Court of Appeal Supreme Court New South Wales Medium Neutral Citation: Central Coast Council v Norcross Pictorial Calendars Pty Ltd [2021] NSWCA 75 Hearing dates: 9 March 2021 Decision date: 07 May 2021 Before: Bathurst CJ at [1]; Macfarlan JA at [162]; Gleeson JA at [163] Decision: 1 Appeal allowed. 2 Cross-appeal dismissed. 3 Set aside the orders made by the primary judge and, in lieu thereof: (1) Order the proceedings brought by the respondents against the appellant in the Court below be dismissed. (2) Order that the respondents pay the appellant's costs of those proceedings. (3) Order that the cross-claim brought by the appellant against the respondents in the Court below be dismissed. (4) Order that the appellant pay the respondents' costs of the cross-claim. 4 The respondents to pay the appellant's costs of the appeal and cross-appeal, and to have a certificate under the Suitors' Fund Act 1951 (NSW) if eligible. Catchwords: CONTRACTS – construction – interpretation – joint venture agreement – third party – successor clause – "successor to a party" – whether the expression is wide enough to include nominee – where there was no contemplation work would be carried out by another – where there are no clear words to construe nomination as conferring rights and obligations – where third party acquired its rights as nominee under separate contract CONTRACTS – construction – interpretation – reflective loss principle – exception – where company has no cause of action – where there is no prospect of double recovery CONTRACTS – construction – interpretation – indemnities – "in respect of" – "loss" – whether indemnities extend to loss of diminution in value of shares in nominee as a result of nominee incurring costs for rectification Legislation Cited: Suitors' Fund Act 1951 (NSW) Cases Cited: Alfred McAlpine Construction Ltd v Panatown Ltd [2001] 1 AC 518 Amory v Delamirie (1722) 93 ER 664 Andar Transport Pty Ltd v Brambles Ltd (2004) 217 CLR 424; [2004] HCA 28 Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549; [1987] HCA 15 Ballard v Multiplex Ltd [2008] NSWSC 1019; (2008) 68 ACSR 208 Barings plc v Coopers & Lybrand [1997] 1 BCLC 427 Bofinger v Kingsway Group Ltd (2009) 239 CLR 269; [2009] HCA 44 Chen v Karadonis [2002] NSWCA 412 Christensen v Scott [1996] 1 NZLR 273 Commissioner for Taxation v Scully (2000) 201 CLR 148; [2000] HCA 6 Coulls v Bagot's Executor and Trustee Co Ltd (1967) 119 CLR 460; [1967] HCA 3 Delnorth Pty Ltd v State Bank of New South Wales (1995) 17 ACSR 379 Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 Foss v Harbottle (1843) 2 Hare 461 Gate Gourmet Australia Pty Ltd (in liq) v Gate Gourmet Holdings AG [2004] NSWSC 149 Gould v Vaggelas (1985) 157 CLR 215; [1985] HCA 75 Jaeger v Bowden (No 2) [2016] NSWSC 897 Johnson v Gore Wood & Co [2002] 2 AC 1 Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd; St Martins Property Corporation Ltd v Sir Robert McAlpine Ltd [1994] 1 AC 85 Marex Financial Ltd v Sevilleja [2021] AC 39; [2020] UKSC 31 Mercedes Holdings Pty Ltd v Waters (No 2) (2010) 186 FCR 450; [2010] FCA 472 Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 Norcross Pictorial Calendars Pty Ltd v Central Coast Council [2020] NSWSC 1201 Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204 R v Khazaal (2012) 246 CLR 601; [2012] HCA 26 Rava v Logan Wines Pty Ltd [2007] NSWCA 62 Rio Tinto Exploration Pty Ltd v Graphite Holdings Pty Ltd [2007] WASCA 276 Salter v Gilbertson (2003) 6 VR 466; [2003] VSCA 1 Simic v New South Wales Land and Housing Corporation (2016) 260 CLR 85; [2016] HCA 47 Swynson Ltd v Lowick Rose llp (in liq) [2018] AC 313; [2017] UKSC 32 The Albazero [1977] AC 774 Thomas v D'Arcy [2005] 1 Qd R 666; QCA 068 Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107; [1988] HCA 44 Tyco Australia Pty Ltd v Optus Networks Pty Ltd (2004) NSWCA 333 Vandepitte v Preferred Accident Corporation of New York [1933] AC 70 Vickery v Woods (1952) 85 CLR 336; [1952] HCA 7 Victoria v Tatts Group Ltd [2016] HCA 5; (2016) 90 ALJR 392 Wilson v Darling Island Stevedoring and Lighterage Co Ltd (1956) 95 CLR 43; [1956] HCA 8 Texts Cited: J D Heydon, Heydon on Contract (Thomson Reuters, 2019) Category: Principal judgment Parties: Central Coast Council (Appellant) Norcross Pictorial Calendars Pty Ltd (First Respondent) PTL Land Pty Ltd (Second Respondent) Representation: Counsel: M Izzo SC with E Walker (Appellant) M Condon SC with N Bentley (First and Second Respondents) Solicitors: Central Coast Council (Appellant) Holman Webb Lawyers (First and Second Respondents) File Number(s): 2020/311042 Publication restriction: Nil Decision under appeal Court or tribunal: Supreme Court Jurisdiction: Equity Citation: [2020] NSWSC 1201 Date of Decision: 4 September 2020 Before: Stevenson J File Number(s): 2017/348639 [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.] HEADNOTE [This headnote is not to be read as part of the judgment] The appellant, Central Coast Council (the Council), commenced proceedings the subject of this appeal against the first and second respondents, Norcross Pictorial Calendars Pty Ltd (NPC) and PTL Land Pty Ltd (PTL), seeking that orders made by the primary judge be set aside, the proceedings be dismissed, and the respondents pay the appellant's costs in respect of a contractual dispute. On 10 December 2002, the predecessor to the Council entered into an agreement (the Joint Venture Agreement) with NPC pertaining to the development of land owned by the Council. The Joint Venture Agreement involved the construction by NPC on behalf of the Council of a car park on part of the land (the Car Park Land) and the development of an adjoining parcel of land described in the Joint Venture Agreement as the PTL Land. As part of the Joint Venture Agreement, the Council granted an Option to NPC or its nominee to purchase the PTL Land for nominal consideration. After subdivision of the Car Park Land and the PTL Land into separate lots, the Option was exercised on 18 March 2005 by PTL as nominee of NPC. Ten years later, PTL entered into a building contract to construct a six-storey residential and commercial building on the PTL Land. The PTL Land was found to be contaminated with asbestos, acid sulphate soil and general solid waste. PTL claimed from the Council the cost of removal of the asbestos, agreed to amount to $360,878, the cost of excavation of acid sulphate soil, $65,661, and the removal of general solid waste, $126,928.10. The claim was made under the indemnities contained in cll 7.2 and 15.1(b) of the Joint Venture Agreement, which provided that the Council indemnify NPC against loss incurred by NPC in respect of any contamination existing on the land and in breach of the Council's obligations under that Agreement. The primary judge found that PTL was the successor to NPC within the meaning of cl 19.9 of the Joint Venture Agreement and thus entitled to claim under the indemnities. As read by the parties, cl 19.9 provided that: "The obligations imposed and rights conferred on the parties under the [Joint Venture Agreement] are binding upon any successor to a party and such successor must upon such succession assume all rights conferred and obligations imposed by the provisions of [the Joint Venture Agreement], mutatis mutandis, as if such successor were named in [the Joint Venture Agreement] as a party, but this clause does not permit the obligations and rights to be transferred or otherwise dealt with or disposed of by any of the parties … otherwise than in accordance with the terms and conditions of [the Joint Venture Agreement]." Clause 4.1 of the Joint Venture Agreement obliged the Council to grant such easements as requested by NPC acting reasonably. On 15 May 2016, PTL requested an easement over a very small part of the Car Park Land for the supply of electricity. On 27 July 2016, the Council resolved to grant the easement, but without notice to PTL, rescinded the resolution on 23 November 2016. The primary judge held that PTL as successor to NPC was entitled to request the easement, that the easement should have been granted, and that as a consequence of the Council's failure to do so, PTL suffered a loss in an amount of $284,869. As a consequence, PTL was awarded damages totalling $913,439, together with pre-judgment interest in the amount of $191,434. The Council appealed on the basis that the primary judge erred in concluding that PTL was the successor to NPC pursuant to cl 19.9 of the Joint Venture Agreement and thereby entitled to sue on that Agreement. Against the probability the appeal was successful, NPC filed a cross-appeal and PTL filed a notice of contention challenging findings by the primary judge or lack thereof in respect of NPC's and PTL's entitlement to damages under the Joint Venture Agreement. In allowing the appeal and dismissing the cross-appeal, the Court set aside the orders made by the primary judge and, in lieu thereof, ordered the proceedings be dismissed, and NPC and PTL pay the Council's costs of the proceedings in the Court below and of the appeal and cross-appeal. The successor issue i) A commercial contract is to be construed by what a reasonable business person would understand it to mean. That requires consideration of the language used by the parties, the surrounding circumstances known to them, and the commercial purpose or objects to be secured by the contract: [55] (Bathurst CJ); [162] (Macfarlan JA); [163] (Gleeson JA). Electricity Generation Corporations v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7; Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37; Victoria v Tatts Group Ltd [2016] HCA 5; (2016) 90 ALJR 392; Simic v New South Wales Land and Housing Corporation (2016) 260 CLR 85; [2016] HCA 47, referred to. ii) For the purpose of cl 19.9, PTL as nominee did not succeed to any rights of NPC under the Joint Venture Agreement. It would require clear words to construe such a nomination as conferring on PTL the rights of NPC under the Joint Venture Agreement, much less imposing the obligations of NPC under it: [64] (Bathurst CJ); [162] (Macfarlan JA); [163] (Gleeson JA). Vickery v Woods (1952) 85 CLR 336; [1952] HCA 7; Salter v Gilbertson (2003) 6 VR 466; [2003] VSCA 1, referred to. Whether NPC is entitled to direct recovery from the Council for its loss i) The reflective loss principle is that where loss is suffered by a company as a result of wrongdoing in respect of which each of the company and the shareholder has a cause of action, a shareholder cannot sue to recover the diminution in the value of his or her shares (or loss of benefits associated with his or her shareholding) resulting from the loss suffered by the company: [103] (Bathurst CJ); [162] (Macfarlan JA); [163] (Gleeson JA). Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204, referred to. ii) The rationale for the reflective loss principle is the prevention of double recovery, or on the basis that the shareholder does not suffer a loss distinct from the company and the shareholder is barred from pursuing the claim by the principle in Foss v Harbottle (1843) 2 Hare 461, or because the shareholder has no legal or equitable interest in the company's assets: [103] (Bathurst CJ); [162] (Macfarlan JA); [163] (Gleeson JA). Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204; Johnson v Gore Wood & Co [2002] 2 AC 1; Foss v Harbottle (1843) 2 Hare 461; Marex Financial Ltd v Sevilleja [2021] AC 39; [2020] UKSC 31, referred to. iii) There is no reason for the reflective loss principle to apply to circumstances where the company has no cause of action to recover the loss. This is so regardless of the rationale of the principle: [119] (Bathurst CJ); [162] (Macfarlan JA); [163] (Gleeson JA). Marex Financial Ltd v Sevilleja [2021] AC 39; [2020] UKSC 31; Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204; Johnson v Gore Wood & Co [2002] 2 AC 1; Gould v Vaggelas (1985) 157 CLR 215; [1985] HCA 75; Mercedes Holdings Pty Ltd v Waters (No 2) (2010) 186 FCR 450; [2010] FCA 472, considered. Christensen v Scott [1996] 1 NZLR 273; Barings plc v Coopers & Lybrand [1997] 1 BCLC 427; Thomas v D'Arcy [2005] 1 Qd R 666; QCA 068; Ballard v Multiplex Ltd [2008] NSWSC 1019; (2008) 68 ACSR 208; Chen v Karadonis [2002] NSWCA 412, referred to. iv) Words in indemnity clauses must be read in the context of the contract as a whole: [123] (Bathurst CJ); [162] (Macfarlan JA); [163] (Gleeson JA). Andar Transport Pty Ltd v Brambles Ltd (2004) 217 CLR 424; [2004] HCA 28; Bofinger v Kingsway Group Ltd (2009) 239 CLR 269; [2009] HCA 44; Commissioner for Taxation v Scully (2000) 201 CLR 148; [2000] HCA 6; R v Khazaal (2012) 246 CLR 601; [2012] HCA 26, referred to. v) If ambiguity remains after the application of the usual principles of construction, an indemnity clause must be construed in favour of the indemnifier: [123] (Bathurst CJ); [162] (Macfarlan JA); [163] (Gleeson JA). Andar Transport Pty Ltd v Brambles Ltd (2004) 217 CLR 424; [2004] HCA 28; Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549; [1987] HCA 15; Bofinger v Kingsway Group Ltd (2009) 239 CLR 269; [2009] HCA 44, referred to. vi) The contra proferentem rule is a rule of last resort: [126] (Bathurst CJ); [162] (Macfarlan JA); [163] (Gleeson CJ). Rava v Logan Wines Pty Ltd [2007] NSWCA 62, referred to. Whether NPC is entitled to recover PTL's loss i) It is well established in this country that in circumstances where a contract imposed an obligation on the promisor to confer a benefit on a third party, the promisee can seek an order that the promise be specifically performed: [152] (Bathurst CJ); [162] (Macfarlan JA); [163] (Gleeson JA). Coulls v Bagot's Executor and Trustee Co Ltd (1967) 119 CLR 460; [1967] HCA 3; Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107; [1988] HCA 44, referred to. ii) It is also well established that where the promisee is a trustee of a promise for a third party, the third party can sue on the contract indirectly in an action in which the promisee is joined as the defendant: [152] (Bathurst); [162] (Macfarlan JA); [163] (Gleeson JA). Vandepitte v Preferred Accident Corporation of New York [1933] AC 70; Wilson v Darling Island Stevedoring and Lighterage Co Ltd (1956) 95 CLR 43; [1956] HCA 8, referred to. iii) However, the proposition said to be established in Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85 ("Linden Gardens"), namely that there is an exception to the rule that a plaintiff who suffers no loss as a result of breach of a contract is only entitled to nominal damages, has not been accepted as part of the law in this country: [152] (Bathurst CJ); [162] (Macfarlan JA); [163] (Gleeson JA). Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85; Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107; [1988] HCA 44; The Albazero [1977] AC 774, referred to. iv) In any event, the case does not fall within the principle enunciated by Lord Wilkinson-Browne in Linden Gardens as it was not contemplated that the work on the Project would be carried out by any corporation other than NPC: [153] (Bathurst CJ); [162] (Macfarlan JA); [163] (Gleeson JA). Judgment 1. BATHURST CJ: The facts in this appeal are relatively straightforward. By contrast, the legal issues are somewhat complex. 2. On 10 December 2002, the Council of the City of Gosford, the predecessor to the appellant (the Council), entered into an agreement (the Joint Venture Agreement) with the first respondent (NPC) pertaining to the development of certain land owned by the Council. The Joint Venture Agreement involved the construction by NPC on behalf of the Council of a car park on part of the land (the Car Park Land) and the development of an adjoining parcel of land described in the Joint Venture Agreement as the PTL Land. As part of the Joint Venture Agreement, the Council granted an Option to NPC or its nominee to purchase the PTL Land for nominal consideration. 3. After subdivision of the Car Park Land and the PTL Land into separate lots, the Option was exercised on 18 March 2005 by the second respondent (PTL) as nominee of NPC. 4. Ten years later, PTL entered into a building contract to construct a six-storey residential and commercial building on the PTL Land. It was common ground that the PTL Land was found to be contaminated with asbestos, acid sulphate soil and general solid waste. PTL claimed from the Council the cost of removal of the asbestos, agreed to amount to $360,878, the cost of excavation of acid sulphate soil, $65,661, and the removal of general solid waste, $126,928.10. The claim was made under the indemnities contained in cll 7.2 and 15.1(b) of the Joint Venture Agreement (see [27]–[29] below). It was not in issue on the appeal that the material removed was "contamination" within the meaning of that expression in cl 7 of the Joint Venture Agreement. 5. The primary judge found that PTL was the successor to NPC within the meaning of cl 19.9 of the Joint Venture Agreement and thus entitled to claim under the indemnities. 6. Clause 4.1 of the Joint Venture Agreement obliged the Council to grant such easements as requested by NPC acting reasonably. On 15 May 2016, PTL requested an easement over a very small part of the Car Park Land for the supply of electricity. The primary judge found it would have "facilitated the most direct electricity supply to the PTL Land": Norcross Pictorial Calendars Pty Ltd v Central Coast Council [2020] NSWSC 1201 (the primary judgment) at [33]. 7. On 27 July 2016, the Council resolved to grant the easement, but without notice to PTL, rescinded the resolution on 23 November 2016. As a result, the builders, Richard Crookes Construction Pty Ltd (the builders), claimed an extension of time, which was granted. The primary judge held that PTL as successor to NPC was entitled to request the easement, that the easement should have been granted, and that as a consequence of the Council's failure to do so, PTL suffered a loss in an amount of $284,869. 8. As a consequence, PTL was awarded damages totalling $913,439, together with pre-judgment interest in the amount of $191,434. 9. The Council has appealed on the basis that the primary judge erred in concluding that PTL was the successor to NPC pursuant to cl 19.9 of the Joint Venture Agreement and thereby entitled to sue on that Agreement. 10. Against the probability the appeal was successful, NPC filed a cross-appeal, whilst PTL filed a notice of contention. 11. The following grounds are relied on by NPC in its cross-appeal: "1 The primary judge erred in dismissing the cross-appellant's claims in circumstances where: a. the cross-appellant had itself suffered loss and damage by reason of the cross-respondent's breaches of the Joint Venture Agreement entered into on 10 December 2002 (JVA) because: i. it has received less money by way of net profits than it would have done but for the cross-respondent's breaches of the JVA; or ii. the value of its shareholding in PTL Land Pty Ltd (PTL) was reduced; b. in the alternative: i. the cross-appellant was entitled to recover the loss suffered by, inter alios, PTL; ii. the cross-appellant was the trustee of the promise made in favour of PTL; iii. the cross-appellant was entitled to specific performance of the JVA, with the result that the cross-respondent was required to perform its promises by paying to PTL such sums as were due under the indemnities and/or on account of the breach of the JVA. 2 The primary judge erred in failing to find that the net profits from the project would have been received by the cross-appellant and that those net profits have been reduced by reason of the cross-respondent's breaches. 3 Since: a. PTL was and is the cross-appellant's wholly owned subsidiary (as found by the primary judge at J [7(a)]); and b. a director and ultimate shareholder of the cross-appellant, Mr Kenneth Allen, gave evidence (which was accepted) that it was always intended that the profits of any remaining proceeds from the JVA project would be passed up from PTL to the cross-appellant, the primary judge should have found that, in the event PTL had no cause of action, the loss and damage suffered by PTL constitutes loss and damage suffered by the cross-appellant itself that is not barred by the reflective loss principle. 4 The primary judge should have found that the JVA was entered into on the footing that, in the event PTL had no cause of action, the cross-appellant could seek specific performance of the JVA and/or damages on behalf of PTL since: a. the JVA was executed as part of a larger package of contractual rights (as found by the primary judge at J [4], [52]-[54]); b. the warranties in the JVA extended to the state of the land (as found by the primary judge at J [92]; c. it would have been foreseeable that the consequences of any breach of the JVA might be visited on the cross-appellant's nominee (PTL) (as found by the primary judge at J [57]); d. clause 15 of the JVA required the cross-respondent to indemnify the other party from and against all losses arising from a breach of obligation; and such a party (per clause 19.9) deemed the nominee as named in this Agreement as a party; and e. (conversely) clause 19 of the JVA prohibited the parties from transferring or otherwise dealing with their obligations and rights. 5 The primary judge should have found that, in the event PTL was not a party to the JVA, the cross-appellant was PTL's trustee authorised by the JVA to sue on its behalf in circumstances where the existence of the trust can be inferred because: a. it was agreed by the parties and accepted by the primary judge (at J [60]-[61]) that clause 19.9 of the JVA provided the obligations imposed and the rights conferred on the parties under the JVA are binding upon any successor to a party and such successor must upon such succession assume all rights conferred and obligations imposed by the provisions of the JVA, mutatis mutandis, as if such successor were named in the JVA as a party; and b. the Option Deed (which expressly contemplated that the cross-appellant might nominate a third party to carry out the development on the land) and the JVA were executed simultaneously on 10 December 2002, as part of the same transaction (so as to be read together) (as found by the primary judge at J [69])." 1. The following matters are relied upon by PTL in its notice of contention: "1 In the alternative to the findings made at J [74] and [75], the primary judge should have held that, on the true construction of the joint venture agreement entered into between the appellant and the first respondent on 10 December 2002 (JVA), the expression 'NPC' included the nominee (the second respondent) under the Call Option (which was also executed between the appellant and the first respondent on 10 December 2002). 2 In the alternative to the findings made at J [74] and [75], the primary judge should have held that the second respondent was entitled to damages under the JVA because the first respondent could seek an order (on its own or on behalf of the second respondent) that the appellant indemnify the second respondent under clauses 7.2 and 15.1 of the JVA. 3 In the alternative to the findings made at J [74] and [75], the primary judge should have held that the second respondent was entitled to enforce the indemnities found in clauses 7.2 and 15.1 of the JVA because: a. it was a beneficiary of the indemnities; b. the privity of contract rule no longer represents the law of Australia." The Joint Venture Agreement 1. Before dealing with the primary judgment it is convenient to set out the relevant provisions of the Joint Venture Agreement. 2. The Joint Venture Agreement contained the following recitals: "A. Council is the registered proprietor of the PTL Land and the Car Park Land. B. NPC has expertise in property development and co-ordination of construction projects. C. Council wishes to appoint NPC to develop on Council's behalf a car parking facility on the Car Park Land. D. NPC has agreed to construct the car parking facility on the Car Park Land on behalf of Council. E. Council has agreed to transfer the PTL Land to NPC in consideration for the construction of the car parking facility on the Car Park Land by NPC." 1. It can be seen that recital B makes express reference to NPC's expertise in property development. 2. The following definitions set out in cl 1.1 of the Joint Venture Agreement are relevant to the proceedings. The Car Park Land and the PTL Land are expressly identified, whilst "Land" is defined as "the PTL Land and the Car Park Land." "Contract for Sale" is defined as "the contract for sale entered into or to be entered into by the parties on the exercise of the Option by NPC." "Option" is defined in the following terms: "'Option' means the call option to purchase the PTL Land granted by Council to NPC on or about the date of this Agreement." 1. "Project" is defined in cl 1.1 of the Joint Venture Agreement as follows: "'Project' means the subdivision of the Land, the transfer by Council of the PTL Land to NPC, and the development of the PTL Land and the Car Park land by NPC by construction of the Car Park on the Car Park Land and construction of a residential and commercial building on the PTL Land in each case in accordance with the Project Documents." Whilst "Project Expenses" were relevantly defined in the following terms: "'Project Expenses' means: (a) all costs of and incidental to the Works; (b) costs and interest in respect of any monies borrowed or financial accommodation raised by NPC for the purpose of the Project; (c) all costs and fees payable to Council in connection with the NPC Development Application; and (d) all other costs and fees payable in connection with the development of the PTL Land, except: (e) the cost of remediation of any Contamination on the PTL Land or the Car Park Land existing or occurring before or after the Commencement Date (other than contamination caused by NPC); or (f) any contribution or payment under or in the nature of contributions under Section 94 of the Environmental Planning and Assessment Act 1979 or Section 306 of the Water Management Act 2000 in relation to the Works and the Car Park Land." 1. The expression "Works" is defined in cl 1.1 of the Joint Venture Agreement as "the works described in Schedule 3." Broadly speaking, they relate to the construction of the car park. 2. Clause 1.2 of the Joint Venture Agreement contains some general interpretation provisions. Of relevance is cl 1.2(a)(ii), which is in the following terms: "(a) A reference to: … (ii) a person includes any type of entity or body of persons, whether or not it is incorporated or has a separate legal identity, and any executor, administrator or successor in law of the person;" 1. Clauses 2.1 and 2.2 of the Joint Venture Agreement provided as follows: "2.1 Appointment As from the Commencement Date: (a) Council appoints NPC and NPC accepts appointment (subject to clause 2.5) to carry out the Works in accordance with this Agreement; and (b) the parties will undertake, pay, perform and discharge their respective liabilities and obligations in connection with the Project in accordance with the terms of this Agreement. 2.2 Consultants NPC may engage consultants qualified in the discipline in respect of which NPC seeks advice or assistance to assist in the Project but any such engagement shall not derogate from the agreements and obligations on NPC's part contained in this Agreement." 1. There are two matters which should be noted. First, cl 2.1 of the Joint Venture Agreement does not merely relate to the Works, but also contains obligations in respect of the Project. Second, although cl 2.2 of the Joint Venture Agreement permits the engagement of consultants, the clause emphasises the responsibility of NPC to carry out its obligations under the Joint Venture Agreement. 2. Clause 4 of the Joint Venture Agreement deals with the Council's obligations. They include subdividing the Car Park Land and the PTL Land and rezoning the PTL Land to the extent necessary. It also obliged the Council to keep free of encumbrances the Car Park Land until completion of the Works, and the PTL Land until completion of the Contract for Sale. Because some reliance was placed by the parties on the provisions of cl 4.1(a)(iii) and cl 4.1(f), it is convenient to set them out in full: "4.1 General obligations Council: (a) will subject to clause 2.3(b) promptly will do all things reasonably requested by NPC and necessary to: … (iii) sub-divide the Land in the manner disclosed in the Plan of Subdivision and create such easements as shall be requested by NPC (acting reasonably) including a right of carriageway which will permit access to and from Wilson Street to and from the PTL Land across the Car Park Land; … (f) will: (i) on the date upon which it consents to the NPC Development Application deliver the PTL Land; and (ii) on the date upon which it consents to the Car Park Development Application deliver the Car Park Land, to NPC with vacant possession subject, in the case of the Car Park Land, to the terms of the Licence;" 1. The Licence referred to in cl 4.1(f) is the Licence referred to in cl 11 of the Joint Venture Agreement for NPC to occupy the land to carry out its obligations under its terms. 2. Clause 5.1(a) of the Joint Venture Agreement obliged NPC to manage the Project in accordance with the Project Documents. The Project Documents were set out in Sch 5. They included Council's consent to the NPC development application and the construction certificate in respect of that application. Clause 6.1 obliged NPC (not necessarily concurrently) to prepare a development application in respect of the Works and a development application in respect of the residential and commercial development proposed to be constructed by NPC on the PTL Land. 3. Clause 5.1(g) of the Joint Venture Agreement obliged NPC prior to the exercise of the Option, to deliver to the Council a Bank Guarantee for an amount equal to the cost of completion of the work plus 10 per cent. 4. Clause 6.3 of the Joint Venture Agreement gave both parties the right to terminate the Joint Venture Agreement in certain circumstances. It was in the following terms: "6.3 End date If by the third anniversary of the Commencement Date: (a) NPC has not received development consent for: (i) the Car Park Development Application; (ii) the NPC Development Application; and (b) the Plan of Subdivision has not been registered; and (c) the Land has not been rezoned and reclassified in accordance with clause 6.2, then NPC may or Council may (provided Council or NPC has not been or is then not in default in of their respective obligations set out in clauses 4.1(a), 6.2 and 6.1 as the case may be) terminate this Agreement by notice in writing to the other and neither party will have any claim against the other for any loss or damage suffered by reason of the fact that any one or more of the development consents have not been granted by Council by that date." 1. Clause 7 of the Joint Venture Agreement contains warranties and indemnities granted by the Council to NPC. It is in the following terms: "7.1 Warranties Council represents and warrants to NPC that: (a) Council and every occupier of the Land has complied with all Environmental Laws relating to the Land and any business conducted on the Land; (b) the Land is not being used and, as far as the Council is aware, has never been used for any process, operation or activity involving Pollutants, Contaminants or the disposal or storage of Waste; (c) the property is not Contaminated in any way and has never been a source of Pollution; and (d) Council has not received, and is not aware of any occupier of the Land receiving any Environmental Notice; and (e) there is no (or there will not be) any impediment in the stability of the Car Park Land or in relation to the level of the Car Park Land which would have a material adverse affect on the Works or NPC's ability to carry out the Works[.] 7.2 Indemnities Council indemnifies NPC against any loss, claim, liability, cost or expenses suffered or incurred by NPC in respect of: • any Contamination existing on the Land; • any Pollution from the Land; • any Environmental Notice, made either before or after completion; • carrying out of any Remediation Work; • obtaining any remediation report in respect of the Land; and • a breach of the warranty referred to in clause 7.1(e). including legal costs on a full indemnity basis. 7.3 The provisions of clause 7.2 have no application in respect of Contamination or Pollution caused by NPC or to an Environmental Notice issued in respect of that Contamination or Pollution. 7.4 Council acknowledges that NPC accepts the obligation to carry out the Works and enters into this Agreement in consideration of the warranties by Council set out in clause 7.1." 1. Clause 8 of the Joint Venture Agreement contains a warranty by NPC to the Council that it has the necessary skill, expertise and capacity to comply with its obligations under the Joint Venture Agreement. 2. Clause 15 of the Joint Venture Agreement contains mutual indemnities. Of relevance is cl 15(1)(b), which is in the following terms: "15.1 Each of the parties must: … (b) at all times indemnify and keep indemnified the other party from and against all losses and damages which may arise in respect of any breach of the obligations imposed on that party under this Agreement;" 1. Clause 19.9 of the Joint Venture Agreement deals with the successors and assignees. It provides as follows: "19.9 Successors and Assigns The obligations imposed and the rights conferred on the parties under this Agreement are binding upon any successor to a party and such successor must upon such succession assume all rights and by the provisions of this Agreement, mutatis mutandis, as if such successor were named in this Agreement as a party, but this clause does not permit the obligations and rights to be transferred or otherwise dealt with or disposed of by any of the parties (whether upon a sale or for security or upon enforcement of a security or otherwise) otherwise than in accordance with the terms and conditions of this Agreement." 1. It was common ground between the parties that something had gone wrong with the language of this clause and it should be read as follows (the words in parenthesis being added to the text): "19.9 Successors and Assigns The obligations imposed and the rights conferred on the parties under this Agreement are binding upon any successor to a party and such successor must upon such succession assume all rights [conferred] and [obligations imposed] by the provisions of this Agreement, mutatis mutandis, as if such successor were named in this Agreement as a party, but this clause does not permit the obligations and rights to be transferred or otherwise dealt with or disposed of by any of the parties (whether upon a sale or for security or upon enforcement of a security or otherwise) otherwise than in accordance with the terms and conditions of this Agreement". (Emphasis added.) 1. Clause 23.3 of the Joint Venture Agreement provided that NPC would pay and bear the Project Expenses. The Option 1. The Option Agreement was entered into on the same day as the Joint Venture Agreement. The recitals state that the Council has agreed to grant to NPC an Option for NPC in its name or in the name of its nominee to purchase the Property. Although not defined in these terms, there is no issue that the Property is the PTL Land. 2. Clause 2.1 of the Option Agreement provided that in consideration of the entry into the Joint Venture Agreement, the Council grants NPC an Option for NPC or its nominee to purchase the Property. 3. Clause 2.3 of the Option Agreement provided that if NPC or a nominee exercise the Option, the Council and the purchaser are "regarded as immediately bound" under the contract annexed to the Option Agreement. 4. Clause 2.5 of the Option Agreement is in the following terms: "2.5 Nominee The Grantee may appoint a Nominee by giving the Owner or the Owner's Lawyer a completed Nominee Option Notice, signed by the Nominee and the Grantee." 1. The Nominee Option Notice contained the following provisions: "The Nominee: (a) acknowledges having read the Call Option; (b) agrees to be bound by the Call Option; (c) accepts its nomination as Nominee; and (d) exercises the option granted under clause 2.1 of the Call Option to purchase the property described in the Call Option." 1. It should be noted that neither the Nominee Option Notice nor the formal contract annexed to the Option Agreement imposed an obligation on the nominee to comply with any of the obligations of NPC under the Joint Venture Agreement. 2. However, special condition 40 of the contract annexed to the Option Agreement was in the following terms: "40. Joint Venture Agreement 40.1 Completion of this contract is conditionally [sic] upon: (a) the vendor effecting registration of the Plan of Sub-division (for convenience a copy of which is annexed and marked 'A') at the LPI (NSW) in accordance with the terms of the Joint Venture Agreement; and (b) the purchaser receiving the vendor's consent (in its capacity as the consent authority) to the NPC Development Application; and (c) the vendor (in its capacity as the consent authority) effecting a rezoning of the Car Park Land to zone 5(a) Special Uses under the Gosford Planning Scheme Ordinance and its reclassification from Community Land to Operational Land; and (d) the vendor (in its capacity as the consent authority) effecting a rezoning of that part of the PTL Land zoned 6(a) open space recreation to zone 3(a) Business under the Gosford Planning Scheme Ordinance and reclassification of the PTL Land from Community Land to Operational Land, by the third anniversary of the Commencement Date. 40.2 In the event that any one or more of the conditions set out in clause 40.1 are not fulfilled or in the case of the condition referred to in clause 40.1(b) waived by the purchaser or in the case of the balance of the conditions, waived by both parties prior to the date referred to in clause 40.1 then either party by [sic] rescind this contract by notice in writing to the other." 1. This provision, although infelicitously drawn, corresponds to a significant extent to cl 6.3 of the Joint Venture Agreement. 2. The period during which the Option was to be exercised was between the date which was three months after the Option Agreement was entered into and three years after the Commencement Date (not defined in the Option Agreement, but defined in the Joint Venture Agreement as the date of that Agreement). A further Agreement 1. Prior to the exercise of the Option, a further Agreement was entered into between NPC, PTL and a company, PTL Holdings Pty Ltd (PTL Holdings), in its capacity as trustee of the PTL Holdings Trust (the Agreement). 2. The Agreement recited that PTL intended to become the registered proprietor of the PTL Land, and the parties' desire to establish a joint venture to acquire the Land and construct a Building (as defined in the Agreement) on it. "Land" is defined in the Agreement as any land which PTL acquires after the date of the Agreement. The Agreement envisaged the registration of a Strata Plan with certain lots being owned by NPC and other lots by PTL Holdings. The Agreement relevantly contained the following provisions: "2.3 [PTL] will acquire the Land for the purchase price agreed by [NPC] and PTL Holdings. The Land will be beneficially owned in the proportions: (a) [NPC] – 75% (b) PTL Holdings – 25 % or in such other proportions as [PTL] and PTL Holdings shall agree in writing prior to completion of the purchase by [PTL] of the Land. 2.4 The joint venture will be conducted on the following basis: (a) The purchase price of the Land and other Project Costs shall be borne and paid by the parties in the proportions as set out in paragraph 2.3 it being the intention of the parties that [NPC] shall bear and pay the Project Costs relating to [NPC's] interest in the Land which will consist on registration of the Strata Plan of [NPC's] Lots and PTL Holdings shall bear and pay the Project Costs relating to PTL Holding's interest in the Land which will consist on registration of the Strata Plan of PTL Holding's Lots." 1. "Project Costs" were defined as the "costs associated with the acquisition of the Land and Construction Works". 2. Although some reliance was placed by the Council on the existence of the Agreement, the undisputed evidence of Mr Kenneth Allen, who effectively controlled NPC, was that the Joint Venture Agreement was not performed and PTL Holdings was in fact deregistered on 12 May 2019. Mr Allen gave the following evidence: "7. The JVA was never performed by the parties as the commencement of the Project was delayed and did not begin until 2015. PTL Holdings Pty Limited did not make any contribution to the costs of the Project, and it has never received any distribution from the revenue derived from the Project. Instead, the first plaintiff provided all cost contributions and consequently held a one hundred percent beneficial interest in the Project. Funds for the Project were also lent by other entities controlled be [sic] me, namely Domewood Pty Ltd and Easy2C Pty Ltd, company searches of which are annexed to this affidavit and marked 'E' and 'F' respectively." 1. It should be noted that notwithstanding Mr Allen's statement, no claim has been made on the basis that NPC was in fact the beneficial owner of the land or is a creditor of PTL. Further, Mr Allen's statement that NPC provided all cost contributions sits uneasily with the fact that in excess of $30 million was borrowed from the ANZ Banking Group Ltd (see [47] below), and with his own statement that funds were advanced by other entities controlled by him. Exercise of the Option and completion of the Project 1. It appears the Option was exercised by PTL as nominee of NPC on 18 March 2005. However, construction work was not commenced until November 2015. Mr Andrew Cochrane, a director of PTL, acted as project manager for the Project. Mr Cochrane gave evidence that the proceeds of the sale of the units which were constructed, net of sales commission and legal costs, was about $43,055,920, of which $30,913,725 was paid to the ANZ Bank for payment of advances made by the bank in respect of the project. There is no evidence of any distribution of the surplus remaining. However, Mr Allen gave the following evidence: "8. Once the Project had commenced in 2015, it was my intention to arrange, upon completion of the Project, for the second plaintiff to be wound up and for its assets to be distributed to the first plaintiff (its sole shareholder). That is, once the Project commenced it was always intended that the profits or any remaining proceeds from the Project would be passed up from the second plaintiff to the first plaintiff. Once this occurred, it was then intended that the first plaintiff would be wound up and any assets distributed to the shareholders in the first plaintiff, which were both companies which l controlled. With this in mind, I provided a personal guarantee to the ANZ Bank for the second plaintiff. The ANZ Bank provided the primary financing for the Project. Annexed to this affidavit and marked 'G' is an extract from the Variation to the ANZ Bank facility setting out the terms of the guarantee." 1. There is no evidence that Mr Allen's intention was ever carried into effect. Further, the company searches tendered at the hearing showed that as at 29 April 2019, both NPC and PTL remained registered. The primary judgment 1. The primary judge noted that the Joint Venture Agreement and the Option Agreement were entered into on the same day and the consideration for the Option Agreement was expressed to be the entry into the Joint Venture Agreement. His Honour also referred to the fact that NPC had the power to appoint a nominee to exercise the Option. In these circumstances, the primary judge concluded that the parties anticipated NPC might nominate another party to become the owner of the PTL Land, that the other party would develop the PTL Land, and in the circumstances, the other party would be the beneficiary of the warranties given by the Council. 2. It was in that context that the primary judge construed cl 19.9 of the Joint Venture Agreement. His Honour concluded the use of the word "successor" in cl 19.9 indicated that the parties intended any successor would have the same rights vis-a-vis each other as did NPC and the Council in the first place (at [62] of the primary judgment). 3. The primary judge noted that the word "successor" was not defined, but contrasted it with the use of the expression "successor in law" in cl 1.2(a)(ii) of the Joint Venture Agreement, concluding that the use of the expression "successor to a party" was intended to have a wider meaning than the expression "successor in law". In those circumstances, his Honour concluded that "successor" in the context of cl 19.9 simply meant someone who succeeds to the property or rights of another. His Honour also concluded that the Joint Venture Agreement and the Option Agreement were part of the same transaction and that when the Agreements were considered together, an intended function of cl 19.9 was to facilitate the continuation of the Joint Venture Agreement for the benefit of a nominee under the Option Agreement (at [69] of the primary judgment). His Honour also rejected the submission that a novation was necessary to achieve that effect (at [71] of the primary judgment). 4. In rejecting the proposition that a novation was necessary, the primary judge concluded that NPC remained liable under the Agreement. His Honour made the following remarks: "[72] The Council also pointed to provisions in the JVA which impose obligations on [NPC] that the parties evidently intended would be obligations of [NPC] alone: for example the obligation to 'manage the Project' in cl 5.1(a). But nothing in cl 19.9 could have the effect of relieving [NPC] of any such obligation. Indeed, after providing for a 'successor to a party' cl 19.9 goes on to make clear that the clause does not otherwise permit 'the obligations and the rights [under the JVA] … to be transferred or otherwise dealt with or disposed of by any of the parties'." 1. In the circumstances, the primary judge concluded that PTL as successor to NPC could enforce the Joint Venture Agreement against the Council (see [75] of the primary judgment). 2. In those circumstances, the primary judge did not find it necessary to deal with the issues raised by the notice of contention and cross-appeal. The successor issue 1. The principles governing the construction of commercial contracts such as the present were not in dispute. The contract is to be construed by what a reasonable business person would understand it to mean. That requires consideration of the language used by the parties, the surrounding circumstances known to them, and the commercial purpose or objects to be secured by the contract: Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 at [35]; see also Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 at [46]–[52]; Victoria v Tatts Group Ltd [2016] HCA 5; (2016) 90 ALJR 392 at [51]; Simic v New South Wales Land and Housing Corporation (2016) 260 CLR 85; [2016] HCA 47 at [18] and [78]. 2. The question in the present case is whether the expression "successor to a party" in cl 19.9 of the Joint Venture Agreement is wide enough to include PTL as the nominee of NPC under the Option Agreement. 3. In considering this question, a number of matters should be noted. First, the purpose of the Joint Venture Agreement, at least so far as the Council was concerned, was primarily to achieve construction of the car park (see the recitals to the Joint Venture Agreement referred to at [14] above), and at least the development of the PTL Land. In that context, the recitals specifically made reference to the expertise of NPC in property development and the co-ordination of construction projects. 4. Second, the Project in the present case involved both the construction of the car park and the construction of a residential and commercial building on the PTL Land (see the definition of "Project" referred to at [17] above.) In consequence, cl 2.1(b) of the Joint Venture Agreement extended not only to the carrying out of the car park works but contained mutual covenants with respect to the Project as defined. 5. Third, there is nothing in the Joint Venture Agreement itself which would indicate that it was contemplated that the obligations of NPC under the Agreement would be carried out by anyone other than NPC. 6. Fourth, apart from the definition of "Option" in the Joint Venture Agreement, and the requirement that on exercise NPC would provide a bank guarantee for the cost of completion of the works plus 10 per cent evidently as security for completion of the works, there is no mention of the Option Agreement in the Joint Venture Agreement. 7. Fifth, it must be remembered that the Option was able to be exercised three months after the entry into the Option Agreement, a point in time where construction of the car park on any view would not have been near completion. It would be surprising if the Council intended that the effect of the exercise of the Option would confer rights and obligations upon a party unknown to it at a time when the work contemplated by the Joint Venture Agreement had only just commenced. 8. Sixth, the Option Agreement is entirely a standalone Agreement expressed to be entered into in consideration of the Joint Venture Agreement. It would be unusual in these circumstances if the effect of the nomination under the Option Agreement would be to confer all the rights and obligations under the Joint Venture Agreement on the nominee, including the obligation to construct the car park. 9. Seventh, the rights and obligations of PTL as nominee and the Council were regulated by the contract entered into as a result of the exercise of the Option Agreement, not by the Joint Venture Agreement. The contract does not impose any obligation on PTL to carry out any of NPC's obligations under the Joint Venture Agreement. The Nominee Option Notice, whilst acknowledging that the nominee agreed to be bound by the Option, does not state it agreed to be bound by the Joint Venture Agreement. 10. Critically, for the purpose of cl 19.9, PTL did not succeed to any rights of NPC under the Joint Venture Agreement. The rights it succeeded to upon nomination were NPC's rights under the Option Agreement to acquire the PTL Land. Even if it could be concluded that the nomination took place under the Joint Venture Agreement, the nomination would only extend to the nomination of PTL as purchaser of the PTL Land. It would require clear words to construe such a nomination as conferring on PTL the rights of NPC under the Joint Venture Agreement, much less imposing the obligations of NPC under it: Vickery v Woods (1952) 85 CLR 336; [1952] HCA 7 at 343; Salter v Gilbertson (2003) 6 VR 466; [2003] VSCA 1 at [17]–[18]. 11. For these reasons, I am of the view that PTL was not the successor to NPC within the meaning of cl 19.9 of the Joint Venture Agreement and did not acquire any rights under the Joint Venture Agreement, including the right to call upon the indemnities. 12. I have set out the reasons the primary judge came to a contrary conclusion at [49]–[52] above. As I indicated, his Honour first noted that the parties contemplated another party might be the owner of the PTL Land who might develop it. It may be accepted that the parties contemplated that a third party might be nominated under the Option Agreement. However, it does not follow that the nominee would succeed to the obligations under the Joint Venture Agreement in respect of the PTL Land, including the obligations in respect of the Project referred to in cl 2.1(b) of the Joint Venture Agreement (see [20] above). 13. It may be accepted as the primary judge pointed out that any successor within the meaning of cl 19.9 of the Joint Venture Agreement would have the same rights and be subject to the same obligations as the original parties to the Joint Venture Agreement. However, the critical question is whether PTL is a "successor" within the meaning of cl 19.9. 14. So far as the use of the words "successor to a party" as distinct from the use of the expression "successor in law" in the interpretation provisions in cl 1.2(a)(ii) are concerned (see [19] above), whether any difference was intended (which may be doubted having regard to the clear drafting deficiencies in cl 19.9 of the Joint Venture Agreement) the expression in cl 19.9 could not extend to a person who did not succeed to the rights and obligations under the Joint Venture Agreement by assignment or otherwise, but was simply a nominee under a separate Option Agreement. 15. The primary judge with respect correctly confronted the problem that on one view the construction he preferred had the effect of relieving NPC of its obligations under the Joint Venture Agreement. However, the primary judge concluded that cl 19.9 did not have this effect having regard to the fact that cl 19.9 expressly did not permit the transfer or disposal of rights and obligations under the Joint Venture Agreement. 16. Even so, there are difficulties with that approach. The first part of cl 19.9 (read as agreed by the parties: see [31] above) specifically provides that a successor shall assume all rights and obligations conferred on the party as if such successor was named in the Joint Venture Agreement as a party. There is no carve out of any particular provision. The second part of the clause does not deal with successors, but simply emphasises that the successor provision does not permit a transfer or similar disposal of the party's rights under the Joint Venture Agreement. It does not constitute a transferee or nominee as a successor. 17. Senior Counsel for NPC submitted that cl 19.9 does one of two things. First, it provides for a means by which PTL becomes a party to the Joint Venture Agreement "mutatis mutandis" or, where again "mutatis mutandis", a reference to NPC can be taken to refer to PTL. The difficulty with this submission is that it assumes PTL is a successor to NPC within the meaning of cl 19.9. As I have indicated, that assumption is incorrect. 18. Senior Counsel for NPC accepted that on his preferred construction, cl 19.9 of the Joint Venture Agreement had the effect of PTL becoming a party to it and taking over NPC's obligations without the Council having any say in the identity of the corporation which was to undertake the development. He accepted on one view that that was a surprising result. It would seem to me to be a result that no reasonable business person in the position of the Council would have contemplated. 19. In what appeared to be an alternate submission, Senior Counsel for NPC submitted that PTL did not take over the whole contract, the nomination relating only to the PTL Land. He submitted the effect was that PTL became the party responsible for and had all the rights relating to the PTL Land, but NPC remained the party with responsibility for the car park. He submitted that that was supported by the fact that the Joint Venture Agreement and the Option Agreement were entered into on the same day, and that both Agreements contemplated that a third party may acquire only the PTL Land. He submitted that the bifurcation was justified by the use of the words "mutatis mutandis" in cl 19.9 of the Joint Venture Agreement. He submitted, referring to Jaeger v Bowden (No 2) [2016] NSWSC 897 at [521] quoting Cohen J at 382 in Delnorth Pty Ltd v State Bank of New South Wales (1995) 17 ACSR 379, that the phrase meant "with the necessary changes in place of detail". 20. I am unable to accept this submission. First, there is nothing in cl 19.9 or any part of the Joint Venture Agreement which contemplates partial succession. Second, it ignores the fact that PTL acquired its rights as nominee under a separate contract. Third, it ignores the fact that NPC had continuing obligations in respect of the project which extended beyond the construction of the car park. 21. So far as the words "mutatis mutandis" are concerned, if they amount to more than a drafting flourish, they make it clear that where there is a successor, the successor succeeds to all the rights and obligations conferred or imposed on the original party. It does not permit bifurcation of the nature suggested. 22. In these circumstances, in my opinion the primary judge was in error in concluding that PTL was the successor to NPC within the meaning of cl 19.9 of the Joint Venture Agreement. PTL's notice of contention 1. I have set out the grounds contained in the notice of contention at [12] above. So far as ground 1 is concerned, the expression "NPC" in the Joint Venture Agreement could only include PTL if the effect of the nomination under the Option Agreement was to constitute PTL as a successor within the meaning of cl 19.9. For the reasons I have given, it does not. 2. Ground 2 as argued was based on the proposition that NPC was entitled to recover PTL's loss on its behalf. I have dealt with this argument in dealing with NPC's cross-appeal. For the reasons I have given, it has not been made out. 3. Ground 3 was expressly based on PTL being the successor to NPC. As I indicated, it was not a successor. Conclusion 1. It follows that the primary judge was in error in making the award of damages in favour of PTL. NPC's cross-appeal 1. I have set out the grounds of the cross-appeal at [11] above. It is convenient to deal with the grounds in the order in which they were dealt with in NPC's written submissions. NPC is entitled to direct recovery from the Council for its loss – Notice of cross-appeal, grounds 1(a), 2 and 3 The submissions a NPC 1. At the hearing, NPC claimed it suffered loss as a result of the failure of the Council to provide an indemnity pursuant to cl 7.2 and cl 15.1(b) of the Joint Venture Agreement in respect of the cost of the removal of the contaminated material on the PTL Land. It was not contended that NPC paid for the cost of the removal of the contaminated material or that it was liable to reimburse PTL for such cost. Rather, it was asserted that it suffered loss in that the cost incurred by PTL in remedying the land was money which would otherwise have been paid by PTL to NPC, either as a result of return of capital, payment of dividends or on a winding-up. Alternatively, it was submitted that the value of NPC's shareholding in PTL was diminished. 2. In its written submissions, NPC relied upon the evidence of Mr Allen to which I have referred at [47] above. It was submitted that the claim depended simply on the construction of the indemnities, and its claim was not precluded by the reflective loss principle because its claim was independent of PTL's rights and did not in substance belong to PTL. 3. At the hearing, Senior Counsel for NPC submitted that the effect of the Joint Venture Agreement was that the Council by virtue of the warranties and indemnities had agreed to bear the cost of remedying contaminated land. He submitted that in practical terms, the parties knew the land might be acquired by a third party with some connection to NPC. He submitted it was plain that the loss had been suffered by NPC because of the contamination of the land, in this case "because it exercised the Option and put someone else in as the owner". He submitted that the identity of the corporation which undertook the development work was completely irrelevant, although he accepted that the indemnities would have no application if an unrelated third party undertook the work without any recourse to NPC. 4. NPC rejected the proposition that the reflective loss principle included the recovery of damages of the nature of those claimed. In written submissions, it was contended that the diminution in value of shareholding in a company constitutes actionable loss to the shareholder, and the shareholder may sue where the company has no cause of action. At the hearing, Senior Counsel for NPC pointed to the fact that on the Council's case, PTL could not sue. He submitted that NPC had undoubtedly suffered a loss of some description. He submitted the only issue was whether the loss fell within the contractual definition. 5. Senior Counsel for NPC also submitted that it was reasonably foreseeable that a company related to NPC would exercise the Option. 6. In dealing with the reflective loss principle, Senior Counsel for NPC, referring to the decision of this Court in Chen v Karadonis [2002] NSWCA 412 ("Chen") at [39], submitted that the reflective loss principle had been accepted in this country, but drew the distinction between merely reflective loss or whether there was a reflective loss arising from the wrongdoing of the tortfeasor which was not recoverable by the company. He submitted that the basis of the principle was the prevention of double recovery. He also referred to the decision of the Queensland Court of Appeal in Thomas v D'Arcy [2005] 1 Qd R 666; QCA 068 ("Thomas") at [9]-[11] where McPherson JA stated that the reflective loss principle was driven by policy considerations, but there was no doubt a shareholder may sue and recover for a loss he or she has suffered arising out of a separate legal wrong done to him or her but not to the company. 7. In written submissions in reply, NPC emphasised the width of the indemnities, submitting that whilst they are to be read contra proferentem, the surrounding circumstances can be taken into account, and the contra proferentem rule is a rule of last resort. 8. It was pointed out that the warranties and indemnities were concerned with the state of the PTL Land as well as the Car Park Land and reflected the agreement by Council to take the risk of contamination on the land. 9. It was submitted that the damages were exactly equal to the expense incurred and there was no basis for concluding that the proceeds might have been applied to collateral ends or lost in their entirety. 10. Referring to the evidence of Mr Allen, it was submitted that the obvious inference was that, but for the Council's breach, the net profit would have been paid by PTL to NPC. It was submitted that no evidence was adduced which impugned that inference, and it was not for NPC to displace every possible contingency. Referring to what was said by Giles JA in Tyco Australia Pty Ltd v Optus Networks Pty Ltd (2004) NSWCA 333 ("Tyco Australia") at [246], it was submitted that the presumption against the wrongdoer in Amory v Delamirie (1722) 93 ER 664 ("Amory") extends to where a defendant has thrust the plaintiff into a difficult task of proving a past hypothesis. So far as the Agreement with PTL Holdings was concerned, reliance was placed on the evidence of Mr Allen that the Agreement did not proceed and that PTL Holdings did not make any contribution to the Project. b The Council 1. Senior Counsel for the Council submitted that the claim in respect of the easement was not covered by the indemnities if PTL was not a successor of NPC. He pointed out that the provision that governed the easement claim was cl 4.1(a)(iii) of the Joint Venture Agreement, which obliged the Council to create such easements as requested by NPC acting reasonably. He pointed out that NPC did not request the easement, rather it was requested by PTL, and if PTL was not NPC's successor then cl 4.1(a)(iii) was not engaged. This proposition did not appear to be disputed by NPC either in written submissions or at the hearing. Indeed, at the hearing Senior Counsel for NPC appeared to accept that it was correct. 2. Senior Counsel for the Council submitted that there were two difficulties with the claim. He submitted the first was that any diminished dividend (or loss of the nature claimed) was not within the scope of the indemnities, and second, the proposition that the relevant amount of lost dividends or capital is the same as PTL's loss has not been made good. 3. In its written submissions, the Council described the reflective loss principle as being that where a company has suffered a loss, a shareholder cannot recover a sum equal to the diminution in market value of his or her shares or a diminution in dividend because such a loss is merely a reflection of the loss suffered by the company. It was submitted it cannot be outflanked by describing the claim as a claim for payment pursuant to contractual indemnities. It accepted, however, that the principle did not apply where the company suffers loss, but where it has no cause of action and the shareholder had a cause of action. 4. However, at the hearing Senior Counsel for the Council submitted that the exception had not been conclusively established in this country. He submitted that it should not be accepted because the exception remains incoherent for the reason that if one accepts that the loss is suffered by the company then that is not the loss of the shareholder. Second, he submitted it should not be applied unless the Court is positively satisfied that the company had no cause of action, including a cause of action which may have become statute barred. He submitted the onus was on the shareholder claiming the loss to prove that that was the case. 5. It was submitted that the indemnities did not extend to the loss claimed as it was not a loss incurred in respect of any contamination existing on the land. It was submitted that whilst the words "in respect of" have a wide meaning, they must ultimately be construed in context and having regard to the purpose for which the indemnities were given, with any doubts to be resolved in favour of the indemnifier. 6. Senior Counsel for the Council submitted that the warranties in cl 7.2 of the Joint Venture Agreement had to be read in the context of cll 7.1 and 7.4. He described cl 7 as a regime of warranties and indemnities which operate together, given in consideration of the obligation to undertake the works. He submitted, referring to cl 7.4, that they were given to NPC alone in the context where cl 23.3 of the Joint Venture Agreement provided that NPC would pay and bear the Project Expenses which, by definition, did not include the cost of remediation of contaminated land. He submitted that cl 7.2 could not apply where NPC suffered loss not because it was the developer, but where someone else was the developer and NPC just happened to suffer loss because it was a shareholder. He submitted that the same approach applied in relation to the indemnity in cl 15.1(b) of the Joint Venture Agreement. 7. Senior Counsel for the Council emphasised that the obligation on NPC was not only to manage the project but to construct it. He referred to cl 2.2 of the Joint Venture Agreement and submitted that whilst NPC could use consultants, ultimately it was NPC who was required to carry out the works, supervise their carrying out, and incurring the expense involved in so doing. 8. So far as damages were concerned, he submitted that the evidence of Mr Allen was irrelevant because the fact that Mr Allen had a particular intention in 2015 did not prove that NPC would receive the entirety of the surplus when PTL was wound-up. It was submitted there remained a possibility that the proceeds would be put to some other use. 9. So far as the reliance placed by NPC on the decision of Giles JA in Tyco Australia, Senior Counsel for the Council submitted that the judge in that case was dealing with a past hypothetical, in contrast to the present case which he described as a "future actuality". 10. He further submitted, referring to the decision of the Supreme Court of the United Kingdom in Marex Financial Ltd v Sevilleja [2021] AC 39; [2020] UKSC 31 ("Marex"), that it cannot be inferred that something taken off the expense line in 2015 is going to be directly reflected in the value of the shares. 11. Senior Counsel for the Council also submitted that there was a third problem, namely the Agreement with PTL Holdings. However, the evidence of Mr Allen that that joint venture was not proceeded with was not challenged. Consideration 1. What has been described as the reflective loss principle articulated by the English Court of Appeal in Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204 ("Prudential Assurance") at 223-224 (the principle) is that where loss is suffered by a company as a result of wrongdoing in respect of which each of the company and the shareholder has a cause of action, a shareholder cannot sue to recover the diminution in the value of his or her shares (or loss of benefits associated with his or her shareholding) resulting from the loss suffered by the company. The rationale for the principle has been described as the prevention of double recovery (Prudential Assurance at 222; Johnson v Gore Wood & Co [2002] 2 AC 1 ("Johnson") at 62-63, 66-67 per Lord Millett, Lord Goff agreeing), or on the basis that the shareholder does not suffer a loss distinct from the company and the shareholder is barred from pursuing the claim by the principle in Foss v Harbottle (1843) 2 Hare 461 ("Foss v Harbottle") (Marex at [10] per Lord Reed PSC, Lady Black and Lord Lloyd-Jones JJSC agreeing), or perhaps because the shareholder has no legal or equitable interest in the company's assets (Marex at [80] per Lord Reed PSC). 2. In Johnson, the House of Lords affirmed the principle. Lord Bingham set out the principle at 35 in the following terms: "These authorities support the following propositions. (1) Where a company suffers loss caused by a breach of duty owed to it, only the company may sue in respect of that loss. No action lies at the suit of a shareholder suing in that capacity and no other to make good a diminution in the value of the shareholder's shareholding where that merely reflects the loss suffered by the company. A claim will not lie by a shareholder to make good a loss which would be made good if the company's assets were replenished through action against the party responsible for the loss, even if the company, acting through its constitutional organs, has declined or failed to make good that loss. So much is clear from Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204, particularly at pp 222–223, Heron International, particularly at pp 261–262, George Fischer, particularly at pp 266 and 270–271, Gerber and Stein v Blake, particularly at pp 726–729. (2) Where a company suffers loss but has no cause of action to sue to recover that loss, the shareholder in the company may sue in respect of it (if the shareholder has a cause of action to do so), even though the loss is a diminution in the value of the shareholding. This is supported by Lee v Sheard [1956] 1 QB 192, 195–196, George Fischer and Gerber. (3) Where a company suffers loss caused by a breach of duty to it, and a shareholder suffers a loss separate and distinct from that suffered by the company caused by breach of a duty independently owed to the shareholder, each may sue to recover the loss caused to it by breach of the duty owed to it but neither may recover loss caused to the other by breach of the duty owed to that other. I take this to be the effect of Lee v Sheard, at pp 195–196, Heron International, particularly at p 262, R P Howard, particularly at p 123, Gerber and Stein v Blake, particularly at p 726. I do not think the observations of Leggatt LJ in Barings at p 435B and of the Court of Appeal of New Zealand in Christensen v Scott at p 280, lines 25–35, can be reconciled with this statement of principle." 1. Lord Millett, with whom Lord Goff agreed, would have extended the principle further to include barring of claims by creditors in circumstances where both the creditor and the company would have claims against the wrongdoer in respect of a loss suffered by the company. By contrast, Lords Hutton and Cooke expressed some reservations as to the operation of the principle. 2. The principle is not uncontroversial. In Marex, Lord Sales JSC, with whom Lord Kitchin JSC and Baroness Hale agreed, rejected it, declining to follow Prudential Assurance and Johnson (see Marex at [142]–[143] and [194]; see also Christensen v Scott [1996] 1 NZLR 273; Barings plc v Coopers & Lybrand [1997] 1 BCLC 427). 3. It should be noted that in Marex, both the majority and the minority rejected the approach of Lord Millett in Johnson to the extent that his Honour concluded that the principle extended to persons other than shareholders having claims against the company. Lord Reed stated the position in the following terms: "[60] The most serious difficulty with the approach favoured by Lord Millett is that the possibility of double recovery can arise where concurrent claims exist at the instance of companies and of persons who have suffered loss otherwise than as shareholders. As will be explained, Lord Millett's approach has been interpreted in subsequent cases as extending to such persons the same categorical exclusion of claims as he applied to shareholders. That is not the position on the approach adopted in Prudential: the loss suffered by a creditor, for example, when he cannot recover a debt owed to him by a company because of losses which it has incurred, stands in a different relationship to the company's loss from the loss sustained by a shareholder whose shares have fallen in value, and raises different issues. This is discussed at paras 62–63 and 84–85 below. … [63] If Lord Millett meant that all claims against a wrongdoer in respect of amounts which the company would have paid to the claimant if it had had the necessary funds must be excluded where the company also has a cause of action, then I would respectfully regard the dictum as going further than was necessary for the decision of the appeal, and as being mistaken. For example, one might envisage a situation in which a creditor of a company has entered into a contract with the wrongdoer, the performance of which would have preserved the company's solvency, and the wrongdoer then breaches the contract and also his duties to the company, rendering it insolvent and unable to pay the debt it owes to the creditor. If the creditor sues the wrongdoer for breach of contract, he is entitled to damages. The fact that the company also has a cause of action is no reason why the creditor should be deprived of the benefit of his contract. In the event that any issue of double recovery arises, it will need to be addressed; but that possibility is no reason for barring the creditor's claim, regardless of whether any such issue arises in the particular case. Where the creditor's claim against the wrongdoer is based on tort, it is equally important that he should not be deprived of the protection afforded by the law of tort, merely because the debt in question is owed to him by a company rather than a natural person." 1. Lord Sales, who declined to follow Prudential Assurance, emphasised that the shareholder's loss was not necessarily co-extensive with the loss of the company, making the following remarks which are of particular relevance to the manner in which the claim is put in the present case: "[155] As a matter of basic justice, the defendant ought not to be liable twice for the same loss, once to a shareholder with a personal claim and again to the company. But in the situation under review the wrongs and also the losses suffered by the claimant shareholder and the company respectively are different. The claimant and the company each have distinct causes of action of their own. The company can recover for its losses, e g depletion of its assets stolen by the defendant and consequential loss of profits. The claimant can recover for diminution in the value of his shares, which is a function of how the market values them, and for loss of dividends he might have received but for the wrong in relation to himself. These losses may have some relationship to the losses suffered by the company, but are not the same as those losses. The loss suffered by the company as a result of theft of its assets may represent a substantial loss of the working capital it needs to generate future profits; and if so, that may have an effect on the value which the market places on shares in the company (but, contrary to what is said to be demonstrated by the cash box example, the loss will be different from that suffered by the shareholder and there is unlikely to be direct correspondence between what the company has lost and the reduction in the value of the shareholder's shares). On the other hand, the loss suffered by the company might be insignificant in terms of any effect on its ability to generate profits in future, in which case the impact on share value might be practically nothing. [156] If, after the wrongdoing of the defendant, the company is still trading and the claimant shareholder has not sold his shares, he retains shares of some worth in the market which reflects, among other things, the value of the company's own claims against the defendant. In my view, the claimant would then be entitled to claim damages in respect of the reduced market value of his shares due to the wrong against him committed by the defendant (by the means of or in parallel with his commission of a wrong against the company), i e their market value absent the wrong done to the company (and to the shareholder) less their actual current market value, reflecting among other things the company's claims against the defendant. Accordingly, it can be said that in such a case due allowance in respect of the company's claims against the defendant is reflected in what is recoverable by the claimant. It does not, then, seem to me to be unjust to allow both the claimant and the company to pursue their separate claims for their different losses against the defendant. … [178] Lord Goff agreed with the analysis of Lord Millett on this part of the case. In my view, the reasoning of Lord Millett again assumes, without questioning it, that the reasoning in Prudential is correct and he inaccurately equates the loss suffered by a company and the loss suffered by the shareholder. Lord Millett's discussion of the reflective loss principle begins by noting that a company's cause of action is its property for it to decide what to do with, that shares in a company are the property of the shareholder, 'and if he suffers loss as a result of an actionable wrong done to him, then prima facie he alone can sue and the company cannot' [2002] 2 AC 1, 61–62. He goes on at p 62: 'On the other hand, although a share is an identifiable piece of property which belongs to the shareholder and has an ascertainable value, it also represents a proportionate part of the company's net assets, and if these are depleted the diminution in its assets will be reflected in the diminution in the value of the shares. The correspondence may not be exact, especially in the case of a company whose shares are publicly traded, since their value depends on market sentiment. But in the case of a small private company like this company, the correspondence is exact.' [179] Lord Millett's comment regarding a company whose shares are publicly traded recognises that, contrary to the suggestion in Prudential, there is no necessary correspondence between the value of shares in the hands of a shareholder and the value of the company's assets. However, he did not subject the reasoning in Prudential to critical examination in the light of this. His comment regarding the correspondence between the value of shares in a small private company and its net assets reflects the reasoning in the Prudential case. This is made clear a little further on, when Lord Millett sets out the passage in that judgment dealing with the cash box example [2002] 2 AC 1, 62–63. This is fundamental to Lord Millett's whole approach in his speech. As stated above, however, I do not consider that this reasoning can be supported. When it is appreciated that a shareholder has his own cause of action in respect of a loss which is not identical with the loss suffered by the company, as a matter of principle it is not possible to treat the shareholder's cause of action as something eliminated by virtue of the fact that the company has its own cause of action in respect of loss which it suffers." 1. Ultimately, the majority in Marex accepted the formulation of the principle by Lord Bingham in Johnson to which I have referred at [104] above. (See Marex at [89] and [95]). 2. In Gould v Vaggelas (1985) 157 CLR 215; [1985] HCA 75, the appellants claimed that they were induced by misrepresentations made by the respondent vendor to purchase a tourist resort on behalf of a company to be formed and controlled by them, and to give guarantees and security for the unpaid portion of the purchase price. The appellants claimed damages for deceit, the company having failed and been wound-up. Chief Justice Gibbs accepted the principle in Prudential Assurance, stating the position at 219 in the following terms: "The second question, whether the Goulds have established that they suffered damage because they acted in reliance on the false statements made by Vaggelas and, if so, what is the measure of their damage, is a more difficult one. The difficulty lies not in stating the legal principles which should be applied, but in applying those principles to the facts of the case. It is clear that it was not right to identify the Goulds with the company, Gould Holdings Pty. Ltd. ('Gould Holdings'), which the Goulds formed to make the purchase, notwithstanding that they were the sole shareholders. It is of course elementary to say, as was said in Prudential Assurance Co. Ltd. v. Newman Industries Ltd. [No. 2], 'that A cannot, as a general rule, bring an action against B to recover damages or secure other relief on behalf of C for an injury done by B to C. C is the proper plaintiff because C is the party injured, and, therefore, the person in whom the cause of action is vested'. Any loss suffered by Gould Holdings as a consequence of the fraud can be recovered only by the company itself. Even if the company had not commenced an action within the limitation period, its failure to enforce its own rights would not have enhanced the rights of the Goulds: see Prudential Assurance v. Newman Industries [No. 2]. However, although the Goulds cannot recover damages merely because Gould Holdings has suffered damage, and cannot recover damages which are merely a reflection of a loss suffered by the company, they may recover damages for the loss which they personally have suffered and which is separate and distinct from the loss suffered by the company. That this is so is clear in principle, but if authority is needed, the judgment in Prudential Assurance v. Newman Industries provides it." 1. Chief Justice Gibbs held that the loss suffered as a result of the appellants' alteration of position in reliance on the misrepresentation was recoverable. His Honour also stated that although the appellants would be required to set-off against the claim the value of their interest in the company, in the case in question, that interest was worthless. His approach bears some similarity to the approach of Lord Sales in Marex, to which I have referred at [108] above. 2. Justice Wilson (at 245–246) stated that the case bore no analogy to Prudential Assurance as the appellants had suffered personal loss in making their property available to the company to enable it to complete the purchase. 3. Justice Brennan (at 257–259) adopted the same approach. His Honour made the following remarks: "Once it is recognized that the Goulds' cause of action is distinct from the company's there can be no question of the Goulds appropriating the company's cause of action or of measuring the Goulds' damages by what the company could have recovered at some earlier time. In assessing the Goulds' loss, the value of the company's cause of action is relevant to the value of the company debt so far as it might show what the company was likely to pay the Goulds; but the value of the company debt is a matter of fact, not to be ascertained by reference to the measure of damages which might have been recovered by the company if it had sued. The relevant question in determining the Goulds' damages was whether the company would more probably than not be able to pay some or all of what it owed the Goulds. In fact, the company has never been likely to pay the Goulds anything. Before the effect of the fraudulent inducement was spent — i.e., while it was carrying on the resort business — it was endeavouring to meet the demands of its external creditors and the extent of its failure to do so is reflected largely in the Goulds' losses. After it ceased trading, it has had no assets which have been available to make payment to the Goulds. The company debt had no value, and it would not have been right to diminish the assessment of the Goulds' damages by an amount representing a notional payment which the Goulds might have received if the company had brought an action against the respondents and recovered a judgment. … The respondents are liable in damages only on the hypothesis that the company has failed to discharge its liabilities to the Goulds. The respondents' liability, being secondary to the liability of the company, is analogous to the liability of a surety. If the respondents, being compelled to pay the Goulds what the company is primarily liable to pay, satisfy the judgment, the respondents will be subrogated to the Goulds' rights against the company in respect of the company debt. The liability of the company to the Goulds remains on foot as between them, but the Goulds cannot retain the benefit of the company debt after the respondents satisfy their judgment. Although the respondents are subrogated to the Goulds' rights against the company, that gives the respondents no defence to or set-off against the company's claim in deceit. Satisfaction of the Goulds' judgment against the respondents does not discharge the company from liability for the company's debt, so the case is not one where a party, having discharged another's liability under compulsion of law, is entitled at common law to recoupment from the other who is primarily liable: see Moule v. Garrett." 1. This analysis was approved by Lord Sales in Marex at [205]. 2. In Thomas, McPherson JA accepted the principle, stating at [11] that it was driven by policy considerations. His Honour accepted that the plaintiff could sue for damages separate and distinct to those suffered by the company, but could not recover diminution in the value of his shareholding (see Thomas at [9] and [20]–[21]; Williams JA and White J agreeing at [24] and [37] respectively). 3. In Mercedes Holdings Pty Ltd v Waters (No 2) (2010) 186 FCR 450; [2010] FCA 472 ("Mercedes Holdings"), Perram J accepted that the principle applied. His Honour concluded, referring to the remarks of Lord Millett in Johnson, that the principle was associated with the maintenance of capital. His Honour concluded that the principle did not have any application outside the context where there exists a prohibition on an unauthorised capital reduction (see Mercedes Holdings at [112]; see also Ballard v Multiplex Ltd [2008] NSWSC 1019; (2008) 68 ACSR 208 at [32]–[41]). 4. In Chen, the Court accepted that the principle applied without any detailed consideration of its basis or the scope of its application. 5. In the present case, neither of the parties contended that the approach of Lord Sales in Marex should be adopted. However, as I indicated, the Council contended that the exception to the principle, namely that the shareholder could recover for loss to the value of his shares in the company as a result of damage suffered by the company where the shareholder had a cause of action but the company did not (Lord Bingham's second point: see [104] above), should not be accepted. 6. I am unable to agree. There seems to be no reason for the principle to apply to circumstances where the company has no cause of action to recover the loss. This is so regardless of the rationale of the principle. If the purpose is to prevent double recovery, there is no prospect of double recovery where the company has no cause of action. If is as I conceive it, the principle is based on the rule in Foss v Harbottle that only the company can sue for a wrong done to the company, the principle is not outflanked because there is no actionable wrong done to the company, the company having no cause of action. If, as Perram J suggests, it is associated with the doctrine of maintenance of capital, there is no reduction of capital if a shareholder recovers funds that the company as a matter of law cannot recover. Finally, there is no policy reason not to impose such an exception. 7. In these circumstances, as PTL has no cause of action, NPC can sue to recover the loss it alleges it has suffered if first it can establish that the indemnities extend to such a loss, and secondly, whether the evidence establishes that the loss alleged was in fact suffered. 8. I have set out the indemnities at [27] and [29] above. The indemnity in cl 15.2 only applies if there is a breach by one of the parties of their obligations under the Joint Venture Agreement. The only obligation said to be breached was the failure to indemnify NPC in respect of the cost of remedying the contamination. The question then is whether there has been a failure to indemnify NPC as required by cl 7.2 of the Joint Venture Agreement. 9. The obligation in cl 7.2 is to indemnify NPC against any loss, liability, cost, claim or expense suffered or incurred in respect of any contamination existing on the land. There has been no claim against NPC in respect of the contamination, nor has NPC suffered or incurred any liability, cost or expense in respect of it. The question is whether the claimed diminution of the value of its interest in PTL is loss suffered in respect of contamination existing on the land. 10. I do not think that the indemnity extends to loss of the nature of that claimed in the present case. Although the words "loss" and "in respect of" are wide, they must be read in the context of the Joint Venture Agreement as a whole. This was the approach taken to the construction of indemnity clauses in both Andar Transport Pty Ltd v Brambles Ltd (2004) 217 CLR 424; [2004] HCA 28 ("Andar") at [24]–[29] and Bofinger v Kingsway Group Ltd (2009) 239 CLR 269; [2009] HCA 44 ("Bofinger") at [56]–[68] (see, in the statutory context, Commissioner for Taxation v Scully (2000) 201 CLR 148; [2000] HCA 6 at [39]; R v Khazaal (2012) 246 CLR 601; [2012] HCA 26 at [31]). Further, if ambiguity remains after the application of the usual principles of construction, the provision is to be construed in favour of the indemnifier (Andar at [17]–[29]; Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549; [1987] HCA 15 at 561). As was pointed out in Bofinger at [53], "doubt may arise not only from the uncertain meaning of a particular expression but from its apparent width of possible application." 11. In the present case, I do not consider that the indemnity extends to the loss claimed. As I indicated, in dealing with the successor issue it was not contemplated that a nominee under the Option Agreement would succeed to the obligations of NPC under the Joint Venture Agreement, which include the obligation in cl 2.1(b) to discharge obligations in respect of the Project and, importantly, the obligation in cl 5.1(a) to manage the Project in accordance with the Project Documents. It would seem to me that it was not contemplated in those circumstances that the Project would be undertaken by anyone other than NPC. This is reinforced by the fact that there is an express prohibition in cl 19.9 against the assignment of obligations under the Joint Venture Agreement. 12. In that context, it does not seem to me that the indemnity would extend to circumstances where NPC suffered loss by virtue of the diminution in value of its shares it held in its nominee as a result of the nominee incurring the costs of remedying the contamination. If the indemnity extended to those circumstances, it would extend not only to a case where a wholly owned subsidiary of NPC was nominated under the Option Agreement, but also to a case where any nominee in which NPC was a shareholder incurred the costs, thereby diminishing the value of NPC's shareholding. It does not seem to me that such a result was intended by the parties. 13. I have reached that conclusion without recourse to the contra proferentem rule. I accept that it is a rule of last resort (see, for example, Rava v Logan Wines Pty Ltd [2007] NSWCA 62 at [51]–[56]). However, to the extent that it could be said that any ambiguity remains after a consideration of the matters to which I have referred above, that ambiguity falls to be resolved in favour of the Council as indemnifier. 14. Even if NPC, contrary to my opinion, was entitled to a claim for loss of the value of the shareholding in PTL, it has not succeeded in establishing any such loss. 15. NPC's claim is based on the assumption that its loss can be equated to the cost of PTL remedying the contamination. Its contention is that the surplus from the development would have been greater had PTL not been required to meet that cost, and such surplus would have been returned to NPC. In that regard, reliance is placed on the evidence of Mr Allen to which I have referred at [47] above. 16. There are a number of difficulties with this approach. First, if this was Mr Allen's intention in 2015 there is nothing to show that it has been put into effect. Mr Cochrane's evidence was that the strata plan in respect of the development was registered on 28 July 2017, and by early 2017 contracts had been exchanged on most of the units the subject of the development. He also stated that the contracts provided for settlement within 14 to 21 days after notification of registration of the strata plan. Although the list of settlements exhibited in Mr Cochrane's affidavits was not reproduced on the appeal, it can be inferred the Project was completed by no later than the end of 2017. This is supported by the summary of bank statements annexed to NPC's closing submissions in the Court below, which demonstrate the ANZ Bank's financing was repaid by 22 August 2017. 17. Notwithstanding this, there is no evidence that Mr Allen's intention was put into effect in the supervening years. If it had occurred or was in the process of occurring, it would have been a relatively simple matter for NPC to put on evidence that it had in fact been carried out. However, absent such evidence, there is no basis for assuming that it has occurred. 18. Further, absent such evidence, it does not seem to me that it can be said there is a direct correlation between the amount paid by PTL to remedy the contamination and the loss of value of NPC's shareholding. The difficulties with this approach were well set out by Lord Sales in the passages from his judgment in Prudential Assurance to which I have referred at [108] above. 19. It may be that if it were established that PTL was a cashbox holding only the surplus of the development with no liabilities, it would be possible to value the shares of NPC as equivalent to the value of those assets (subject to tax and liquidation expenses). However, there is no evidence to suggest that NPC was a cashbox in that sense. 20. NPC sought to overcome this difficulty by relying on the principle in Armory (see [91] above). However, this is not a case where the conduct of the Council caused any difficulty to NPC in proving its case. It would have been a relatively simple matter for NPC to adduce evidence to establish the value of its shareholding in PTL. However, it has failed to do so. 21. For these reasons, these grounds of appeal have not been made out. NPC is entitled to recover PTL's loss – Notice of cross-appeal, grounds 1(b)(i), notice of contention, ground 2 The submissions 1. NPC relied on the principle said to be derived from the speech of Lord Browne-Wilkinson in Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd; St Martins Property Corporation Ltd v Sir Robert McAlpine Ltd [1994] 1 AC 85 ("Linden Gardens case" and "St Martins Property Corporation case" respectively; "Linden Gardens" collectively). 2. In the Linden Gardens case, the owner of a leasehold interest in property entered into a building contract to remove blue asbestos. The owner assigned its leasehold interest to Linden Gardens and also purported to assign its interests in the building contract to that company. This was done without the consent of the builder. Prior to the assignments, the builder had breached its contract by failing to remove all the asbestos. Linden Gardens acquired the leasehold on the assumption the asbestos had been eradicated. The question was whether Linden Gardens could recover from the builder notwithstanding it was not a party to the agreement. 3. In the St Martins Property Corporation case, the appellant had agreed with the local council to develop a significant site in London (the Development Contract). In order to undertake the development, the appellant entered into a building contract with the respondent. By a scheme of arrangement, the right of the appellant to develop the property was vested in a subsidiary. The appellant purported to assign its interests in the building contract to the subsidiary without the consent of the builder. In this case, subsequent to the assignment, the builder breached the contract. 4. Lord Browne-Wilkinson, with whom Lord Keith, Lord Bridge and Lord Ackner agreed, held that in each case the assignment of the building contract was invalid. His Lordship held as a consequence that in the Linden Garden case the original owner of the leasehold was entitled to claim damages for the breach, the breach having pre-dated the assignment of the leasehold interest. 5. In the St Martins Property Corporation case, Lord Browne-Wilkinson held that although the breach had occurred after the development contract had vested in the subsidiary, St Martins Property Corporation was entitled to recover that loss. 6. In reaching that conclusion, and after referring to the speech of Lord Diplock in The Albazero [1977] AC 774 at 846, his Lordship reached the following conclusion (at 114–115): "In my judgment the present case falls within the rationale of the exceptions to the general rule that a plaintiff can only recover damages for his own loss. The contract was for a large development of property which, to the knowledge of both Corporation and McAlpine, was going to be occupied, and possibly purchased, by third parties and not by Corporation itself. Therefore it could be foreseen that damage caused by a breach would cause loss to a later owner and not merely to the original contracting party, Corporation. As in contracts for the carriage of goods by land, there would be no automatic vesting in the occupier or owners of the property for the time being who sustained the loss of any right of suit against McAlpine. On the contrary, McAlpine had specifically contracted that the rights of action under the building contract could not without McAlpine's consent be transferred to third parties who became owners or occupiers and might suffer loss. In such a case, it seems to me proper, as in the case of the carriage of goods by land, to treat the parties as having entered into the contract on the footing that Corporation would be entitled to enforce contractual rights for the benefit of those who suffered from defective performance but who, under the terms of the contract, could not acquire any right to hold McAlpine liable for breach. It is truly a case in which the rule provides 'a remedy where no other would be available to a person sustaining loss which under a rational legal system ought to be compensated by the person who has caused it'." 1. In written submissions, referring to the judgment of Lord Sumption in Swynson Ltd v Lowick Rose llp (in liq) [2018] AC 313; [2017] UKSC 32 ("Swynson") at [14], NPC submitted that the principle applied when the object of the transaction was to benefit a third party and the anticipated effect of a breach would be to cause loss to that third party. It was submitted that the principle was cited with approval by McClure JA in Rio Tinto Exploration Pty Ltd v Graphite Holdings Pty Ltd [2007] WASCA 276 ("Rio Tinto") at [41]. 2. Senior Counsel for NPC submitted that the doctrine applied to ensure that a third party who was known or intended to be a person who would acquire the property not be put out of pocket to avoid a "legal black hole". 3. The Council in its written submissions submitted first that the line of authority relied upon was not engaged as the claim was a claim for an indemnity, not a claim for breach of contract. I do not think that this distinction is determinative of the issue. The claim in substance is a claim for a breach of a contractual obligation to indemnify NPC against loss from contamination. 4. It was also submitted that the principle has not been applied in this country and should not be applied. 5. Third, it was submitted that the appellant in the St Martins Property Corporation case was permitted to recover damages because it was anticipated that the property would be purchased by a later owner and a breach of the contract would cause damage to that later owner, not just the original developer. It was submitted in the present case it was not contemplated that anyone other than NPC would develop the land. Consideration 1. In reaching the conclusion to which I have referred at [139] above, Lord Browne-Wilkinson extended what was said by Lord Diplock in The Albazero concerning commercial contracts for the supply of goods to building contracts. Lord Diplock's remarks were in the following terms (The Albazero at 847): "[I]n a commercial contract concerning goods where it is in the contemplation of the parties that the proprietary interests in the goods may be transferred from one owner to another after the contract has been entered into and before the breach which causes loss or damage to the goods, an original party to the contract, if such be the intention of them both, is to be treated in law as having entered into the contract for the benefit of all persons who have or may acquire an interest in the goods before they are lost or damaged, and is entitled to recover by way of damages for breach of contract the actual loss sustained by those for whose benefit the contract is entered into." 1. It should be noted that Lord Diplock's formulation was predicated on the basis that it was the intention of both contracting parties to treat the contract as being for the benefit of all parties who may acquire an interest in the goods. The remarks by Lord Browne-Wilkinson seem to be based on the same assumption. This is consistent with the approach taken by Lord Sumption in Swynson to which I referred at [141] above. 2. However, in Alfred McAlpine Construction Ltd v Panatown Ltd [2001] 1 AC 518 ("Alfred McAlpine"), Lord Clyde at 530 expressed the view that the solution to the problem was imposed by law, not from the presumed intention of the parties. His Lordship explained his conclusions in the following terms (at 535): "It seems to me that a more realistic and practical solution is to permit the contracting party to recover damages for the loss which he and a third party has suffered, being duly accountable to them in respect of their actual loss, than to construct a theoretical loss in law on the part of the contracting party, for which he may be under no duty to account to anyone since it is to be seen as his own loss. The solution is required where the law will not tolerate a loss caused by a breach of contract to go uncompensated through an absence of privity between the party suffering the loss and the party causing it. In such a case, to avoid the legal black hole, the law will deem the innocent party to be claiming on behalf of himself and any others who have suffered loss. It does not matter that he is not the owner of the property affected, nor that he has not himself suffered any economic loss. He sues for all the loss which has been sustained and is accountable to the others to the extent of their particular losses. While it may be that there is no necessary right in the third party to compel the innocent employer to sue the contractor, in the many cases of the domestic or familial situation that consideration should not be a realistic problem. In the commercial field, in relation to the interests of such persons as remoter future proprietors who are not related to the original employer, it may be that a solution by way of collateral warranty would still be required. If there is an anxiety lest the exception would permit an employer to receive excessive damages, that should be set at rest by the recognition of the basic requirement for reasonableness which underlies the quantification of an award of damages." 1. Lord Jauncey took the view that the contracting parties' rights to substantial damages in circumstances where the loss was suffered by a third party depended on whether the contracting party has made good or intends to make good the effect of the breach (Alfred McAlpine at 574). Lord Goff in dissent expressed the view that an employer under a building contract may in principle recover substantial damages for breach of that contract, notwithstanding the property was vested in a third party which in fact suffered the loss (Alfred McAlpine at 547). His Honour expressed the view that it was not necessary that the employer expended the money necessary to remedy the breach or had undertaken a liability to do so (see Alfred McAlpine at 546–549). 2. It is unnecessary to deal with the analysis that underpinned the divergent views reached by their Lordships. What it does demonstrate is that even in the United Kingdom where the principle is recognised, there is a divergent view as to its juridical basis and its scope. 3. NPC pointed out that McClure JA in Rio Tinto cited Linden Gardens as an exception to the rule that a plaintiff who suffers no loss as a result of breach of contract is only entitled to nominal damages (see Rio Tinto at [41]). Her Honour held that the principle did not apply in that case. 4. It is well established in this country that in circumstances where a contract imposed an obligation on the promisor to confer a benefit on a third party, the promisee can seek an order that the promise be specifically performed (Coulls v Bagot's Executor and Trustee Co Ltd (1967) 119 CLR 460; [1967] HCA 3 at 478 and 503; Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107; [1988] HCA 44 ("Trident") at 119–120). It is also well established that where the promisee is a trustee of a promise for a third party, the third party can sue on the contract indirectly in an action in which the promisee is joined as the defendant (Vandepitte v Preferred Accident Corporation of New York [1933] AC 70; Wilson v Darling Island Stevedoring and Lighterage Co Ltd (1956) 95 CLR 43; [1956] HCA 8 at 67). However, the proposition said to be established in Linden Gardens has not been accepted as part of the law in this country. In Trident, only Brennan J referred to The Albazero, and his Honour did not do so in terms which adopted the principles set out by Lord Diplock. 5. I do not think the present case falls within the principle enunciated in Linden Gardens, at least as expressed by Lord Browne-Wilkinson. As I indicated in dealing with grounds 1A, 2 and 3 of the cross-appeal, it was not contemplated that the work on the Project, including the work on the PTL Land, would be carried out by any corporation other than NPC. In those circumstances, the principle as enunciated by Lord Browne-Wilkinson has no application. It is not necessary in those circumstances to determine whether the principle does form part of the law in this country, cf J D Heydon, Heydon on Contract (Thomson Reuters, 2019) [12.170]. So far as any further extension of the principle is concerned, it seems to me that it is not a step an intermediate appellate court should take. 6. In the circumstances, these grounds of appeal have not been made out. Gate Gourmet (PTL as a non-party can directly enforce the indemnity) – Notice of contention, ground 3 1. In its submissions on this ground, NPC referred to the conclusion of the primary judge that the fact that PTL was a successor to NPC was sufficient to enable it to recover damages. It was stated that the primary judge did not elucidate why that was so, but that the conclusion was open having regard to the judgment of Einstein J in Gate Gourmet Australia Pty Ltd (in liq) v Gate Gourmet Holdings AG [2004] NSWSC 149 ("Gate Gourmet"). 2. In Gate Gourmet, Einstein J sought to extend the exception to the doctrine of privity which Mason CJ and Wilson J in Trident at 123–124 held existed in the case of contracts of insurance to the beneficiary of a contract of indemnity who is not a party to the contract. 3. If PTL was a successor under clause 19.9 of the Joint Venture Agreement, there was, with respect, no need for recourse to cases such as Gate Gourmet to establish PTL's title to sue because PTL would succeed to both the rights and obligations of NPC. However, as I have indicated, PTL was not a successor within the meaning of that clause. 4. To the extent the principle is relied on when in fact PTL was not a successor, it is not appropriate, in my view, for an intermediate appellate court to extend what was said in Trident beyond contracts of insurance. This is particularly the case when only a minority of the High Court in Trident supported the extension. 5. It follows this ground of appeal has not been made out. NPC is able to obtain specific performance for the benefit of PTL – Notice of cross-appeal, grounds 1(b)(iii) and 4 1. If the indemnity was given for the benefit of PTL then it may well be that NPC could obtain an order in the nature of specific performance that the Council indemnify PTL for the cost of remedying the contamination. However, as I have pointed out, the indemnity was not for the benefit of PTL. In these circumstances, there is no right to an order for specific performance. Conclusion 1. In the result I would make the following orders: 1. Appeal allowed. 2. Cross-appeal dismissed. 3. Set aside the orders made by the primary judge and, in lieu thereof: 1. Order the proceedings brought by the respondents against the appellant in the Court below be dismissed. 2. Order that the respondents pay the appellant's costs of those proceedings. 3. Order that the cross-claim brought by the appellant against the respondents in the Court below be dismissed. 4. Order that the appellant pay the respondents' costs of the cross-claim. 1. The respondents to pay the appellant's costs of the appeal and cross-appeal, and to have a certificate under the Suitors' Fund Act 1951 (NSW) if eligible. 1. MACFARLAN JA: I agree with Bathurst CJ. 2. GLEESON JA: I agree with Bathurst CJ. ********** Amendments 26 May 2021 - Cover Sheet and [135] - Amendment to Order 3 made under the Slip Rule. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 26 May 2021