysis was restricted to the financial performance of the Centre based on the Savills Reports and the Suncorp Statement of Account.

In his first report, Mr Carruth was instructed to use the rate of $295/m2 net rent (as calculated by Mr Duane) to estimate the financial performance of the Centre assuming it was fully let to show that the Centre would have been running at a loss and unable to service the interest payments.

In his second report he was instructed to calculate the projected financial performance of the Centre on alternate bases, namely occupancy at 70% rather than 90%. Mr Carruth re-projected the financial performance of the Centre on the two bases of rent being $295 and $150/m2 with a 70% occupancy rate. Given the apparent common ground that an accruals basis was a more meaningful methodology, Mr Curruth only included calculations made on that basis. He also presented calculations both with and without an adjustment for outgoings.

Various combinations of the assumptions that Mr Curruth had regard to produced projected net losses of between $1,344,555 and $14,206,785.

Mr Walker was engaged to respond to Mr Curruth.

Mr Walker’s assessment was that Mr Carruth’s assumptions of net rental income rates of $150 and $295/m2 appeared to be “understated” and “not a true and fair reflection of the actual position of the Centre”. He undertook an analysis of the tenancy types which comprised the Centre and concluded that Mr Carruth’s report “fail[ed] to consider the differences in rental rates between the various possible tenancies and differences in gross lettable area”. In his opinion, Mr Carruth’s adoption of an outgoings rate of $86/m2 was incorrect as that figure represented an estimate and required adjustment at the end of the financial year to reflect actual recoverable expenses incurred by the Centre. Given this, it appeared to Mr Walker that the Carruth report understated the actual outgoings and, in turn, the income of the Centre.

Having regard to the rental rates in the latest Savills budget (budgeted and actual), together with the estimates provided in the LandMark valuation reports of between $400 to $470/m2 for retail tenancies, Mr Walker’s view was that a net rental income figure of $400/m2 for retail tenancies was conservative when compared to those figures. He adopted a figure of $600/m2 instead. He also assumed that annual increased to the rental rates of 3% per annum were applicable as a result of annual rent reviews commencing from January each year being 12 months after the Centre opened.

Mr Walker undertook an analysis on accruals and cash bases of the financial performance of the Centre for the period 10 December 2009 to 30 June 2013. He did so by reference to the following circumstances: a $400/m2 net rental rate at occupancy rates of 90% and also 90% at opening increasing to 100% within 6 months; a $600/m2 net rental rate at an occupancy of 90% and 90% at opening increasing to 100% within 6 months. His analysis indicated that the Centre would have operated at a net profit before tax during that period on either basis. He stated that the figures provided on an accruals basis were a more accurate description of the Centre’s potential financial performance as expenses may be understated on a cash basis.

Mr Carruth’s evidence proceeded on the assumption that that for the period from December 2009 to June 2013 the net rental earned by the Centre was either $295/m² with 90% occupancy or $150/m² with 90% occupancy. Mr Walker on the other hand assumed a net rental of $400/m² or $600/m².

By the time of the JER the only issue which separated them was their respective assumption as to the net rental to be earned by the Centre.

Neither accounting expert was called to give evidence at the hearing.

Savills case was that even if the plaintiffs were able to establish any breaches of the ELAA, they could not establish that any of those breaches caused the loss that the JV suffered. Savills relied upon a number of factors in this regard.

First, it was submitted that the financial structure employed by the JV was an unrealistic business model because it was reliant exclusively on the loans provided by Suncorp with the payment of interest on such loans to be serviced only by the net rental income generated by the Centre.

Second, it was submitted that the JV partners made an incorrect and overly optimistic assumption as to the net rental likely to be achieved by the Centre of an average of $400/m2 and the trade area. This was in the context of the GFC.

Third, it was submitted that it was the decisions by the JV in November 2008 and between September and November 2009 to press on with the opening of the Centre which eventually led to the Centre opening on 10 December 2009 at around 50% occupancy.

Fourth, the decision by CFO in 2010, and subsequently PSP in 2011, not to meet their respective obligations under the finance facility the JV held with Suncorp once interest under that facility could no longer be capitalised and the net rental generated by the Centre proved insufficient to service the monthly interest obligations.

In response, the plaintiffs submitted that in determining whether the acts or omissions of Savills were a contributing cause of the loss or damage, the Court is not required to find to a degree of certainty what would or would not have occurred if Savills did not breach the contract or its duty of care, e.g. had the right tenancy mix been achieved, and had 90% occupancy been achieved by the time of the opening of the Centre. It is sufficient in order to establish a causal connection if it is likely that the default in the loan obligations to Suncorp would not have eventuated but for Savills’ negligence.

The plaintiffs submitted that the rent they sought could not be considered to be unrealistic given that it was consistent with what Savills had initially advised them and the LandMark valuation. They denied that the JV contributed to its own loss by insisting on unreasonable terms or deciding to open the Centre in December 2009.

The plaintiffs’ case was that the GFC and their chosen method of financing did not sever any causative connection between Savills’ conduct and the loss which they suffered.

It was submitted that a common sense approach is to be applied, and that the defendant’s acts or omissions are not required to be the cause, but only a cause of the loss or damage: March v E & MH Stramare Pty Ltd (1991) 171 CLR 506 at 522; [1991] HCA 12; Henville v Walker (2001) 206 CLR 459; [2001] HCA 52 at [14], [61] and [95]; I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109; [2002] HCA 41 at [33], [57], [62] and [90]. It is not essential that the contravention, act or omission be the sole cause of the loss or damage but a cause of the loss or damage. It was accepted that there is a point at which, based on common sense, facts or events may become too remote or be too little connected with an outcome to be treated as a cause of the outcome.

It was further submitted that in determining that the acts or omissions of Savills were a contributing cause of the loss or damage, the Court is not required to find to a degree of certainty what would or would not have occurred if Savills did not breach the contract or its duty of care e.g. had the right tenancy mix been achieved, and had 90% occupancy been achieved by the time of the opening of the Centre, then it is sufficient in order establish a causal connection if it is likely that the default in the loan obligations to Suncorp would not have eventuated.

The following consideration proceeds on the basis that, contrary to my findings set out herein, I had been satisfied both that the plaintiffs had established that Savills had breached its duty and also that s 5O of the CLA was not engaged. Section 5D(1) of the CLA provides that:

The test in 5D(1) is broadly consistent with the ‘but for’ test in common law (which applies to breach of contract). As Simpson J (as her Honour then was) observed in Cox v State of New South Wales [2007] NSWSC 471 at [154]:

The SFASOC pleads the loss as being the loss of the value of the Centre as at June 2010 or November 2013, less the amount which the Centre was ultimately sold by the receivers of CFO and PSP in 2015. There are difficulties with the plaintiffs’ case on loss that I will deal with further below. One obvious difficulty with it is that it is premised on the assumption that both CFO and PSP were not placed into receivership and that the Centre not sold or sold by CFO and PSP as a going concern instead of by receivers seeking to recover the outstanding loan amount owed to Suncorp.

The expert evidence as to the impact of the GFC was reasonably uniform. It was accepted that consumer confidence was down during the period in 2008–2009 and it was a difficult time for leasing. On the other hand, if the Centre had been successful, it would be the sort of retail that may have thrived given consumers were looking for a “bargain”. Overall, the weight of the expert evidence was that times were tough for retailing during this period although some retailers and centres were succeeding. I note Mr Bassal’s submission that the expert witnesses who gave evidence that the GFC caused the tenants to be reluctant to commit at the rents sought were all just making excuses for “Savills’ significant over-promise and a severe under-performance”. I do not accept this submission.

I shall consider the question of causation in three areas: the JV’s refusal to defer the opening, the financial arrangements of the JV and what the average net rental/success of the Centre was likely to be.

The evidence was that in October and November 2008 Savills suggested to the JV that they should defer the opening of the Centre and this was refused. Mr Bassal offered a 2% increase in commission to Savills at that time but Dr Schwartz would not agree to this. I am satisfied that despite efforts by Savills to defer the opening that advice was not accepted. Ms Cunningham’s evidence was that Savills should have walked away at that stage but instead they continued to attempt to lease the Centre.

Ms Cunningham and Mr Carnovale agreed that opening the Centre when it was only half leased “compromised the chances of leasing the balance of the shops” and that “potential retailers visiting the centre will be suspicious as to why, they will apply a high level of caution and will be reluctant to be part of it.”

I have examined the evidence of Mr Bassal as to why the JV partners did not heed the advice of Mr Kanellopoulos in October 2009 to defer the opening of the Centre when it became apparent that it would not be near to fully let. His evidence was that the external advertising for Centre was already locked in by mid-September 2009 and deferral would have seen these costs wasted. This evidence emerged for the first time during the cross-examination of Mr Bassal. There was no other evidence that any external advertising campaign was “locked in” and could not be cancelled or deferred without financial cost or penalty to the JV nor what the quantum of any wasted costs would be. Ms Cunningham gave evidence about the timing of the opening of the Centre in these terms in court:

It seems to me that the better view as to why the JV refused to defer the opening each time Savills requested they do so was that status of the loan facility and pressure to try and get an income stream coming in.

I am satisfied that the JV ought to have deferred the opening of the Centre when Savills advised them to do so in October and November 2008 and again in October 2009 but it did not do this. This conduct by the JV severed any causal nexus between any hypothetical breach and any “loss” suffered by the JV.

The JV sought to pay for the construction and establishment of the Centre exclusively by way of the debt facility provided by Suncorp and then service that debt from mid-2010 by relying solely on the rental income generated by the Centre. This was a somewhat bold financial model.

By July 2010 the capacity for the JV to capitalise the payment of interest had ceased. That meant that they had to commence repayments. I have extracted the relevant email correspondence about this above at [262] and it discloses that when Dr Schwartz emailed Mr Albert Bassal on 7 July 2010 he was concerned that Suncorp may step in and conduct a “fire sale” of the Centre if agreement could not be reached with Suncorp as to its future financing. The response from Mr Bassal was that CFO would not pay any of its obligations under the facility. That is, although PSP continued to make its monthly interest obligations, CFO did not.

There was no evidence before the Court as to the financial circumstances of either CFO or the Bassals. What is clear is that CFO did not inject any of its own funds into repaying its debt obligations. It is always possible that if it had done so the appointment of the receivers and managers by Suncorp on 25 November 2010 may have been deferred or may never have happened if the business had been turned around.

There was no evidence adduced by the plaintiffs as to the financial circumstances of CFO and PSP during 2009 and 2010. It is unknown whether one or both of them lacked the financial capacity to service the facility. It is possible that CFO and PSP could have serviced the facility through their own resources but elected not to. I am simply unable to make a finding either way. If they were so capable then that would have been a further factor militating against any finding that it was appropriate to extend the scope of Savills liability in this way.

Despite the absence of any evidence of their financial circumstances and their ability to mitigate their loss, it is clear that the JV partners, CFO and PSP, elected not to meet their loan repayments. The plaintiffs did not adduce any evidence to establish that the only reasonable course for the JV partners to take was to “walk away”. This is thus another matter that severs any causal nexus between any breach of contract or negligence and any capital “loss” claimed by the plaintiffs.

Mr Duane’s evidence was that the Centre failed because the catchment area was not large enough, the demographic profile was low-income family households which are not conducive to factory outlet centre customers, the design of the Centre over two levels without direct car parking access to the upper levels; and the downturn in the economy as a result of the GFC. I have considered the fact that, unlike DFO Homebush and Birkenhead Point, Campbelltown is on the edge of the city. Besides easier parking, it was never properly explained by the experts why someone in the trade area of both Campbelltown and DFO Homebush would travel to Campbelltown rather than Homebush to shop.

Mr Duane’s evidence was that the Centre would have worked but would not have been a high performing centre. Even Mr Hack’s evidence was that the Centre would not have traded as well as DFO Homebush or Birkenhead Point.

The evidence as to what the achievable rent for the Centre square metre was the subject of considerable evidence and submissions. The experts referred to both gross rent and net rent and explained that, on average, $100/m2 is deducted from gross rent as outgoings to arrive at net rent. The JV approached the development of the Centre on the basis that it would receive $6.5 million per annum in net rental income if the Centre was fully occupied. For this to occur, a rent of at least $400/m2 was required.

The weight of the expert evidence was that the Centre was never going to achieve the desired rental income. Mr Duane’s evidence as to the rental was that likely gross rents for the Centre were $365/m2 which translated to net rentals of $285/m² to $295/m2. Mr Hack was never asked to provide an expert opinion on the likely rent. His evidence concerned the trade area analysis, population growth and generation and potential capture of retail sales. The nature and extent of the disagreement between Mr Duane and Mr Hack was how far that trade area could extend northwards. Mr Steur also assessed the likely net rental. His assessment was that it would be $40 to $75/m2.

The only evidence as to rent relied upon by the plaintiffs was from Mr Bransdon and his evidence was that he assumed that the Centre would be 90% to fully let at net rentals of $400/m² and $50,000 per annum for kiosks. That is, he was not asked to give an opinion as to rent for the purposes of this hearing. His letter of instruction was to assume rent of $400/m2. Although he gave an earlier assessment at the time in 2008, he was not asked to reconsider the matter for the purposes of the hearing.

I have considered the question of whether the JV was being unreasonable when it maintained that $400/m2 was required for the rent in the Centre. I accept that all of Savills expert witnesses engaged after the fact put the anticipated rental at a much lower rate. When the budget was first proposed Savills suggested a net rent in the amount of approx. $351/m2, with a target of approx. $404/m2. After the Bassals refused to accept this, the revised budget included an increased rent to approx. $391/m² with a targeted rent of approx. $423/m2. (These figures come from the draft and final budgets). After the Urbis report, further doubts were raised with the JV partners concerning the achievable rent. The minutes of the JV meeting in February 2009 (after the Urbis report was obtained) reflect that Savills raised the issue that such a rent might be unreasonable. Despite this, the JV partners still sought that amount, which the experts now agree was not achievable.

Had the Centre been as successful as, for example, DFO Homebush, from its opening and had it grown as successfully as that centre did, then $400/m2, as predicted at the time, may have been achieved. But the big brands were not interested and this led to less rents being achievable. The relevance of the anticipated rent goes beyond simply the question of whether Mr Bassal was unrealistic in hoping to achieve that level. If the anticipated levels of rent were as estimated by Mr Duane and Mr Steur, then the Centre could not have operated at a profit.

I have given careful consideration to the question of what the market rent for the Centre would have been in 2009. As I have already concluded above at [514] to [519] in relation to the evidence of the market economists, the evidence of Mr Steur of $40–$75/m2 seems very low compared with the other evidence. One of the reasons for this was that he discounted by 30% due to a “permanent vacancy factor due to design”. I do not consider that it is necessary or appropriate to make such a deduction. I prefer Mr Duane’s evidence of market net rent being $285–$295/m2. As set out above, he arrived at that figure after a detailed analysis.

For all of these reasons I am satisfied that even if there had been a breach of the contract/negligence, the plaintiffs have not enabled to establish factual causation between the failure of the Centre and the negligence of Savills.

The plaintiffs’ case as set out in the pleadings and confirmed in the opening address was that the plaintiffs’ case on loss could be categorised in four ways namely: “Loss of Value of the Centre”; “Indebtedness to Suncorp”; “Loss of profits” and “Expenses incurred”. It became clear throughout the hearing that there was no indebtedness to Suncorp (the companies no longer exist). As for the personal guarantees the plaintiffs signed, they were settled for much less amounts as well. On its face, the way the economic loss was pleaded in the SFASOC, the plaintiffs sought to be placed in a superior position to that which the JV companies would have occupied had the breach of contract/negligence not occurred.

The outline of the plaintiffs’ written opening submissions essentially repeated what is contained in the pleadings. In her opening address senior counsel submitted that the plaintiffs’ case on economic loss was put on three bases:

I clarified with senior counsel at that time that the case was put in these three bases and it was confirmed that to be the case. Although it was indicated at that time that a schedule of damages would be submitted, no such schedule was ever submitted prior to counsel withdrawing from the matter or at all.

The plaintiffs’ final written submissions were prepared by a solicitor who had not been present at the hearing and, with no criticism intended, did not reflect the pleadings. The two relevant dates for the assessment of loss were said to be 21 November 2013 and 10 December 2009. These closing submissions indicated that there are six alternative claims for damages: three arising from the relevant assessment date being 2013 and three arising from the relevant assessment date being 2009. The plaintiffs’ final written submissions asserted that the loss could be assessed on a number of alternative bases as follows:

First the loss suffered was $109 million, being the value of the Centre in November 2013. Alternatively, the opportunity the JV lost to obtain that value. From that amount the indebtedness to Suncorp ought to be deducted, being an amount of $47,800,000 (excluding default compounding interest and any other operating costs and receivers costs, which would not have been incurred had there not been default as a result of Savills breaches). This leaves a sum of $61,200,000. To that amount the net income that would have been earned if the Centre had operated from December 2009 to December 2013, which would have been $15,550,994 (being the difference between projected income of $29,359,173 and the interest of $13,808,179). This amount is $76,750,994. If the Court finds that the plaintiffs are entitled to only 40%, being the share of CFO’s interest, then the plaintiffs’ entitlement would be for $46,050,596.

An alternative submission was that damages could be assessed on the basis of the expected value of $64.5 million in December 2009 (even though the evidence was that the JV participants would not have sold at this time). Alternatively, the opportunity the JV lost to obtain that value. From that amount should be deducted the amount of indebtedness to Suncorp, being an amount of $47,800,000 (excluding default compounding interest and any other operating costs and receivers costs), which leaves a sum of $16,700,000.

The plaintiffs failed to articulate their case on lost rental. They did not allege that Savills failed to find and introduce any particular tenant. Again, their submissions focussed on a case that Savills was contracted to achieve a particular outcome and thus the relevant loss was the value of the Centre if it had been 90% leased with quality tenants at $400/m2. The relevant dates for assessment were said to be in 2010 (when the receivers were appointed) and 2013. It was never properly explained why 2013 was a relevant date.

The SFASOC did not plead this matter as a “loss of chance” case. This was no doubt because the only relevant opportunity which Savills was to provide under the ELAA was to find and introduce prospective tenants to the JV.

The plaintiffs asserted that Savills had knowledge of the cost of construction and other expenses, of the financial commitments, the value of the Centre, the need for profit and the effect of default. The contemporaneous documentation suggests that Savills had some awareness of these matters thus I do not accept Mr Brown’s complete denials in this respect. But even if Savills did have all of the knowledge that the plaintiffs claimed it did, I am not satisfied that this knowledge changed the nature of the duty owed to the JV by Savills.

The plaintiffs’ case was pleaded solely as one of capital loss. I am satisfied that the capital loss the JV eventually incurred as a result of it defaulting under its finance facility was not “in the reasonable contemplation of the parties” at the time of the ELAA. I accept Savills submission that such an undertaking on its part to bear this loss is to be contrasted with the relatively modest remuneration that Savills was to receive under the ELAA of a retainer of $100,000 to be offset against leasing commissions of 10% of the first year’s gross rent. This “risk v remuneration” balance also satisfied me that such risk was not in Savills reasonable contemplation.

I am not satisfied that there was a breach of contract/negligence on the part of Savills. Even if the plaintiffs had been able to establish such breach of contract/negligence on the part of Savills, they have been unable to establish factual causation on the bases I have identified above. In circumstances where there were a number of deficiencies in the way that the plaintiffs sought to establish loss, I am not in a position to calculate any damages.

A number of other arguments were raised by Savills. Given the findings I have already made I do not consider it necessary to consider them. The two most significant of those arguments were the effect of the PMA and the question of whether the assignment is valid.

Overall, there were a number of deficiencies and difficulties with the plaintiffs’ case. These arose for a number of reasons but were not assisted by the regrettable procedural history of this matter and the fact that Mr Bassal’s lawyers were forced to withdraw from the matter.

Having observed Mr Bassal throughout the lengthy hearing, I have no doubt that he passionately believed that the Centre would have been highly successful but for the actions of Savills. For the reasons I have provided the plaintiffs have failed to establish that this is the case.

I make the following orders: