The NSW Supreme Court found that the loss of an opportunity to amend a joint venture agreement was of real value and compensable by a law firm.
In issue
The key issues in dispute were:
- Whether the defendant had breached their duty of care owe to the plaintiffs and/or engaged in misleading and deceptive conduct;
- Whether the defendant’s breach of duty and/or misleading and deceptive conduct had caused the plaintiffs to suffer a loss of opportunity which had “some value”1;
- The admissibility of expert evidence having regard to the matters set out in Makita v Sprowles.
During the hearing the defendant admitted that they had breached their duty of care owed to the plaintiffs in relation to the drafting of a joint venture agreement. That issue was therefore not in dispute. The plaintiffs also maintained that their alleged loss and damage arose from the defendant’s alleged misleading and deceptive conduct, which was denied by the defendant.
The background
In 2005 Gregory Lindsay-Owen retained HWL Ebsworth (the defendant) to advise in relation to the development of land and the preparation of a joint venture agreement (JVA). The land had been in Mr Lindsay-Owen’s family since 1947. Mr Lindsay-Owen inherited half of the land from his mother and his company, Dairycorp Pty Ltd, purchased the other share from his sister in 2006. To finance the acquisition Mr Lindsay-Owen, via his company, obtained a loan facility from National Australia Bank (NAB) for approximately $20 million secured by mortgage over the land.
Mr Lindsay-Owen instructed the defendant that the incoming joint venture partner would need to agree to a provision in the JVA that the debt would become a joint venture liability. Mr Lindsay-Owen and his company (the plaintiffs) otherwise did not have the means to discharge the existing loan.
In March 2010 the plaintiffs entered into a JVA with Schofields Property Development Pty Ltd (Schofields), a special purpose vehicle of Villawood Management Group Pty Ltd (Villawood). Significantly the JVA contained a provision that required the plaintiffs to repay the loan, and procure a release of all securities from the title, when planning approval was obtained. The inclusion of this provision was inconsistent with the instructions provided to the defendant referred to in the preceding paragraph.
In April 2014 planning approval for the land was obtained, and the plaintiffs were unable to discharge the NAB debt. Against a background of tension, conflict and disharmony between the plaintiffs and Villawood in the years between March 2010 to April 2014, Schofields relied on the plaintiffs’ default to enable it to forcibly sell the land with the benefit of the planning approval.
In 2014 the plaintiffs commenced proceedings in the equity division of the NSW Supreme Court to remedy the provision in the JVA requiring the plaintiffs to discharge the NAB debt. The plaintiffs were unsuccessful, however, and by early 2015 the land was sold to Stocklands.
The plaintiffs subsequently issued proceedings against the defendant in the NSW Supreme Court, claiming damages on the basis that they incurred significant expenses and lost the opportunity to develop the land and earn substantial profit.
The plaintiffs alleged that they lost the opportunity to:
- amend the terms of the JVA, such that the joint venture parties would assume liability for the NAB loan after planning approval was obtained; and
- to develop the land in accordance with the amended JVA or with a new joint venture partner.
The defendant argued that the evidence did not support an argument that Villawood would have agreed to the amendment of the JVA and that NAB would have agreed to a further extension of time to allow that to happen, and that the alleged amendments needed to have some value. The defendant also contended that the relationship between the plaintiffs and Villawood was so dysfunctional that the agreement would have come to an end at about the same time, resulting in a sale of the land in circumstances not dissimilar to what in fact occurred. It was therefore argued that the alleged lost opportunity to renegotiate the terms of the agreement with Villawood had no real or discernible value.
The plaintiffs engaged an expert property financier to establish what NAB might have done in around March 2010 if the plaintiffs had sought time to amend the JVA, about what its state of mind was and about what an alternative joint venture partner might have done.
The plaintiffs also engaged an expert certified practicing valuer to establish causation of some loss. The defendant objected to the evidence from the certified practicing valuer on the basis that there was no relevant field of expertise for the questions put to them. The defendant also argued that some of the certified practicing valuer’s conclusions were unexplained and therefore did not comply with section 79 of the Evidence Act 1995 (NSW) and the requirements set out in Makita v Sprowles (2001) 52 NSWLR 705.
The decision at trial
Harrison J was satisfied that the plaintiffs had lost an opportunity to amend the JVA with Schofields, and that this loss had real value.
His Honour considered the land’s significant commercial value as a development opportunity (which was uncontested), and the commercial risks which were generally quite minimal, in coming to this conclusion. The plaintiffs were, however, not in a position to discharge the NAB loan without selling the land in its then condition or securing a joint venture partner who was willing and able to take over or share responsibility for that debt on appropriate terms and conditions. In the circumstances, Harrison J found that [114]:
"The opportunity to secure an outcome in which [Mr Lindsay-Owen’s] immediate and pressing obligations to NAB were effectively put on hold and converted to a joint venture obligation that simultaneously exploited [his] ownership, and the development potential, of the mortgaged land was an opportunity that quintessentially had some value. The need in proceedings such as the present for [Mr Lindsay-Owen] to establish the quantum of the damages incurred by the loss of that opportunity should not be permitted to disguise the existence of the value of the loss of that opportunity.”
On the issue of quantum and the admissibility of the expert evidence Harrison J found that the plaintiffs’ property financier’s expert report. which provided opinions on what NAB’s state of mind was, what NAB might have done and what an alternative joint venture partner might have done, was inadmissible on the grounds that the “opinions were not evidence of banking practice or any other fields of expertise based on specialised knowledge.”
On the other hand Harrison J found that the plaintiffs’ expert certified practicing valuer’s responses to the question of the cashflows which the joint venture would have likely received from the land development were admissible, as they were based wholly and substantially on the valuer’s experience (and although there were gaps in his reasoning, these did not go to admissibility). Harrison J found that predictions about the future are not illegitimately speculative or hypothetical if they are based on a relevant degree of education, training, and experience, and concluded that the certified practicing valuer’s views on various scenarios were admissible and relevant.
Implications for you
This case highlights the complex legal and evidential issues that arise in claims involving alleged loss of opportunity (and quantifying what such an opportunity may be worth).
1 Sellars v Adelaide Petroleum NL (1994) 179 CLR 332; [1994] HCA 4 at 355
