New South Wales Supreme Court CITATION : Lahoud v Lahoud; Lahoud v Lahoud [2009] NSWSC 623 HEARING DATE(S) : 14, 15, 16, 17, 21, 22 and 24 April 2009 JUDGMENT DATE : 3 July 2009 JURISDICTION : Equity Division JUDGMENT OF : Ward J DECISION : Damages awarded to plaintiffs in 3606 of 2001. Judgment for plaintiffs in 3582 of 2007. CATCHWORDS : DAMAGES – measure and remoteness of damages in actions for breach of contract – order made in previous hearing that Victor Lahoud interests perform contract – enquiry as to damages suffered by Joseph Lahoud interests resulting from Victor Lahoud interests' failure to transfer residential units for period of six years – Joseph Lahoud interests claimed damages referable to lost rent from units or interest on capital value of units – whether loss of income would be presumed from failure to transfer income-producing asset – consideration of Wenham v Ella and Hadley v Baxendale – held that Joseph Lahoud interests had only established loss of rents from particular leases existing at time of breach until expiry of those leases (and, in one case, an option lease) and had otherwise failed to establish loss. - CONTRACTS – general contractual principles – order made in previous hearing that parties execute Deed of Settlement in performance of obligation in Terms of Settlement – Deed substantially similar to Terms – Victor Lahoud interests exercised right under Deed to audit – whether Deed created new right to audit – if Deed created no new right, whether reasonable time for exercise of right under Terms had elapsed – whether right to audit should be construed to mean audit of specific figures or audit of project profits – held that Deed created new right to audit – if not, reasonable time had not elapsed – right to audit construed to mean a right to audit of project profits. Civil Procedure Act 2005 LEGISLATION CITED : Industrial Relations Act 1996 Supreme Court Act 1970 CATEGORY : Principal judgment Anthanasopoulos v Moseley (2001) 52 NSWLR 262 Australian Broadcasting Commission v Australasian Performing Right Association (1973) 129 CLR 99 Australian Woollen Mills Pty Limited v Commonwealth (1954) 92 CLR 424 Bak v Glenleigh [2006] NSWCA 10 Ballas v Theophilos (1957) 98 CLR 193 Baume v Commonwealth (1906) 4 CLR 97 BHP Coal v O & K Orenstein & Koppel [2008] QSC 141 Bilambil-Terranora Pty Ltd v Tweed Shire Council [1980] 1 NSWLR 465 Boreland v Docker [2007] NSWCA 94 Broken Hill Metals v Roberts (WACA, unreported, 18 August 1994) Buckman v Rose (1980) 1BPR 97059 Business and Professional Leasing Pty Limited v Akuity Pty Limited [2008] QCA 215 Castle Constructions Pty Limited v Fekala Pty Limited (2006) 65 NSWLR 648 Champtaloup v Thomas [1976] 2 NSWLR 264 Chen v Lord Energy Limited [2002] HKFCA 11 Chinnock v Marchioness of Ely (1864) H & M 220; 71 ER 447 Codelfa Construction Pty Limited v State Rail Authority of NSW (1982) 149 CLR 337 Commissioner of State Revenue v Pinesales Pty Limited (2007) 34 WAR 360 Commissioner of Taxation v Sara Lee Household & Body Care (Australia) Pty Ltd (2000) 201 CLR 520 Commonwealth of Australia v Amann Aviation Pty Limited (1991) 174 CLR 64 Concut Pty Limited v Worrell (2000) 176 ALR 693 Coulls v Bagot's Executor & Trustee Co Limited (1967) 119 CLR 460 Dalton v Ellis; Estate of Bristow (2005) 65 NSWLR 134 Davies v Littlejohn (1923) 34 CLR 174 De Visme v De Visme (1849) 1 Mas & G 336; 41 ER 1295 Ellmore (Maitland) Pty Limited v Tull (1995) 7 BPR 14,305 Esdaile v Stephenson (1822) 6 Madd 366; 56 ER 1131 Esso Australia v Australian Petroleum Agents' & Distributors' Association [1999] 3 VR 642 Farah v Say-Dee (2007) 230 CLR 89 Finesky Holdings Pty Ltd v Minister For Transport For Western Australia [2002] WASCA 206 Flureau v Thornhill (1776) 2 Wm Bl 1078; 96 ER 635 Ford-Hunt v Ragbhir Singh [1973] 1 WLR 378 Friend v Brooker [2009] HCA 21 G W Sinclair & Co v Cocks [2001]VSCA 41 Gardiner v Agricultural and Rural Finance Pty Ltd [2007] NSWCA 235 Gorst v Lowndes (1841) 11 Sim 434; 59 ER 940 Government Insurance Office (NSW) v Johnson [1981] 2 NSWLR 617 Griffin v Mercantile Bank (1890) 11 LR (NSW) Eq 231 Hadid v Australis Media (unreported, Sperling J, 30 June 1997) Hadley v Baxendale (1854) 9 Ex 341; 156 ER 145 Handley v Gunner [2008] NSWCA 113 Hart v MacDonald (1910) 10 CLR 417 Hensley v Reschke (1914) 18 CLR 452 Hexiva Pty Limited v Lederer (No 2) [2007] NSWSC 49 Hick v Raymond & Reid [1893] AC 22 Hoad v Scone Motors [1977] 1 NSWLR Hobartville Stud v Union Insurance (1991) 25 NSWLR 358 Hughes v Pellicciari (1982) 2BPR 97139 Hungerfords v Walker (1989) 171 CLR 125 In re Figgis [1968] 2 WLR 1173 In re Thackwray and Young's Contract (1888) 40 Ch D 34 Investec Bank (Australia) Limited v Glodale Pty Ltd [2009] VSCA 97 Investmentsource v Knox Street Apartments [2007] NSWSC 1128 Jaques v Millar (1977) 6 Ch D 153 Jones v Gardiner [1902] 1 Ch 191 Jones v Schiffmann (1971) 124 CLR 303 CASES CITED : King v Poggioli (1922-1923) 32 CLR 222 Lahoud v Lahoud (No 2) [2005] NSWSC 1019 Lahoud v Lahoud [2002] NSWIRComm 182 Lahoud v Lahoud [2003] NSWIRComm 179 Lahoud v Lahoud [2005] NSWSC 509 Lahoud v Lahoud [2006] NSWSC 126 Lahoud v Lahoud [2006] NSWCA 169 Lawrence v Finance Corporation of Australia Limited (unreported, Powell J, 2 November 1990) Lord Energy Limited v Chen [2000] HKCA 506 Makita v Sprowles (2001) 52 NSWLR 705 Malding Pty Limited v Metcalfe [1990] ANZ ConvR 110 Marconi Systems v BHP Information Technology (2003) 128 FCR 1 Martech International v Energy World Corp (2006) 234 ALR 265 Masters v Cameron (1954) 91 CLR 353 McLean v Grace [1953] NZLR 566 Millar v Candy (1981) 38 ALR 299 Mitchell v Crimmin (1945) 47 WALR 46 Olympic Holdings v Lochel [2004] WASC 61 Palasty v Parlby [2007] NSWCA 345 Pargiter v Alexander (1995) 5 Tas R 158 Philips Electronics Australia Ltd v Insight Oceania Pty Ltd [2009] NSWCA 124 Phillips v Lamdin [1949] 2 KB 33 Proctor v Chahl [2008] NSWSC 1252 Re Longlands Farm [1968] 3 All ER 552 Re Strand Music Hall (1865) 35 Beav 153; 55 ER 853 Reid v Moreland Timber (1946) 73 CLR 1 Reschke v Hensley [1913] SALR 105 Robinson v Harman (1848) 1 Ex 850 at 855; 154 ER 363 Robinson v Waddington (1849) 13 QB 753; 116 ER 1451 Royal Bristol Permanent Building Society v Bomash (1887) 35 Ch 390 Rudi's Enterprises Pty Ltd v Jay (1987) 10 NSWLR 568 Savage v Norton [1908] 1 Ch 290 Sellars v Adelaide Petroleum (1994) 179 CLR 332 Shaw v Harris (No2) (1992) 3 Tas R 167 Spencer v Hanson Pastoral Co Pty Limited (1979) 2 BPR 9151 State of New South Wales v Burton [2008] NSWCA 319 Stoke-on-Trent City Council v Wass Limted [1988] 3 All ER 394 Strickland v Grieve (1996) NSW Conv R 55-762 Sunley (B) & Co v Cunard White Star Ltd [1940] 1 KB 740 Sweeney v Coffey [1999] NSWCA 38 Synergy Protection Agency Pty Ltd v North Sydney Leagues' Club Limited [2009] NSWCA 140 Tallerman & Co Pty Ltd v Nathan's Merchandise (Victoria) Pty Ltd (1957) 98 CLR 93 Telina Developments Pty Ltd v Stay Enterprises Pty Limited [1984] 2 Qd R 585 The Mediana [1900] AC 113 The Susquehanna [1926] AC 655 Tim Barr v Narui Gold Coast [2009] NSWSC 49 Vanmeld v Cussen (1991) 121 ALR 619 Waters v Maynard (1924) 24 SR (NSW) 618 Watson v Foxman (1995) 49 NSWLR 315 Wenham v Ella (1972) 127 CLR 454 Westwood v Cordwell [1983] 1 Qd R 276 Wilson v Nightingale (1846) 8 QB 1034; 115 ER 163 Woodman v Rasmussen [1953] St R Qd 202 Yates v Mobile Marine Repairs [2007] NSWSC 1463 York Air Conditioning v The Commonwealth (1949) 80 CLR 11 Zaccardi v Caunt [2008] NSWCA 202 Zapulla v Perkins [1978] Qd R 92 Zorbas v Titan Properties (Aust) [2005] NSWSC 440 Buckleys Law of Companies Carter on Contract Furmston M (ed) The Law of Contract Butterworths, London, 2003 McGregor on Damages TEXTS CITED : McLauchlan, David 'Contract Interpretation: What Is It About?' (2009) 31 Sydney Law Review 5 Nicholls, Donald, 'My Kingdom for a Horse: The Meaning of Words' (2005) 121 Law Quarterly Review 577 Ritchie's Supreme Court Practice Ritchie's Uniform Civil Procedure NSW Spigelman, J J 'From Text to Context: Contemporary Contractual Interpretation' (2007) 81 Australian Law Journal 322 Joseph Lahoud (First Plaintiff in 3606 of 2001, First Defendant/First Cross Claimant in 3582 of 2007) Joseph Lahoud & Associates Pty Limited (Second Plaintiff in 3606 of 2001 and Second Defendant/Second Cross Claimant in 3582 of 2007) PARTIES : Victor Lahood (First Defendant in 3606 of 2001 and First Plaintiff/First Cross-Defendant in 3582 of 2007) Castle Constructions Pty Limited (Second Defendant in 3606 of 2001 and Second Plaintiff/Second Cross-Defendant in 3582 of 2007) Solidare Pty Limited (Third Defendant in 3606 of 2001 and Third Plaintiff/Third Cross-Defendant in 3582 of 2007) FILE NUMBER(S) : SC 3606 of 2001; 3582 of 2007 COUNSEL : M D Einfeld QC with him Mr S J Phillips (Victor Lahoud parties) S Epstein SC with him Mr P J Gow (Joseph Lahoud parties) SOLICITORS : Aitken McLachlan Thorpe (Victor Lahoud parties) Robertson Saxton Primrose Dunn (Joseph Lahoud parties) 154 IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION WARD J FRIDAY 3 JULY 2009 3606/01 JOSEPH LAHOUD & ANOR V VICTOR LAHOUD & 2 ORS 3582/07 VICTOR LAHOUD & 2 ORS V JOSEPH LAHOUD & ANOR JUDGMENT 1 Before me for hearing were two separate proceedings, to which two brothers, Joseph Lahoud and Victor Lahoud, (and one or more associated entities) are party. Both matters, broadly speaking, arise out of orders made following the determination by Palmer J of the substantive issues in the earlier of the two proceedings before me. At the commencement of the hearing, I made orders that the two sets of proceedings be heard together and that, to the extent relevant, evidence in each proceeding be evidence in the other. 2 As they are on opposite sides in the respective proceedings, I propose for convenience to refer to Joseph Lahoud and Joseph Lahoud & Associates Pty Limited (the plaintiffs in 3606/01 and the defendants in 3582/07) as the "Joseph Lahoud interests" and to refer to Victor Lahoud, Castle Constructions Pty Limited and Solidare Pty Limited (the defendants in 3606/01 and the plaintiffs in 3582/07) as the "Victor Lahoud interests". 3 In the first set of proceedings (3606/01) ("the damages proceedings"), Palmer J, in May 2005, found that Terms of Settlement, which had been signed on 6 February 2001, recording an agreement for the dismissal by consent of proceedings then before the Industrial Relations Commission of New South Wales, were binding on the parties. Orders were subsequently made by Palmer J on 13 October 2005 that there be an enquiry "as to the amount of damages which the [Joseph Lahoud interests] have sustained (if any) by reason of the [Victor Lahoud interests'] failure to perform their obligations under the Terms of Settlement". 4 The damages enquiry before me is all that now remains to be determined in the damages proceedings. The relevant obligation for the purposes of the damages enquiry relates to the transfer of certain property to the Joseph Lahoud interests, compliance with which did not occur until February 2007. 5 In the second set of proceedings (3587/07) ("the audit proceedings"), the Victor Lahoud interests seek declaratory and other relief consequent upon the election by them on 6 February 2007 for an audit to be carried out pursuant to clause 2 of a Deed of Settlement which was signed by the parties on 5 February 2007 in compliance with an order by Palmer J (again made in the damages proceedings) that the Joseph Lahoud interests execute such a deed by way of specific performance of the Terms of Settlement. The Joseph Lahoud interests deny any entitlement on the part of the Victor Lahoud interests to an audit but, further, say that if there remains any such entitlement then any audit is to be limited to an audit of the "figures" contained in Annexure A to the Terms of Settlement (as opposed to an audit of the profit of the Cammeray development to which those figures related). Summary 6 In summary, for the reasons set out below, I have reached the following conclusions: (i) on the damages enquiry, the amount of damages which the Joseph Lahoud interests have established were sustained (by reason of the Victor Lahoud interests' failure until 21 February 2007 to transfer certain home units in accordance with the Terms of Settlement) is the actual rent paid by the tenants of each of the said home units for the period from 6 August 2001 to the date of expiry (in accordance with their terms) of the respective leases which were on foot as at 6 August 2001 in respect of those premises (and, in the case of Unit 31, the actual rent paid under the ensuing option lease to 1 June 2003) less the monthly outgoings over the relevant period for each of the Units as itemised in the Second Further Amended Particulars of Claim, together with simple interest thereon from the date of receipt of the rents in question at the Supreme Court interest rates; and (ii) in the audit proceedings, the Victor Lahoud interests are entitled to an audit pursuant to clause 2 of the Deed of Settlement entered into on 5 February 2007, such audit to be of the profits of the Cammeray project (and not merely an audit of the figures appearing in Annexure "A" of the Terms of Settlement alone). Background · Genesis of current disputes 7 Although the disputes between the parties date back over at least the past ten years, the factual background to the disputes before me is relatively confined. Joseph Lahoud is an architect who has been involved for some years in the acquisition, development and sale of properties in the Lower North Shore. Victor Lahoud is a property developer. The genesis of the current disputes was a dispute between the brothers as to moneys claimed by the Joseph Lahoud interests in respect of property development projects in which Joseph and Victor had been involved for some years. One of those developments was of a property in Cammeray; another was of a property in Northbridge. Industrial Relations Commission proceedings were commenced in 1999 by the Joseph Lahoud interests in relation to disputes over these developments. The 1999 Industrial Relations Commission proceedings were dismissed by consent on 6 February 2001 in accordance with the agreement recorded in the Terms of Settlement. · Terms of Settlement 8 Two aspects of the Terms of Settlement are relevant (directly or indirectly) to the present disputes: the agreement for the sale or transfer to the Joseph Lahoud interests of two home units in the residential/commercial development at Sailors Bay Road, Northbridge in which the brothers had been involved (which is relevant to the damages enquiry) and the agreement for the payment to the Joseph Lahoud interests of a sum in relation to the profits of the Cammeray development (which is relevant to the audit claim). (i) Sale/Transfer 9 The first relevant aspect of the Terms of Settlement is the obligation imposed by paragraph 2 of the Terms of Settlement on Castle Constructions Pty Limited ("Castle Constructions") to pay to Joseph Lahoud (ie to him personally, the obligation not being one owed jointly to the Joseph Lahoud interests) the proceeds of sale of two home units (to which I refer, collectively, as "the Units"), those being specified in the Terms of Settlement as Unit 4 and another unit (not including Unit 18 or 24) in the Northbridge development to be nominated by Joseph Lahoud by 4.00 pm on that day. The second unit, apparently not nominated by Joseph Lahoud until 19 February 2001, was Unit 31. 10 The parties agreed to certain conditions in relation to the sale of the Units, as set out in Schedule 1 to the Terms of Settlement. Paragraph 1 of Schedule 1 provided that Joseph Lahoud was to instruct solicitors and agents in relation to each sale and that the Victor Lahoud interests were to provide all assistance, instructions and documents reasonably required to effect each sale. Paragraph 3 of Schedule 1 provided for the Joseph Lahoud interests to use their best endeavours to achieve the highest price available for each property and for Joseph Lahoud to set the reserve price for any auction sale. 11 Paragraph 8 of Schedule 1 provided that: In the event that the units cannot be sold and completed within six months then the [Victor Lahoud interests, ie jointly] shall take a transfer in specie of the units and pay all costs and disbursements and duties. 12 The Units were not sold within the six month period, thus triggering the obligation of the Joseph Lahoud interests to take a transfer in specie of the Units (and, implicitly, the obligation of Castle Constructions, the then registered proprietor, to transfer the Units). (In fact, as I understand it, little was done in relation to the sale of the Units between February and August 2001, presumably because a dispute arose shortly after the Terms of Settlement were signed which led to a challenge to the enforceability of the Terms of Settlement (a matter to which I refer later). Joseph Lahoud did, however, obtain a marketing proposal from a real estate agent (Mr Edward Mazzoni) on 13 February 2001 with a view to the sale of the Units and obtained advice as to the likely market value of the Units at that time.) 13 There may be an argument that the relevant obligation was not, on a proper construction of the Terms of Settlement, triggered until 7 August 2001, on the basis that the period of time "within six months" of 6 February 2001 would not expire until the conclusion of 6 August 2001 – see generally Gorst v Lowndes (1841) 11 Sim 434; 59 ER 940, Wilson v Nightingale (1846) 8 QB 1034; 115 ER 163, Robinson v Waddington (1849) 13 QB 753; 116 ER 1451, In re Figgis [1968] 2 WLR 1173, Strickland v Grieve (1996) NSW Conv R 55-762; (1995) 7 BPR 14-376, Proctor v Chahl [2008] NSWSC 1252. However, as the parties have agreed upon 6 August 2001 as being the relevant date, I have proceeded upon that basis. In any event, the use of 7 August rather than 6 August would have no relevance to any issue presently before me other than, perhaps, a very marginal effect upon the quantum of damages. 14 It is accepted by the parties, for the purposes of the present damages enquiry, that the transfer of the Units did not occur until 21 February 2007 when there was delivery to the Joseph Lahoud interests of the relevant title documents. (It had earlier been asserted by the Joseph Lahoud interests that in fact compliance did not occur until 27 February 2007, because of disputes as to the provision of vacant possession and delivery of keys. However, Senior Counsel for the Joseph Lahoud interests (Mr Epstein SC) in opening advised that for their part the Joseph Lahoud interests were content to treat 21 February 2007 as the relevant date of compliance (T 4) and said that, insofar as some of the Joseph Lahoud interests' submissions referred to a 27 February 2007 transfer date, this should be read as 21 February 2007.) Accordingly, 21 February 2007 is the agreed end date of the period of delay for the purposes of this damages enquiry. 15 It is the failure to transfer the Units in specie (not any breach of the antecedent obligations in relation to the contemplated sale of the Units prior to 6 August 2001), which is the subject of the current damages claim. The enquiry is limited to what damage, if any, the Joseph Lahoud interests have suffered as a result of the delay in the transfer to Joseph Lahoud of the Units from 6 August 2001 to 21 February 2007. Strictly speaking, the reason for the delay is irrelevant to the damages enquiry. However, as some of the events since 2001 bear upon the issues for determination, and by way of background, I have set out a summary of what transpired between 2001 and 2007. (ii) Payment re Cammeray "profit" 16 The second relevant aspect of the Terms of Settlement is that which relates to the audit claim. Paragraph 1 of the Terms of Settlement provided for Castle Constructions to pay to Joseph Lahoud, by bank cheque no later than 6.00 pm 6 February 2001, the sum of $570,000. That sum (which was duly paid on the date the Terms of Settlement were signed) represented a share out of the estimated profits of the Cammeray property development in which the brothers had been involved. 17 Victor Lahoud had indicated to Joseph Lahoud, shortly before the Terms of Settlement were agreed, that the net profits of the Cammeray development would be in the order of $1.5 million. However, on the morning the Terms of Settlement were signed, certain "figures" were provided to Joseph Lahoud which showed a lower net profit for the project. Joseph Lahoud did not accept that those figures (which form part or all of Annexure "A" to the Terms of Settlement) were accurate. His legal advisers told him that he could seek to have a provision included in the Terms of Settlement allowing for an audit. The Victor Lahoud interests acceded to the request for such a provision on the basis that there should be a right on both sides to elect to have an audit carried out. This led to the balance of paragraph 1 of the Terms of Settlement, in which provision was made for either party "to elect to have the figures audited". 18 Shortly after the Terms of Settlement were signed, Victor Lahoud raised the issue of an error in his profit calculations for the Cammeray project (errors in the calculation of the sum of $570,000 having been discovered by his accountants) (see letter dated 7 March 2001, p 144 revised audit tender bundle). There followed communications between the parties' lawyers (which I will consider in more detail later) in relation to the profit calculations, which led to Victor Lahoud's eventual exercise, or purported exercise (in October 2002), of the right to have an audit carried out of the kind contemplated by the Terms of Settlement. It is accepted that no such audit took place. (Although at one stage Victor Lahoud did assert that an audit had been carried out and demanded payment of a sum said to be owing as a result, ultimately, any suggestion that there had been an audit under the Terms of Settlement was rejected by both sides.) · Commencement of proceedings after Terms of Settlement 19 Paragraph 7 of the Terms of Settlement contained an agreement by the parties to enter into a deed "in accordance with this agreement", such deed to include the additional terms outlined in paragraph 9(a) and (b), namely releases and a clause requiring Joseph Lahoud to complete the necessary documents to transfer shares held by him in, and resign as a director of, the companies associated with Victor Lahoud (Castle Constructions and Solidare). 20 There was some delay in the finalisation of the terms of the proposed deed, initially due to the time taken by the parties seeking advice as to the tax implications or structuring of the settlement. (Palmer J noted, in his May 2005 judgment, that a great deal of the negotiations both on 5 and 6 February and thereafter were concerned with tax issues – Lahoud v Lahoud [2005] NSW 509 at [38].) 21 According to evidence which was before the Court of Appeal, preparation of a draft deed had already commenced before the Terms of Settlement were signed. There were further drafts, including one produced on the evening of 5 February 2001 to which reference was made by Hodgson JA in the Court of Appeal. 22 Insofar as I make reference to the existence of various draft deeds and to the fact that advice was sought as to the recitals/terms contained therein, I do so by way of background only as I do not consider them relevant to the tasks of construction with which I am faced in the audit proceedings. Neither Mr Epstein nor Mr Einfeld sought to identify any omission from the Deed of Settlement ultimately executed of a provision contained in an earlier draft which might negative an inference that the Deed of Settlement bears a meaning positively rejected by the deletion (see Codelfa Constructions Pty Limited v State Rail Authority of NSW (1982) 149 CLR 337 at 352-353 per Mason J, Esso Australia v Australian Petroleum Agents' & Distributors' Association [1999] 3 VR 642 at 647-648 per Hayne J and Zaccardi v Caunt [2008] NSWCA 202 at [35] per Campbell JA). 23 Mr Epstein stated that I was able (and ought) to look outside the four corners of the Deed of Settlement, even absent any ambiguity in its terms, and I accept that this is the case (Synergy Protection Agency Pty Ltd v North Sydney Leagues' Club Limited [2009] NSWCA 140 at [22] per Allsop P; Gardiner v Agricultural and Rural Finance Pty Ltd [2007] NSWCA 235 at [7]-[13] per Spigelman CJ). However, neither Counsel suggested that the negotiations themselves ought to be rendered admissible other than to the extent that they tend to establish the objective background facts which were known to the parties, to establish the subject matter of the contract or to evidence deletions or omissions of the kind mentioned above (see J J Spigelman, 'From Text to Context: Contemporary Contractual Interpretation' (2007) 81 Australian Law Journal 322 at 331-334; Philips Electronics Australia Ltd v Insight Oceania Pty Ltd [2009] NSWCA 124 at [46]; cf Donald Nicholls, 'My Kingdom for a Horse: The Meaning of Words' (2005) 121 Law Quarterly Review 577 and David McLauchlan, 'Contract Interpretation: What Is It About?' (2009) 31 Sydney Law Review 5). 24 By letter dated 12 February 2001, Tillyard & Callanan forwarded a draft deed to Windeyer Dibbs (acting for the Joseph Lahoud interests), noting that the deed had been agreed and "we will arrange exchange on 15 February". The Joseph Lahoud interests apparently signed the deed so forwarded to them and their lawyers advised that this had been done on 15 February 2001. However, Tillyard & Callanan on that date advised Windeyer Dibbs that "the amendments to the draft DA prepared by you are currently with our clients' tax advisers and we hope to finalise our position in the next day or so … ". 25 It appears that Victor Lahoud had sought advice from accountants (Castletons) in relation to the tax implications of the deed for both himself and Castle Constructions on or about 12 February 2001 (the same day on which his legal representatives had forwarded what they described as an "agreed" deed) (see letter dated 19 February 2001 from Castletons to Victor Lahoud, p 213 revised damages bundle). Advice was also sought by Tillyard & Callanan from another firm of accountants (A D Hills & Co Services Pty Limited) (letter 21 February 2001 p 218 revised damages tenders bundle). The upshot was that new draft recitals were prepared, which were not agreed by the Joseph Lahoud interests. 26 The Joseph Lahoud interests were given advice from Windeyer Dibbs and from accountants (Crispin & Jeffery) as to the deed (also apparently to ensure the transactions which had been agreed upon were structured in a tax effective way) (see eg letter dated 28 February 2001 from Windeyer Dibbs to Joseph Lahoud, p 223 revised damages tender bundle). 27 By letter dated 7 March 2001 (p 144 revised audit tender bundle), Tillyard & Callanan wrote to Windeyer Dibbs conveying their clients' complaints as to the delay in finalisation of the terms of the deed and advising that: If no response is received on terms acceptable to our client, which terms must acknowledge the spirit and intent of our respective clients' agreement, namely that payment of proceeds of sale of units to your client shall be deductible in the hands of our client, then our client will consider that the spirit and intent of the agreement between your client and our client will not have been achieved, and our client cannot proceed on that basis. 28 In late March 2001, Cowley Hearne took over the conduct of the matter from Windeyer Dibbs for the Joseph Lahoud interests and demanded execution of the deed which they said had been agreed by both parties (letter dated 26 March 2001). In response, by letter dated 28 March 2001, Tillyard & Callanan (somewhat inconsistently with what had been said in their 12 February letter, presumably written on their clients' instructions) advised that the deed annexed to their 12 February 2001 letter was not acceptable to their clients. 29 By letter dated 29 March 2001, Cowley Hearne's response was to assert that the parties were bound to execute and exchange the "agreed Deed of Agreement" and failing this their instructions were to enforce the Terms of Settlement and the said deed. 30 By letter dated 3 April 2001, Tillyard & Callanan repeated their assertion that the deed submitted on 12 February 2001 had not been agreed by Victor Lahoud. The Victor Lahoud interests then asserted (by letter dated 17 April 2001 from Tillyard & Callanan to Cowley Hearne, p 148 revised audit tender bundle) that the Terms of Settlement were conditional on the honouring of a private (or collateral) agreement between the two brothers (which agreement was in due course said to relate to possession of their late father's watch and the sharing of expenses in respect of the care of their handicapped brother, Riad). The Victor Lahoud interests contended that, by Joseph Lahoud's actions (there referring, it would seem, both to the delay in effecting exchange of the Deed and to Joseph Lahoud's denial of the alleged private agreement), Joseph Lahoud had evinced an intention to repudiate the "overall agreement". 31 The position of the Victor Lahoud interests, as communicated to the Joseph Lahoud interests in April 2001, was that either performance of the "entire overall agreement" should be effected or they would accept the "repudiation" by Joseph Lahoud of the agreement (by which it appears they were referring to the Terms of Settlement). 32 This correspondence produced no acceptance by the Joseph Lahoud interests of the alleged private agreement and, by letter dated 2 July 2001, Tillyard & Callanan wrote to Cowley Hearne, advising that they had concluded that Joseph Lahoud was repudiating the agreement reached on 5 and 6 February 2001 and that their client accepted that repudiation and considered "the agreement rescinded ab initio" (p 172 revised audit tender bundle). 33 The litigious fallout from the dispute over the alleged private agreement was traced by Campbell J (as his Honour then was) in his judgment handed down on 10 March 2006 (on indemnity costs applications made by the Joseph Lahoud interests in the damages proceedings – Lahoud v Lahoud [2006] NSWSC 126). As it assists in understanding the manner in which the claims were particularised before me, I summarise (in part with reference to some of the factual background outlined by Campbell J) the way in which the litigious saga unfolded as follows: · On 2 May 2001, the Joseph Lahoud interests filed a notice of motion in the 1999 Industrial Relations Commission proceedings (that is, in the proceedings which had already been dismissed on 6 February 2001) seeking a declaration that the Terms of Settlement were binding and orders in the nature of specific performance. (It is not clear to me whether in so doing they were seeking to compel execution of the deed said to have been agreed as at 12 February 2001, though nothing turns on this.) · On 5 July 2001, the Victor Lahoud interests filed a notice of motion in the 1999 Industrial Relations Commission proceedings seeking a declaration that any agreement reached on 5/6 February 2001 had been repudiated by the Joseph Lahoud interests and an order for repayment of the sum of $570,000. · In mid/late July 2001, the Joseph Lahoud interests commenced proceedings in this Court to extend caveats which had been lodged over the title to the Units. · On 5 November 2001, the Victor Lahoud interests commenced fresh proceedings in the Industrial Relations Commission seeking an order under s 106 of the Industrial Relations Act 1996 to declare void ab initio the Terms of Settlement. · On 22 November 2001, the Joseph Lahoud interests filed a notice of motion in the 2001 Industrial Relations Commission proceedings, alleging that the Commission had no jurisdiction and an estoppel arising from the Terms of Settlement in the 1999 proceedings. · On 21 February 2002, the Joseph Lahoud interests filed an amended summons in the Supreme Court proceedings, seeking, among other things, a declaration that the parties had settled their proceedings before the Industrial Relations Commission of New South Wales (by the Terms of Settlement) and an order that the Victor Lahoud interests specifically perform and carry into effect the Terms of Settlement, provide access keys and details of the Units and transfer the Units. · On 9 August 2002, the 2001 Industrial Relations Commission proceedings were permanently stayed by Glynn J (Lahoud v Lahoud [2002] NSWIRComm 182). The Victor Lahoud interests appealed from that decision and, in June 2003, a Full Bench of the Commission allowed that appeal (Lahoud v Lahoud [2003] NSWIRComm 179). · By early 2004, Federal Court proceedings had been commenced by the Victor Lahoud interests alleging misleading and deceptive conduct in relation to the entry into the Terms of Settlement. · In March 2004, there was argument before Nicholas J as to the question of transferring the Industrial Relations Commission proceedings to this Court. A Further Amended Summons was filed by the Joseph Lahoud interests in the Supreme Court proceedings, on 10 March 2004 seeking a further declaration that the transfers be freed and discharged from all encumbrances and, in the alternative, declarations that the Terms of Settlement did not express the true intention of the parties and were executed under a common mistake by reason of the failure of the Terms of Settlement to specify that the Units should be transferred to Joseph Lahoud or his nominee freed and discharged from all encumbrances. An order for rectification of the Terms of Settlement to that effect was sought. · In April 2004, Nicholas J ordered the transfer to this Court of the two notices of motion in the 1999 Industrial Relations Commission proceedings and of the 2001 Industrial Relations Commission proceedings. The Federal Court proceedings were by consent subsequently transferred as well, so that all matters were brought before this Court, and effectively subsumed, as I understand it, into the damages proceedings (although each of the 1999 and 2001 Industrial Relations Commission proceedings and the Federal Court proceedings, as transferred, were given separate matter numbers). The Statement of Claim of the Victor Lahoud interests in the Federal Court proceedings became the Cross-Claim in the damages proceedings. · Damages Proceedings 34 By mid 2004, therefore, there were before this Court proceedings (the damages proceedings) in which, on the one hand, the Joseph Lahoud interests were seeking specific performance (and rectification) of the agreement contained in the Terms of Settlement to transfer the Units (and that such transfer be free of all encumbrances) and, on the other hand, the Victor Lahoud interests were alleging that such agreement had been induced by a misrepresentation made by Joseph Lahoud and were seeking that the Terms of Settlement be declared void ab initio under s 106 of the Industrial Relations Act or otherwise set aside (as well as contending that the agreement constituted by the Terms of Settlement had been repudiated and was no longer on foot or, alternatively, that the Joseph Lahoud interests were estopped from enforcing the Terms of Settlement). 35 By an Amended Notice of Cross Claim filed on 12 October 2004, the Victor Lahoud interests further claimed (by reference to the matters alleged in paragraphs 12-14) the repayment of the sum of $570,000 paid to Joseph Lahoud on 6 February 2001. Paragraph 12 pleaded the audit provision in paragraph 1 of the Terms of Settlement and paragraph 13 pleaded that an audit (though not expressed to be pursuant to an election made under the Terms of Settlement) had been carried out by Castletons, accountants, which it was said had disclosed that the profit of the Cammeray development was less than the profit calculations. Paragraph 14 pleaded an entitlement to the difference between the sum of $570,000 and the lesser profit calculation. 36 By a subsequent Further Amended Notice of Cross Claim, a claim was also made against the Joseph Lahoud interests based on the alleged collateral contract between the brothers. 37 At a directions hearing on 14 February 2005, Palmer J expressed the view that if Victor Lahoud's version of the facts were to be correct he would be able to obtain the remedy he sought (under the alleged collateral agreement) without reliance on s 106 of the Industrial Relations Act. Shortly thereafter, on 9 March 2005 the Victor Lahoud interests advised that the s 106 claim was not pressed. (Nevertheless, I note that Campbell J was not prepared later to conclude that the s 106 claim had been hopeless, in circumstances where the Full Bench of the Industrial Relations Commission had overturned Glynn J's summary disposal of the claim; his Honour noting ([2006] NSWSC 126 at [40]) at that stage that the law concerning the extent of the jurisdiction of the Commission under s 106 was labile.) 38 The damages proceedings were heard by Palmer J in May 2005. 39 Before me, it was submitted by Mr Epstein SC that during the May 2005 hearing the Victor Lahoud interests had abandoned their claims based on the alleged unenforceability of the Terms of Settlement. This was denied by Senior Counsel for the Victor Lahoud interests (Mr Einfeld SC) and I was taken to the Further Amended Notice of Cross-Claim from which it is apparent that the relief still sought (at least on the pleadings) included a declaration that the Terms of Settlement be set aside. 40 What was expressly noted as having been abandoned at the start of the hearing before Palmer J was the claim for repayment of the $570,000 by reference to the audit pleaded in paragraphs 12-14 (those paragraphs having been deleted). The prayer for relief so abandoned sought a declaration as to the obligation to repay the difference if the audited profit was less than $570,000. A claim for return of the $570,000 was said still to be sought on a restitutionary basis or as relief under the Trade Practices Act 1974. 41 Nevertheless, it would appear from the transcript of argument on 17 May 2005 that the position of the Victor Lahoud interests, expressed through Senior Counsel then appearing for them (Mr Weber SC), was that they did not seek to deny the Terms of Settlement but, rather, were seeking to enforce the collateral agreement. Victor Lahoud was cross-examined before Palmer J on this position and accepted (in cross-examination on 20 May 2005) that his position from 2 July 2001 onwards was that all aspects of what had been agreed on 5 and 6 February were no longer applicable and that this was his case up to the hearing: Victor Lahoud: My position is, was that I wanted the terms of agreement enforced in totality, or not enforced. That was my position. (T 133.46) 42 In an exchange with Mr Weber during opening submissions, Palmer J observed, in effect, that insofar as Victor Lahoud was content to observe the terms of the written agreement but really wanted the private agreement performed, the nub of the case was for specific performance of the alleged collateral agreement. 43 Mr Weber's response accorded with Victor Lahoud's explanation in cross-examination of his position, namely that (absent carriage of the alleged private agreement into effect) the Victor Lahoud interests opposed enforcement of the Terms of Settlement and said they should be set aside. · Determination of substantive issues in damages proceedings 44 Ultimately, Palmer J found against the Victor Lahoud interests on the alleged collateral agreement. His Honour did not prefer the credit of Victor Lahoud over the credit of Joseph Lahoud (and noted that he was not satisfied that the evidence of Victor Lahoud's lawyers unequivocally corroborated Victor Lahoud's evidence) ([2005] NSWSC 509 at [127]-[128]). 45 While it was later put to Campbell J (on the indemnity costs application) that the allegations by Victor Lahoud were baseless and known to be so, Campbell J did not accept that, at the time Victor Lahoud had made the allegations as to a private agreement, he must have realised they were false. His Honour noted that on Palmer J's findings the case was decided having regard to the onus of proof but that his Honour had not found that the claim was "a complete concoction" on Victor Lahoud's part ([2006] NSWSC 126 at [16]-[17]). 46 Palmer J held that the Joseph Lahoud interests were entitled to specific performance of the agreement recorded in the Terms of Settlement. However, orders were not finally made by his Honour until October 2005. This is because on 17 June 2005, when the matter came before his Honour for the making of orders to reflect his reasons for judgment, there was an argument over two aspects of the orders – first, as to whether the parties should be ordered to execute a deed (in accordance with paragraph 7 of the Terms of Settlement) and, secondly, as to the construction of paragraph 8 of Schedule 1 of the Terms of Settlement (namely as to whether the order should be for the transfer in specie of the Units subject to, or free of, encumbrances over those properties). 47 As to the first of the contentious issues which had arisen in relation to the orders, on 17 June 2005, Mr Epstein submitted that an order for execution of a deed would be "quite illusory" and later, in similar vein, that it would be "unnecessary and illusory". Palmer J, during the course of submissions, observed that all that the court could require specific performance of in this regard would be simply to incorporate "perhaps in tidier form" the very words of the Terms of Settlement in a deed, his Honour accepting that: "It is, I think, sadly apparent that the principal parties in this litigation are incapable of any sort of resolution of their difficulties. Everything will have to be decided by the court". The matter was adjourned at that stage for later argument as to the construction of paragraph 8 of Schedule 1 (and as to other issues relating to a requested stay of any orders and the question of costs). 48 On 22 July 2005 the matter came back before Palmer J. At that stage the question of vacant possession of the Units was raised (seemingly, for the first time, though this had been noted in the Points of Claim filed in June 2005). Mr Epstein noted that although there was no registered lease on the title, there were indications in the material from the Victor Lahoud interests of a tenancy said to be current with respect to the property (there referring, it would seem, to Unit 31). Mr Epstein submitted that the Victor Lahoud interests ought to be required to provide the plaintiffs with vacant possession, saying: "In the absence of any evidence to the existence of such a tenancy, the [Joseph Lahoud interests] press for their ordinary entitlement to vacant possession on completion". 49 At that stage, evidence was apparently produced of a lease of Unit 31 which, according to Mr Gyles of Counsel then appearing for Victor Lahoud, was to terminate early the following year (ie early 2006). It was noted that Unit 4 was occupied by the brothers' handicapped brother, Riad, and was not subject to any lease, so Mr Gyles indicated there was "no issue so far as vacant possession of that if that's what Joseph wants". 50 In relation to the question of an order for the execution of a deed in accordance with paragraph 7 of the Terms of Settlement, Mr Epstein again argued that such an order would be a purposeless procedure. Palmer J evidently did not accept this submission, nor was it accepted by Counsel for the Victor Lahoud interests that the Deed would be purposeless. Indeed, Mr Gyles pointed, so far as the utility of a deed was concerned, to the fact that it was to cover additional items, saying that "to the extent that matters obviously enough the acquisition of those shares or the transfer of those shares is something that is of significance." 51 Palmer J said, during argument (T 277), "At first blush, at least it seems to me, that if one is to have specific performance of a contract, then one is to have specific performance of the whole of the contact except insofar as specific performance is impossible. It might be pointless or of little point but if performance is possible then one cannot, as it were, order specific performance of parts of a contract which are considered desirable but not parts which one considers relatively undesirable". 52 His Honour noted that a requirement that the parties enter into a deed in accordance with this agreement was not impossible of performance and neither did it require further agreement between the parties: If they are able to agree upon something or other to be inserted additionally that's fine that is a matter of new agreement. If they are not able to agree, specific performance of that obligation seems to me simply requires there be cast into the form of a deed simply the provisions of paragraph 2 and 3 and whatever. In other words, if they are not able to agree on word changes, even so much as the variation of a comma or any punctuation marks, then the very words of the document are incorporated in the deed and that's it. 53 Mr Epstein referred his Honour to the evidence that the parties had previously tried but failed to agree upon the terms of such a deed and had become embroiled in a dispute as to whether Victor Lahoud was bound to execute a deed in the form which his solicitor had approved, but Palmer J observed that that was because they were trying to add into the deed additional matters. 54 Palmer J (T 281) (albeit in the context of the example which had been put that there might be a dispute if Joseph Lahoud refused to hand over the shares) said, somewhat presciently: "If that arises, that dispute will be heard by another judge thank goodness in proceedings for specific performance of the deed". (My emphasis) 55 In his reasons for judgment published on 13 October 2005 (Lahoud v Lahoud (No 2) [2005] NSWSC 1019), Palmer J noted (at [20]-[21]) that: If Joseph seeks specific performance of the contract constituted by the Terms of Settlement, the whole of the contract must be performed, including clause 7. I accept, as Mr Epstein submits, that it is highly probable that the parties will not be able to agree about any terms to be included in the deed. However, no further agreement is needed. Crude and inelegant though it might be as a piece of drafting, the deed required by clause 7 need contain no more or less than the provisions of the Terms of Settlement, excluding Schedule 2 which makes provision as to how any dispute about the terms of the deed is to be resolved. (My emphasis) 56 His Honour also noted that, ultimately, Mr Epstein had indicated that he would not resist an order for specific performance of that paragraph of the Terms of Settlement. · Deed of Settlement 57 As part of the relief granted, his Honour declared that paragraph 7 of the Terms of Settlement (for execution of a deed) should be specifically performed and carried into execution; and ordered that the Victor Lahoud interests execute a deed to be tendered by the Joseph Lahoud interests containing the Terms of Settlement other than Schedule 2 to those terms. That order was stayed pending the unsuccessful appeal by the Victor Lahoud interests against his Honour's decision. 58 Following dismissal of the appeal on 30 June 2006, a draft deed was tendered on 6 July 2006 by the solicitors who were by then acting for the Joseph Lahoud interests (baron & associates) to the solicitors who were by then acting for the Victor Lahoud interests (Aitken McLachlan Thorpe). 59 On 2 August 2006, Aitken McLachlan Thorpe forwarded an amended Deed of Settlement the amendments to the first draft being said, "to reflect certain obligations which as at 6 February 2001 were to take place but have since taken place". A deed in that amended form (the Joseph Lahoud interests apparently accepting the proposed amendments) was executed on 5 February 2007 after some debate (to which I refer later) as to the timeframe within which certain obligations were to be performed (the Victor Lahoud interests having apparently taken a position that the six month sale process would be reactivated under the deed). 60 As executed, clause 2 of the Deed of Settlement (which broadly incorporated the matters contained in paragraph 1 of the Terms of Settlement but, significantly, with a change in tense in the opening sentence) provided, relevantly: … Either party may elect to have the figures audited by an accountant to be agreed or, in default of agreement, as nominated by the President of Institute of Chartered Accountants. If on audit, the audited profit exceeds the said profit calculation, [Joseph Lahoud] is to be paid one half of the difference by [the Victor Lahoud parties]. If on audit, the audited profit is less than the said profit calculation, [Joseph Lahoud] will pay the [Victor Lahoud parties] one half of the difference. 61 The opening sentence of clause 2 (not reproduced above) was one which operated to acknowledge receipt of the sum of $570,000 rather than being framed (as was its counterpart in the Terms of Settlement) in prospective terms. Further, in its amended form the clause referred to a past belief, held in February 2001 (ie not making any assertion as to the state of belief in February 2007) as to the accuracy of the figures on which the $570,000 sum was calculated. 62 Almost immediately after execution of the Deed of Settlement, the Victor Lahoud interests, by letter dated 6 February 2007, notified the Joseph Lahoud interests of their election to have an audit conducted pursuant to clause 2 of the Deed of Settlement. 63 The Joseph Lahoud interests responded by denying, in effect, that there was, as at 6 February 2007, any subsisting entitlement on the part of the Victor Lahoud interests to an audit. It was asserted by baron & associates that the claim in respect of an audit had been abandoned in the damages proceedings (presumably by reference to the deletion of paragraphs 12-14 of the Amended Notice of Cross Claim and the corresponding prayer for relief). 64 The Joseph Lahoud interests in the audit proceedings before me maintain that the right to elect for an audit under paragraph 1 of the Terms of Settlement had expired by 5 February 2007 and that no new right to an audit was conferred by the execution of the Deed of Settlement. Clause 2 of the Deed is said to be, in effect, otiose. Issues 65 The issues to be determined, therefore, are as follows: 1. In the damages proceedings , have the Joseph Lahoud interests established that they suffered any compensable loss as a result of the delay in transfer to them of Units 4 and 31; and, if so, what is the quantum of that loss? 2. In the audit proceedings , was there a right on the part of the Victor Lahoud interests as at 6 February 2007 to elect (as they have done) to have an audit as referred to in paragraph 1 of the Terms of Settlement and clause 2 of the Deed of Settlement (or had any such entitlement to an audit expired by then) and, if so, what is the scope of any such audit? (The parties during the course of the hearing agreed that the determination of the audit claim would rest on the answers given by the Court to three specific questions, which I set out later in these reasons.) 1. Damages Particularisation of damages claims 66 The Joseph Lahoud interests were ordered to particularise the damages claimed by them. For that purpose, four successive documents (described as "Particulars of Damage") were filed by the Joseph Lahoud interests. Mr Epstein contends that these are not pleadings and should not be read as such. However, they represent the only formal articulation of the basis on which the Joseph Lahoud interests claim that they have suffered damage by reason of the delay in transfer to them of the Units and should in my view be read with some particularity. The current version is to be found in the Second Further Amended Particulars of Damage. There, the claim for damages is principally propounded as a loss of rent claim (although various alternative damages claims were also particularised). Although the Joseph Lahoud interests did not at the hearing press all of these alternative claims, it is relevant to note what they were in light of the submissions made by Mr Einfeld as to the absence of proof of any actual loss. (i) Loss of rent 67 The Joseph Lahoud interests' principal claim (still maintained) is that they lost the net rental income (actual and, for the time during which there was no actual income, potential market rental income) from the Units for the period 6 August 2001 until 21 February 2007. The Joseph Lahoud interests further claim that interest is payable on the loss of rental on a compounding interest basis or, alternatively, on a simple interest basis. 68 Unit 31 was leased for most of the period to Mitsui (Australia) Pty Limited. Copies of the successive leases were in evidence before me. Unit 4 was leased for only a small part of the period, it being occupied for most of the time by the Lahouds' handicapped brother. The primary basis for relief is said to be damages calculated by reference to actual rentals for Unit 31 and market rentals for Unit 4. (It was submitted in opening by Mr Epstein that the Victor Lahoud interests cannot rely on the fact that (by leasing one or both Units) they had disabled themselves from providing vacant possession as at August 2001 in order to argue that the actual rental for Unit 31 would not have continued (T 8).) A "presumption of continuance" of receipt of rents was urged by Mr Epstein (T 300). 69 Valuation evidence was relied upon in relation to the rental loss claimed for each of the Units on the assumption either that the unit was fully leased for the period (being the primary claim) or that it was leased over the period but with a discount assuming "normal vacancy". 70 In the Second Further Amended Particulars of Damages the claimed damage is articulated thus: "they lost the net rental income from those properties [the Units] and the interest on that income". 71 In the Principal Contentions of Fact and Law dated 3 April 2009, served on behalf of the Joseph Lahoud interests, the loss of rent claim is put on the basis that the Joseph Lahoud interests (having, in effect, paid the purchase price for the Units on 6 February 2001 when they agreed to the dismissal of their Industrial Relations Commission proceedings) "were wrongfully deprived of the benefit of their bargain, relevantly comprising the income stream available from the Northbridge properties, throughout the period 6 August 2001 to 27 [21] February 2007". (My emphasis) (ii) Loss of capital value 72 The first alternative damages claim (paragraph 12 of the Second Further Amended Particulars of Damage) (not pressed before me) was for a loss of $87,000, being a loss of capital value of the Units. This was put on the basis that, had the Victor Lahoud interests not defaulted in their obligations under the Terms of Settlement, and had sales of the Units been effected in accordance with the provisions of the Terms of Settlement, it was likely that the net proceeds of sale would have come into the hands of the Joseph Lahoud interests by no later than 30 June 2001 in an amount of $1,382,000 (corresponding to a gross sale price of $800,000 for Unit 31 and a gross sale price of $600,000 for Unit 4) less certain sales expenses. It was said that the market value of the two properties by the time they were transferred was no greater than $1.295 million, being $710,000 for Unit 31 and $585,000 for Unit 4. Hence, the loss of capital value was put in the amended particulars at $87,000. 73 Insofar as this becomes relevant to the interest damages claims, there is a dispute as to whether there was any such loss of capital value. On the values propounded by the Victor Lahoud interests' expert, the Units in fact increased in value by just under $400,000; on the Joseph Lahoud interests' experts' figures by a lesser sum (about $150,000). Joseph Lahoud conceded in cross-examination that he knew, at the time the claim for loss was presented, that the value attributed to the Units (in paragraph 12 of the Second Further Amended Particulars of Damages) exceeded the value which had been placed on them by his own valuer (T 112) and that even on his own case the value of the Units had increased between 2001 and 2007. (iii) Loss of capital value in alternative (Castlecrag) property 74 The second alternative claim (paragraph 13 of the Second Further Amended Particulars of Damage) (not pressed at the hearing) was a claim for loss of use of the said sale proceeds of $1.382 million over the period from 1 July 2001 to the date of transfer. In particularising the loss so claimed, it was said that it is likely that the Joseph Lahoud interests would have invested those funds in the purchase of a particular property in Castlecrag for a price of $1.3 million and that the value of that property by 27 [21] February 2007 had appreciated so as to have had a market value as at that date of at least $2 million. 75 Paragraph 13 had earlier also encompassed a claim for an additional loss referable to the alleged raising of investment funds through a mortgage over the Castlecrag property once acquired, and investing those funds with a specified rate of return. This additional component of the second alternative claim was deleted before the matter came before me. (iv) Alternative loss claim 76 Another alternative claim had been set out in paragraph 14, but this was abandoned by the time the Second Further Particulars of Damages document was filed. Paragraph 14 had pleaded in the alternative to 13, that had the purchase of the Castlecrag, or a similar, property not come about, then the funds available in or about July 2001, ($1.382 million) would have been invested in the acquisition of a property development site in North Sydney in July 2003 (and prior thereto in an AMP or similar investment product) producing a specified rate of return. There was no evidence before me as to any loss on this basis. (v) Loss of value from investment of sale proceeds 77 Paragraph 15 of the Second Further Amended Particulars of Damages particularised a further alternative claim, based on the assumption that the Joseph Lahoud interests would have received the said sale proceeds of $1.38 million and invested them in blue chip AMP investments. Again, this was not pressed. Claims pressed at hearing 78 At the hearing, Mr Epstein advised the Court that the claims for losses as particularised in paragraphs 13 and 15 were not pressed and nor was the claim for the capital value loss set out in paragraph 12 (though he noted that the Joseph Lahoud interests did maintain a claim for interest under s 100 of the Civil Procedure Act 2005 for the damages calculated by reference to the lost rental income; the precise nature of which claim is considered later in these reasons). 79 Those alternative claims were not pressed on the basis that the Victor Lahoud interests had (during opening submissions) withdrawn a scenario (referred to by Mr Epstein as "the so-called sale scenario", in which Mr Epstein suggested the parties had been "ensnared" (T 11)) to the effect that the damages which flowed from the obligation to transfer the Units should be reduced having regard to the failure to sell the Units prior to 6 August 2001. 80 Mr Einfeld indeed confirmed at the commencement of the hearing before me that the Victor Lahoud interests were not approaching the damages claim on the basis of an hypothesis that the units would have been sold prior to August 2001 (cf paragraph 11(a)(i) of the Victor Lahoud interests' Statement of Issues and Contentions, which seemed to say just that), though contending that 11(a)(i) of the Statement of Issues and Contentions was a factually accurate statement (T 55). 81 Suffice it to say that the result of the various concessions made at the outset of the hearing of the damages enquiry was that the Victor Lahoud interests do not now suggest that any regard should be had to what the position would have been if the Units had been sold prior to August 2001 and the Joseph Lahoud interests particularise their claim to damages solely on the loss of rental basis (plus a claim for interest under s 100 of the Act). (Joseph Lahoud was, however, cross-examined on the evidence he had filed in support of the so-called Castlecrag property alternative scenario to the effect that, had it been relevant, I would have concluded that the failure to sell the Units prior to 6 August 2001 was not likely to have been a matter which caused the inability of Joseph Lahoud and his then partner to acquire the Castlecrag property.) 82 Joseph Lahoud gave evidence in support of his claim for damages. (No affidavit evidence of Victor Lahoud was relied upon in either of the proceedings.) Expert evidence was adduced on behalf of both parties as to the market value of each of the Units, both in 2001 and in February 2007. Other valuation evidence (at pp 174, 175, 177-179, 181-182 of the revised damages tender bundle) (marked, at Mr Epstein's request, as MFI 1) obtained for mortgage and stamp duty purposes was sought to be tendered by Mr Epstein on the basis that the court would thereby be "better equipped" to evaluate the evidence of the real estate experts called by the respective parties. None of that material was put to Mr Juniper in cross-examination nor was it referred to in Mr Hubbard's report. I rejected that evidence (not being compliant either with the Expert Witness Code required under the Rules or with the Makita v Sprowles (2001) 52 NSWLR 705 principles) for the reasons set out in my ex tempore judgment on 21 April 2009, adopting the reasoning of Barrett J in Tim Barr v Narui Gold Coast [2009] NSWSC 49 (see also McDougall J in Investmentsource v Knox Street Apartments [2007] NSWSC 1128)). 83 In respect of Unit 4, the valuer called by the Victor Lahoud interests, Mr Juniper, valued it at $420,000 as at March 2001 and $590,000 as at February 2007, compared with values of $525,000 (July 2001) and $600,000 (February 2007) as assessed by Mr Hubbard, the valuer called for the Joseph Lahoud interests. In respect of Unit 31, the two valuers assessed its value at the said times as follows: Mr Juniper - $715,000/$942,000; Mr Hubbard - $725,000/$800,000. On either of the expert valuer's valuations the "reserve" prices which Joseph Lahoud deposed he had in mind for a sale prior to August 2001 (totalling $1.4 million) were above market, thus putting the $87,000 loss of capital value claim (had it been maintained) on very shaky ground. 84 There was evidence that the value of the Units had been recorded in the tax return of the Joseph Lahoud Family Trust for the year ended June 2001 (and I understand this was also reflected in Joseph Lahoud's own financial records at the relevant time(s)) at $1.1 million in aggregate (which broadly accords with Mr Juniper's assessment of market value as at February 2001). Joseph Lahoud accepted that he had adopted $1.1 million as the value of the Units in those books and records. 85 Although each of the valuers was cross-examined at some length on their valuations, it was ultimately submitted by Mr Epstein that any enquiry into the fluctuating capital values of the Units was beside the point, on the basis that even on the valuation evidence most favourable to the Victor Lahoud interests there would still be a substantial net loss if interest were to be taken into account (T 303). I consider this submission in due course. Position of the Victor Lahoud interests 86 There is no dispute that, as at 6 August 2001, the Units were each tenanted and thus that had the Units been transferred in specie to the Joseph Lahoud interests at that date they would have taken subject to the leases. The primary basis of the defence by the Victor Lahoud interests to the loss of rent damages claim was that the Joseph Lahoud interests had not established that the Units would have been retained and rented out over the relevant period (in preference, say, to the Units being sold and the funds utilised for other purposes, or to one or both of the Units being retained but not rented out). 87 Although the Victor Lahoud interests had also contended that the lost rental claimed was overstated, during the course of the hearing the parties reached agreement as to the net rental figures to be adopted for each of the Units if I were to find for the Joseph Lahoud interests on their loss of market (ie not actual) rental claim. Those compromise figures are set out in Exhibit K and total $104,675.01 for Unit 4 and $171,719.00 for Unit 31. 88 Further in answer to the Second Further Amended Particulars of Damages, the Victor Lahoud interests claim that no loss or damage was suffered, by reason of the fact that any loss occasioned by failure to perform obligations under the Terms of Settlement was suffered not by Joseph Lahoud but by the Joseph Lahoud Family Trust of which Joseph Lahoud is the trustee and that, as was conceded by Joseph Lahoud (T 71), no loss or damage was suffered by Joseph Lahoud & Associates by reason of the failure to transfer the Units to Joseph personally nor is any of the loss asserted in the particulars of damage referable to it. I consider this defence later. Relevant legal principles 89 The authority which was said by Mr Epstein to be most closely on point, and on which he placed much reliance, is Wenham v Ella (1972) 127 CLR 454. There the purchaser had brought a claim for damages in lieu of specific performance following the failure of the vendors to deliver a 6/20ths share, as tenant in common, of real property which was described by the trial judge as an "investment property producing income". The trial judge, apparently having evidence before him that the property was producing "dividends" of $192 per month, said: On the evidence I am satisfied that if the plaintiff had received valid transfer of this property he would have continued to receive … dividends. Had he sold the property he would have been able to use the proceeds of sale but there is nothing in the evidence to lead me to find that he would have received any less return from the money thereby received . [1971] QWN 31 at pp 76-77. (My emphasis) 90 The parties did not cavil with the general proposition that the proper measure of damages in contract is that enunciated in Robinson v Harman (1848) 1 Ex 850 at 855; 154 ER 363 at 365 that: Where a party sustained a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation with respect to damages, as if the contract has been performed. 91 The dispute between them was, rather, what the Joseph Lahoud interests must prove in order to satisfy the onus on them to establish loss sustained as a result of the delayed transfer to them of the Units. 92 On one level, there is no difficulty in answering the question as to what would have been the position had the Victor Lahoud interests performed their obligation to transfer the units in specie in August 2001: the Joseph Lahoud interests would have obtained the freehold reversion in the Units and would have held the title subject to the leases which were then on foot (and with an entitlement to require the incumbent tenants to attorn to them for the rent). The Joseph Lahoud interests would then have had the opportunity (as would any registered proprietor of the Units) in due course (and, depending on whether they sold them at once, from time to time) to decide whether to continue to rent out one or both of the Units (whether to the incumbent tenant(s) or to other potential tenant(s)), or to sell one or both of the Units, or for Joseph Lahoud to live in one (as he ultimately did in the case of Unit 4) and sell or rent the other, (or even, as Mr Epstein says, to give one or both away). 93 In passing, I note that paragraph 7 of Schedule 1 to the Terms of Settlement provided: 7. The Applicants understand and accept that the sale of the units referred to in Clause 2 of the Terms of Settlement shall be subject to any existing tenancy and leasing rights unless same can be terminated prior to completion in accordance with the Residential Tenancies Act. 94 Therefore, the Terms of Settlement themselves contemplated that the Units might (if sold during the six month period allowed for such a sale to be completed) be tenanted at the time of sale. There is no similar acknowledgement in relation to a transfer of the Units under paragraph 8 of Schedule 1 to the Terms of Settlement and, indeed, the question whether there was an obligation on the part of the Victor Lahoud interests to transfer the Units with vacant possession at one stage became an issue, as will be seen later. 95 What the above does not address is what is the pecuniary loss (if any) which actually flowed from the delay in transfer of the Units. 96 Mr Epstein submitted that the ordinary measure of damages referable to a failure to transfer an income-producing asset is the income produced from that asset. In effect, his argument was that, this being the "normal" measure of damages, it is sufficient to show that the Units were (or, perhaps, were of their nature capable of being) income-producing properties in order to sustain a claim for loss of rental and that there is no onus on the Joseph Lahoud interests (or on any plaintiff in their position) to establish (nor should the court look to) what they (or that particular plaintiff) would, or would be likely to, have done had the incoming-producing property (in this case, the Units) been transferred. 97 Mr Epstein pointed out that in none of the judgments in Wenham was there any suggestion that Mr Ella had proved, or was required to prove, that his intended or probable course of action (had the land actually been transferred to him) was to retain that land and to continue to enjoy the income stream available from it. (As I noted during argument, there was, however, a suggestion in the trial judge's judgment that the outcome might have been different had there been evidence to suggest that a lesser return would have been received by the plaintiff had the property been sold. Therefore, the alternative uses to which the property might have been put seem, at least to some extent, to have been something which the trial judge considered could have been relevant in determining the question of damages.) 98 Mr Epstein submitted that speculation about what a plaintiff might have done with the property to which he or she was contractually entitled was only speculation in the absence of some demonstration that the plaintiff would have used the property in a less remunerative fashion than in fact the property was used by the guilty party (T 8); in effect, as I understand his submissions, thus suggesting that the onus is cast on the guilty party to show that the plaintiff would not have used the property in such a way as to produce the "normal" damages. 99 It was further submitted by Mr Epstein that the breach by the Victor Lahoud interests was a continuing breach and that it would be unrealistic and artificial to ask what the Joseph Lahoud interests would have done on or at each point in time after 6 August 2001 had they obtained title to the two properties (particularly given that it was said to be manifest that there was not any prospect of this happening unless a court ruled in their favour in the litigation which was by then already on foot in that regard). 100 Reliance was placed by Mr Epstein on the observation by Walsh J (at 466) in Wenham that there was: Error … in treating rules which constitute useful guidance in the ascertainment of damages as rigid rules of universal application – instead of treating them as prima facie rules which may be displaced or modified whenever it is necessary to do so in order to achieve a result which provides reasonable compensation for breach of contract (at 466). and the acknowledgement by Toohey J in Commonwealth of Australia v Amann Aviation Pty Limited (1991) 174 CLR 64 at 138; that the assessment of damages does sometimes, of necessity, involve what is "guess work rather than estimation", quoting Menzies J in Jones v Schiffmann (1971) 124 CLR 303 at 308. The explanation for there being no hard and fast rules, according to Deane J in Amann, is founded on the fact that assessment of common law damages for breach of contract was traditionally seen as a matter for the good sense of the jury (at 119-120). 101 Accordingly, it was submitted by Mr Epstein that in assessing damages in this kind of case no regard is to be had to the personal proclivities of the particular plaintiff, as opposed to those of the reasonable man, citing Mason CJ and Dawson J in Amann said (at 80): The award of damages for breach of contract protects a plaintiff's expectation of receiving the defendant's performance. That expectation arises out of or is created by the contract. Hence, damages for breach of contract are often described as "expectation damages". The onus of proving damages sustained lies on a plaintiff and the amount of damages awarded will be commensurate with the plaintiff's expectation, objectively determined, rather than subjectively ascertained . That is to say, a plaintiff must prove, on the balance of probabilities, that his or her expectation of a certain outcome, as a result of performance of the contract, had a likelihood of attainment rather than being mere expectation. (My emphasis) 102 Pausing there, at the very least it would seem that what was contemplated by their Honours was that the plaintiff would adduce evidence from which a court could objectively determine that, arising out of or created by the contract, there was an expectation on the part of the plaintiff of a certain outcome as a result of performance of the contract (that being an expectation with a likelihood of attainment). Where there might potentially be a number of expected or possible outcomes (sale/rent/personal use or perhaps even charitable donation, as suggested by Mr Epstein), in the absence of an express statement of intent in the contract itself one would need to look elsewhere in order objectively to determine the plaintiff's expectation. 103 While the amount of damages is to be commensurate with the plaintiff's expectation, as objectively determined, regard must still be had to the position of the particular plaintiff, since it is his or her "expectation" (and not that of a reasonable person in his or her position), that is being protected by the award of damages. Put another way, if the particular plaintiff in question could not have derived or retained income from the asset in question (for whatever reason) then the mere fact that the asset was an income producing one cannot mean that there was a loss suffered by the plaintiff by reference to the income another plaintiff might have derived over the period. 104 As I discuss later in these reasons, it is important to note that the Joseph Lahoud interests never asserted an argument based upon loss of use of property per se. The loss of rent scenario was only ever put on the basis that the Joseph Lahoud interests had lost the rent (or the opportunity to receive rent) which, as a natural and foreseeable consequence, would be presumed to have flowed to them (T 301.18). The claim was not put on the basis that the Joseph Lahoud interests should be compensated for the loss of the use of the Units in and of itself and abstracted from the loss of any benefit flowing (whether presumably or actually) from that use. A loss of use per se has been recognised and compensated in relation to certain types of claim. While, in those cases, the loss of use is sometimes valued by reference to market rental (or interest upon capital value), the loss which is there being compensated is the loss of use and those measures are invoked simply as a means of valuing the use. For the reasons set out later in this judgment, I do not think it appropriate to determine whether such damages would have been available in the present case. 105 In support of his contention that it is not appropriate to enquire as to (nor necessary to adduce evidence in relation to) what the particular plaintiff would have done in the circumstances, Mr Epstein placed heavy reliance upon Hadley v Baxendale (1854) 9 Ex 341; 156 ER 145: It is an anterior, more fundamental point what Joseph Lahoud would have done. What this particular gentleman would have done is not a proper subject for inquiry in a case of this type. Absent some claim for special damages in the second limb Hadley v Baxendale (T 300.40 and see para [112] below). 106 The principal difficulty which I have with Mr Epstein's argument is that it seems to be predicated on the rule in Hadley v Baxendale governing not simply remoteness but also causation of damage (and/or, if his clients' damages claims were to be formulated as a claim for the loss of a chance, the assessment of the value of the chance so lost). The fact that loss of the income stream may be the natural and foreseeable loss from failure to transfer an income-generating asset (as submitted by Mr Epstein) does not address the question of causation or proof of loss. 107 The rule in Hadley v Baxendale allows recovery of damages "such as may fairly and reasonably be considered either arising naturally, ie, according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it". It does not, however, suggest that damages which, as a matter of fact, have not arisen or have not been caused by the breach are recoverable simply because they were reasonably foreseeable or were damages of a kind which might naturally arise from the breach. 108 Many different types of damages might be fairly and reasonably considered as arising naturally from the breach of a particular contract. However, if, they do not in fact arise by reason of the breach, they are not recoverable simply because they might reasonably have been foreseen. This may be more readily apparent in cases where the damages claimed are other than the loss of future profits/opportunity, since claims for loss of opportunity necessarily involve a degree of hypothesis. 109 So, for example, where one party breaches a contractual duty to take reasonable care when engaging in a potentially harmful activity, the suffering of that harm is a consequence arising naturally from the breach. However, if the breach of duty does not in fact cause any such harm, no damages for breach of contract with reference to such harm would be recoverable. Similarly, where the parties have entered into what transpires to be a loss-making contract, there is no recovery for profits which might have been expected to be earned at the outset. 110 There seems to me to be no principled reason why Hadley v Baxendale should have a more extensive operation in relation to loss of opportunity cases than it does in the case of other breach of contract claims. Indeed, to operate otherwise would seem liable to produce results contrary to the "ruling principle" enunciated in Robinson v Harman. 111 The distinction between remoteness and causation was clearly recognised (in the context of loss of opportunity/future benefit cases) in the judgment of McHugh J in Amann (at 174): In the Full Court, it appears to have been taken for granted that the breach caused the loss of the chance that the contract would be renewed. At all events, the members of the Full Court did not discuss the matter. They appear to have acted on the assumption that, if the parties contemplated that the contract would probably be renewed, Amann was entitled to have its damages assessed on the basis that it had lost the chance of earning profits under a renewal of the contract. But the contemplation of the parties goes to the issue of remoteness, not causation. Foreseeability is not relevant to the issue of causation in a civil case ( Chapman v Hearse (1961) 106 CLR 112 at p 122). The assumption made in the Full Court reflects the rule concerning remoteness of damage which is to be found in such cases as Hadley v Baxendale (1854) 9 Ex 341 [156 ER 145]. That rule is an exclusionary rule. The contemplation of the parties marks the boundary of the liability for loss or damage caused by a breach of contract. It is a limit on, and not a ground of, liability. Consequently, the finding of Davies J that future "extensions of the contract were not only in the contemplation of both parties but probable" is not decisive of the issue of causation. The probability of renewal could have no relevance to that issue unless it also is found that the Commonwealth's breach of contract destroyed that probability. Under the issue of causation, the question is not whether the contract was likely to be renewed or whether the parties contemplated its renewal but whether any failure to renew it would be the result of the defendant's breach of contract. (My emphasis) 112 Mr Epstein suggested that breach of contract cases are distinguishable from other types of claims in this regard: In other classes of the case, the plaintiffs are, to a certain extent, required to prove their particular susceptibilities... While, in the typical Trade Practices Act or negligent misstatement case, witnesses obviously come along and say if I hadn't been told this I would have done that, and that evidence in general terms is admissible, it's by no means the only means of proof…That's a very different circumstance than considering the quantification of damages for breach of contract where the ruling in Hadley v Baxendale requires consideration of the party's factual matrix at the time of formation of the contract, and what would have then been treated as the natural and foreseeable consequences of breach, principally in accordance with the first rule. (T 298.7…27…50) 113 There seems, however, to be no distinction between the principles relating to assessment of loss of opportunity in cases dealing with tort, breach of contract, or breach of the Trade Practices Act. Indeed, the majority in Sellars v Adelaide Petroleum (1994) 179 CLR 332 expressly found (at 355) that the same principles pertain: [W]e consider that acceptance of the principle enunciated in Malec requires that damages for deprivation of a commercial opportunity, whether the deprivation occurred by reason of breach of contract, tort or contravention of s 52(1), should be ascertained by reference to the court's assessment of the prospects of success of that opportunity had it been pursued. 114 The present claim seems to have been put by Mr Epstein in two ways: loss of future rents or loss of an opportunity to receive rent as from August 2001. 115 In the Second Further Amended Particulars, the claim appears to be formulated as a loss of future rents, although Mr Epstein's submissions in part extended to the second formulation ie loss of a commercial opportunity to earn rent. The distinction between the two is perhaps semantic since from a practical point of view there is not much difference between saying, "had the defendant not breached the contract, I would have received the property, leased it and received rent - thus I have lost rents which I otherwise would have received" and saying "had the defendant not breached the contract, I would have received the property and would have obtained the opportunity to lease it out – there is an x% likelihood that that opportunity would have come to fruition – thus I have lost a valuable opportunity which I otherwise would have received". However, whether the claim is formulated as a loss of future rent or a loss of an opportunity to earn rent, in either case the receipt of those rents or the realisation of that opportunity would depend in large measure upon how the plaintiff would have acted. 116 An assessment of the likelihood that the particular plaintiff would have acted in a particular way is necessary in order to establish causation (Sellars at 365 per Brennan J; Bak v Glenleigh [2006] NSWCA 10; State of New South Wales v Burton [2008] NSWCA 319 at [25]; Olympic Holdings v Lochel [2004] WASC 61 (at [123]); G W Sinclair & Co v Cocks [2001] VSCA 41 at [29]). 117 While the fact that an asset is or has been income-producing may well be strong evidence supporting a conclusion that it would have produced or continued to produce such income for the plaintiff had the contract been performed (and this may in fact be the reason that no time seems to have been spent on this aspect of the matter in Wenham, where the plaintiff was to receive dividends referable to his part share as tenant in common of that property), it is neither a necessary nor an irrefutable presumption. Nothing in the facts in Wenham (so far as they appear from the judgments) seems to take the case higher than one in which the fact that the asset was income-producing was treated as evidence supporting the conclusion that the asset would have continued to produce income for the plaintiff had the contract been performed. The reference of the trial judge to there being no evidence to the contrary would support this characterisation. 118 Nor does anything in the cases relating to profit-earning chattels suggest that lost profits are recoverable where the plaintiff has been deprived of the use a profit-earning chattel if it is not the case that the plaintiff would have been in a position to earn those profits (see The Susquehanna [1926] AC 655). 119 I note, in this regard, the passage from Sunley (B) & Co v Cunard White Star Ltd [1940] 1 KB 740 referred to by Finn J in GEC Marconi Systems v BHP Information Technology (2003) 128 FCR 1 at [1062]: In [the] circumstances, the plaintiffs really failed to prove any facts on which their damages could be estimated. In the absence of evidence they relied on the law. And the learned judge unfortunately succumbed to the invitation to discuss a variety of cases like The Mediana at great length. Those cases establish that when a plaintiff is deprived of the use of a chattel which he does not use for making profit he is not to be debarred from claiming as damages what during that time its use would have been worth to him, had he not been prevented from using it. But those cases are no authority for the proposition that, if the owner of a profit-earning chattel does not prove the loss he has sustained, the judge may make a guess in the dark and award him some arbitrary sum. (My emphasis) 120 The argument put by the Joseph Lahoud interests is one which, in essence, suggests that the ordinary burden of proof is displaced where there is an income-producing asset. If Mr Epstein's submission is correct, then it means that (accepting that the ordinary and natural consequence of a vendor failing to transfer real property is that the purchaser is deprived of the use of that property) in all cases dealing with damages for delayed completion of real property the loss is (in the absence of evidence of special use to the contrary) to be measured by the rents which the purchaser could have received from the property or (in appropriate cases, where a special intention so to use the property in a different name was known to the vendor) the profits which could have been made from the property. 121 Mr Epstein submitted that the "general rule is that as exemplified by Wenham and [the] cases they refer to": If you have an income-producing asset, there is a presumption it will continue to earn income in the hand of its recipient. It isn't legitimate to go further and say they might have sold the asset and done this or that; that is not part of the formula for a valuation of the damages flowing naturally and foreseeable from the breach. 122 However, the cases referred to in Wenham (such as King v Poggioli (1923) 32 CLR 222) and the cases to which they, in turn, refer (such as Jaques v Millar (1977) 6 Ch D 153) tend to be cases in which purchasers do assert a particular loss by reference to the fact that they would have done "this or that". This line of authority (and I say this without criticism) was not addressed by Counsel. Hesitant as I am to be seen to succumb as the judge was said to have done in Sunley, I consider it necessary briefly to examine this line of authority as it is relevant in considering whether the passage in Wenham bears the meaning for which Mr Epstein contends. · Wenham line of authority 123 In Chinnock v Marchioness of Ely (1864) H & M 220; 71 ER 447 (which was later overturned on another point), Sir W Page Wood VC, having decreed specific performance of an agreement for sale of land, reserved the question of damages, in relation to which he later delivered the following reasons (at 231-232) denying any damages: With reference to this point, I have caused inquiries to be made as to whether any case could be found in which damages were awarded for the non-performance of a contract where no special injury was shown to have been caused by the breach, but no case has been found to that effect. In the present case, although there are in the bill allegations of damage sustained by the Plaintiff, it has not been proved that he sustained any special injury either from loss of value in the property, or on the ground of engagements on his part entered into by him on the faith of the contract. I therefore think the case is not one in which I should exercise the power given by the Act (21 & 22 Vict. c. 27). (My emphasis) 124 Insofar as Chinnock v Marchioness of Ely speaks of "special injury", this was sought to be explained by Foster J in Griffin v Mercantile Bank (1890) 11 LR (NSW) Eq 231 on the basis that the ability to earn interest upon the retained purchase money would be adequate compensation for the loss of use (a point in turn noted by Einfeld J in) (and hence for any greater loss to be established some "special" injury would need to be shown). That said, the statement extracted above from Chinnock was later referred to with approval by Higgins J in King v Poggioli. 125 In Jaques v Millar, the authority on which most of the early delayed completion cases rely (and which was also overruled on a different point), the plaintiff had entered into an agreement to lease certain property from the defendant with the intention (known to the defendant) of using that property for profit as an oil refinery. The plaintiff gave evidence that he was not able to secure alternate premises for fifteen weeks from the date of completion. He said he would have made a profit of £50 per week (being £1 of profit per ton of oil at 50 tons per week), though he admitted in cross-examination that he had in 1862 discontinued an unprofitable oil refining business. In addition to specific performance, the plaintiff sought damages of £750, being the loss of profits said to have been suffered. Counsel for the defendant argued that no damages should be awarded as the business might well have produced no profit, listing a number of contingencies - "He might get no customers; his customers might fail to pay their debts; his workmen might be dishonest; his health might fail" (at 158). 126 After making an order for specific performance of the agreement, Fry J addressed the question of damages (at 159-160): The question of damages is a more difficult one. Damages are claimed, in addition to the specific performance of the agreement, in respect of the delay which was caused by the Defendant's wilful refusal to perform his contract and the consequent loss of profit to the Plaintiff. I think I am at liberty to consider what would have been the value of the possession of the premises to the Plaintiff for the period between the 5th of September 1876, and the time when he actually obtained possession of other premises. I shall not attempt to explain in detail the motives which operate on my mind. But I am entitled to have regard to the damages which may be reasonably said to have naturally arisen from the delay, or which may be reasonably supposed to have been in the contemplation of the parties as likely to arise from the partial breach of the contract . Applying these tests, I assess the damages at £250. I give judgment for the specific performance of the agreement, with costs, and the Defendant must pay the £250 within a month. (My emphasis) 127 As is fairly clear from the report of the case, the plaintiff relied upon the test in Hadley v Baxendale, which Fry J (who had expressed some perceived difficulties with the test during the course of argument) appears to have adopted in his reasoning. It is not clear the basis on which a discount was applied to the profit calculation asserted by the plaintiff, Fry J disavowing any attempt to explain his reasoning in that regard. It may be that this reflected the contingencies mentioned by the defendant. Nevertheless, what does seem clear from the report is that there was evidence before the court as to what the plaintiff had intended and was likely to do with the property. 128 In Royal Bristol Permanent Building Society v Bomash (1887) 35 Ch 390 the issue of damages for delay in completion arose where the plaintiffs sold two leasehold houses at auction in the exercise of their power of sale as mortgagees. The defendant purchaser then entered into an agreement to let the houses to a tenant from a day five days later than the completion date. The mortgagees were unable to give vacant possession as at the completion date and the contract between the defendant and the intending lessee was terminated. The plaintiffs brought an action for specific performance. The defendant counter-claimed for specific performance with compensation. Kekewich J found that the plaintiffs had breached their obligation to deliver up vacant possession, as a result of which the defendant had lost the benefit of his contract to let the houses. His Honour said the following as to calculation of damages (at 395-396): This question deals with a branch of law which is very difficult, and for this reason, that there is certainly a distinction between compensation and damages. … The question here is not, whether this is compensation or damages, because the distinction is not sufficiently defined for that, but whether it is damages in the nature of compensation or not. In the second edition of Lord Justice Fry's book on Specific Performance the distinction is drawn, and he refers to a case of Prothero v. Phelps , in which damages were given in the nature of compensation. I hold the distinction applicable here, and giving the purchaser damages in the nature of compensation, I must consider what is the proper measure of those damages. … 129 (The difficulty adverted to by Kekewich J is one which recurs throughout a number of the early cases and which relates to the rule in Bain v Fothergill (1874) LR 7 HL 158 (and Flureau v Thornhill (1776) 2 Wm Bl 1078) (later abrogated by statute) that a purchaser could only recover limited damages from a vendor who, acting bona fide without wilful default, could not make out good title.) 130 Noting that, unlike in Jaques, in Bomash there was no wilful refusal on the part of the mortgagees to complete, Kekewich J concluded (at 396-397) that: I hold this case to … fall within a class of case which is illustrated by Jaques v. Millar, and I must give the Defendant damages calculated on some such principle as Lord Justice Fry indicated. I think that the proper way of doing that is simply to take the rent which he would have received under that contract, against which there is nothing to set off. … I shall award the Defendant £110 damages by way of compensation for not having obtained that vacant possession which I think he was entitled to under the contract. 131 The first Australian case to consider Chinnock, Jaques and Bomash, so far as I am aware, was Griffin v Mercantile Bank. There, the plaintiff, a stockbroker, had entered into an agreement with the defendants by which they were to give him a release of his debt to them (£24,000) in consideration of a transfer by him to them of all his real estate. The defendants subsequently denied that there was a binding agreement and the plaintiff brought a suit for specific performance. 132 Owen CJ in Eq, at first instance, and Foster and Manning JJ (Stephen J dissenting on the question of damages), on appeal, made an order for specific performance and that there be an enquiry to ascertain what damages the plaintiff had suffered. 133 Foster J (after explaining why issues of election between damages and specific performance were not relevant in that case) said (at 253-254): I think, therefore, plaintiff may have specific performance with an inquiry as to damages, if it seems reasonably probable from the nature of the breach that substantial damages would reasonably and naturally result from it, even though it may be difficult to shew specifically what the damage was, or to define the particular loss which has been sustained, and this appears to have been the view of Mr Justice Fry in Jaques v Millar . I think the remarks of Vice-Chancellor Wood in Chinnock v Marchioness of Ely when he says [quote omitted] … must be taken in reference to the particular case before him, where the agreement was for the purchase of freehold property, and the defendant having kept the property, the plaintiff had retained the purchase money, the interest of which was looked upon as sufficient compensation for the loss of the property . At any rate, the case only shews that it was not one in which, under the circumstances, the Vice-Chancellor would exercise the discretion vested in him. (My emphasis) 134 Manning J, who accepted that damages of the kind claimed might reasonably be said naturally to have arisen from the breach, saw Jaques v Millar as a case where the issue was one of remoteness (at 258). 135 Stephen J (in dissent on the issue of damages) considered that the argument that the damage claimed (by reason of the loss of the opportunity of using the (credit) accommodation, if granted) was too remote seemed unanswerable. His Honour considered the case to be a very different case from that of Jaques v Millar. His Honour said: There [in Jaques ] was a distinct claim in respect of the non-user for an agreed time of the subject matter of the contract. There could be no difficulty in such a case as to an inquiry . It could not be said that such a loss was not in contemplation of the defendant lessor. True that counsel argued that no profit might have been made. This was, however, really an argument (however intended) as to the difficulty of ascertaining what the result of the trade would be; not that the loss of profit (if any) was one for which the lessor under the circumstances would not have been responsible . Mr Justice Fry assessed the damages himself, his only difficulty being, as I read his judgment (which seems to avoid any explanation), not as to the defendant's responsibility but as to the amount. In a Court of law I should not have had the slightest hesitation in holding the defendant liable in damages and directing a jury to believe the plaintiff's evidence as to the amount, if they thought proper. The Royal Building Society v Bomash is equally plain, and differs only in two particulars. It was the case of vendor and vendee instead of lessor and lessee, and the damages for not giving possession in the time agreed were certain, viz., the rent which the vendee was unable to receive owing to the breach of contract. The only difficulty which the Judge seems to have had was whether to call the plaintiff's a claim for compensation or damages or damages in the nature of compensation. And in support of his decision he cited Mr Justice Fry's judgment in Jaques v Millar . In a Court of common law I should have had no difficulty in holding it to be a clear case for damages… (My emphasis) 136 In Reschke v Hensley [1913] SALR 105, the plaintiff held a perpetual lease of Crown land, which it sublet to the defendant. The plaintiff contracted to sell its interest in the lease to a third party, Mr Gunson. The plaintiff could not deliver up vacant possession of the property to Mr Gunson as a result of the wrongful holding over of the defendant. When the transaction was finally completed, £250 was deducted from the purchase price as compensation for the loss suffered by Mr Gunson by being kept out of possession for some months. The plaintiff brought an action in trespass against the defendant, claiming both mesne profits (£60) and the amount paid to Mr Gunson (£250). The relevant issue for present purposes was whether the plaintiff would have been liable to pay that amount to Mr Gunson if he had brought a suit claiming such damages. 137 Though the judgment of the Court of Appeal of South Australia (which awarded the £250) was overturned in the High Court (by reference to whether Mr Gunson was shown to be ready, willing and able to complete at the relevant times: Hensley v Reschke (1914) 18 CLR 452), the Court of Appeal's judgment is of more present relevance. Indeed, Isaacs and Rich JJ noted that the reasonableness of the £250 could not successfully be challenged. 138 The Court of Appeal (Way CJ, Marry J and Buchanan TJ) distinguished Bain v Fothergill and went on to state: The jurisdiction to grant compensation for delay in completing at the proper time has never been regarded as affected by Bain v Fothergill…. Thus we find it stated in the third edition of White and Tudor's Leading Cases on Equity (1886) Vol 2, p 487, and in the latest edition, (1912), 8th ed., at p. 493, that "In all cases where the Court decrees specific performance, notwithstanding the time for completing the contract has elapsed, care will be taken that proper compensation be made, and the parties in fact put in the same situation as if the contract had been strictly fulfilled. Thus, ordinarily, the purchaser will be entitled to the profits of the estate from the time when the contract ought to have been completed ( De Visme v de Visme (1849) 1 Hall & Twells 408, 1 Mac & G 336), and the vendor, whether the estate be in possession or reversion, will be entitled to interest upon the purchase money from the same time ( Sir James Lowther v Countess Dowager of Andover (1784) 1 Bro CC 396)" … 139 I interpose to note that, in De Visme v De Visme (1849) 1 Mas & G 336; 41 ER 1295, Lord Cottenham states the ordinary rule in the following terms: If the abstract did shew a good title, then, according to the rule, the estate would become the property of the purchaser from the time at which the contract ought to be completed, and the money would be the property of the vendors, and thus the one would be entitled to the fruits of the estate, and the other to the fruits of the purchase-money… It is the ordinary case that a time is fixed for the performance of the contract; from that time interest is payable upon the purchase-money, and the purchaser is entitled to the rents and profits. 140 The Lord Chancellor supports this statement by reference to the decision of Leach VC in Esdaile v Stephenson (1822) 6 Madd 366; 56 ER 1131. Einfeld J in Vanmeld v Cussen considered Esdaile to be a manifestation of the scheme of adjustment identified by Isaacs J in Davies v Littlejohn (1923) 34 CLR 174: In Davies v Littlejohn (1923) 34 CLR 174 at 185-186 Isaacs J noted that the "mutual rights to interest on the one hand and the rents and profits on the other" of vendor and purchaser are part of the "scheme of equitable adjustment of mutual rights and obligations applying, unless negatived, to every ordinary contract of sale of land." 141 In Davies v Littlejohn, Isaacs J noted (by reference to Chitty J's judgment in In re Thackwray and Young's Contract (1888) 40 Ch D 34) that the equitable scheme reflected equity's recognition of an interest in the property passing to the purchaser pursuant to a specifically enforceable contract at the nominated time for completion but prior to the actual conveyance of legal title. As was recognised by Einfeld J in Vanmeld, equitable adjustment is a different thing from the awards made in Jaques v Millar and the cases following it. 142 It may well be the case that the availability, on the part of the purchaser, of an equitable entitlement to actual rents received by the defaulting vendor explains why many of the cases in the Jaques v Millar line of authority address only "special" damage. However, this does not mean that these authorities are of any less weight in establishing that a plaintiff seeking damages for breach of contract must prove its loss, whether that loss be one falling under the first or second limb of Hadley v Baxendale. 143 The Joseph Lahoud interests have not asserted an equitable right to adjustment or account, whether by analogy with the vendor/purchaser cases or otherwise (a point which Mr Einfeld noted – T 317.12). The case before me has been argued solely on the basis of the principles applicable in assessing damages for breach of contract. In these circumstances, I do not believe that it would be appropriate for me to consider whether the Joseph Lahoud interests would have had any such equitable claim. I have digressed into this topic only because it provides a degree of background against which cases such as Chinnock and Reschke should be understood. 144 The Court of Appeal in Reschke continued: If [Gunson] had come to the Court he would have obtained an abatement of the purchase money on the ground that Mrs Reschke had expressly agreed to give him the use of the land during the season of 1910. The ordinary profit to be made during that period was a part of the subject matter she had agreed to sell him…. The question remains, what was the proper measure of the abatement that Gunson was entitled to demand. I think it is clear that his loss on the purchase and re-sale of sheep cannot be taken into account, as that transaction was not brought to the notice of Mrs Reschke before the agreement was made ( Goodwin v Francis (1870) LR 5 CP 295). Nor, possibly, can the exceptionally good season which was experienced in 1910, be regarded, for extraordinary seasons, whether good or bad, may be neither natural nor probable within the rule for assessing damages, but it is unnecessary to decide that. On the other hand Gunson would not have been limited to the mere rental value of the land, for property of the description comprised in the lease is not generally, and in fact cannot, without the consent of the Commissioner of Crown Lands, be utilized by sub-letting . Moreover, Gunson had informed Mrs Reschke's husband at the time he entered into the agreement that he intended to arrange with other persons to farm part of the land on halves. Under the circumstances it appears to me the proper measure of compensation was the profit which Gunson might reasonably have expected to make by grazing and cultivation, bearing in mind that from June to December was the period for raising crops when the natural grasses would be at their best… [the judgment then goes on to consider profit margins on wheat and wool and suggests that Gunson's lost profit may have been £500]. (My emphasis) 145 The suggestion that Mr Gunson might have recovered damages by reference to rental value notwithstanding his professed (and apparently not disputed) intention to farm the land on halves, might, perhaps, provide some support for a claim on the part of the Joseph Lahoud interests to damages in an amount of market rental. However, no clear basis is stated for this proposition and, in the light of the other authorities, I do not think that much weight ought to be attributed to that suggestion. The fact is that the Court went on to assess Mr Gunson's damages by reference to the specific profit which he could and likely would have made. 146 In King v Poggioli, the High Court came to consider the issue of damages for delayed completion. Mr Poggioli had brought a suit (broadly) for specific performance and an enquiry as to damages (which damages were to be deducted from the unpaid purchase money). Street CJ in Eq ordered that £700 be paid by way of compensation and damages, that the plaintiff should pay the defendant certain interest on the unpaid purchase money; that the interest be set-off against the damages and the balance deducted from the unpaid purchase money. Starke and Higgins JJ affirmed the trial judge's finding that Mr King had failed to give possession on the named day. Knox CJ dissented on this point, but otherwise agreed with Starke J's judgment. Mr King's appeal was successful ultimately because Starke J found that Mr Poggioli was not entitled to specific performance as he was not ready, willing and able to perform the contract according to its terms. 147 There was a significant difference between Higgins J and Starke J as to whether there is an entitlement to an abatement of purchase money in cases of delay or only in cases of deterioration or diminution of the property. Higgins J held that an abatement was available in all such cases. However, Starke J (Knox CJ agreeing) held that it was not, and so Mr Poggioli could only succeed in his claim for compensation if he was entitled to specific performance and so could avail himself of Lord Cairns' Act. 148 As a consequence, Higgins J was the only judge in the High Court to address the question of the proper measure of compensation/damages (Starke J seems to apply broadly the same test, but only says that the measure which had been applied by the Chief Judge in Equity was inappropriate). 149 Starke J said (at 250): Lastly, I will add that the damages awarded by the learned Chief Judge could not, in my opinion, have been sustained. They cannot fairly and reasonably be considered as naturally arising from the breach of the contract according to the usual course of things. The death of the stock [which Mr Poggioli had bought, but was unable to depasture] was a very remote and improbable consequence of the breach alleged, and there were no special circumstances communicated to the vendor which suggest that the damage flows naturally from a breach of contract under those circumstances. I do not dwell on this point because in my opinion the action should be decided upon the ground already mentioned. 150 Higgins J addressed (at 239-243) the assessment of compensation as follows: When we say that property is sold, we imply that the purchaser is to have the right to the enjoyment and control of the property to the extent indicated in the contract; and it is a diminution of the property sold if the enjoyment and control be postponed after the date fixed therefor … just as the present value of money payable twelve months hence is less than the value of money payable immediately. In Jaques v. Millar the defendant had agreed to grant a lease as from 5th September: but he refused to carry out the contract, with the knowledge that the plaintiff wanted to carry on his trade. It was held that the plaintiff was entitled not only to specific performance but to damages for the loss of his trade for the fifteen weeks which elapsed before he obtained other suitable premises. … Delay of the vendor in completion was treated as a ground for damages, in addition to specific performance, in Jones v. Gardiner. … But the loss by delay in completion must be substantial; compensation or damages for delay in completion will not be awarded where no special injury is shown to have been caused by the breach of contract (Chinnock v. Marchioness of Ely). … Courts of equity will give compensation if "the purchaser has not got the whole of what he contracted to buy" (per KayL.J., Clarke v. Ramuz , at p. 461): and in this case he has not got the whole enjoyment of the property as from the date fixed. 151 His Honour did not agree with the measure of compensation (based on a monetary sum per head of cattle lost) which had been awarded: According to Fry J. in Jaques v. Millar , the proper measure is "the damages which may be reasonably said to have naturally arisen from the delay, or which may be reasonably supposed to have been in the contemplation of the parties as likely to arise from the partial breach of the contract"; and I cannot think that the loss of the cattle comes within this rule. I rather think that substantial justice would be done by assessing the compensation at such rate per head as the plaintiff could have obtained for the use of the 1,500 acres by 250 cattle up to 5th June. [Mr King having retained 250-300 head of cattle on the 1,500 acres in respect of which he had not delivered up possession to Mr Poggioli.] 152 Higgins J would therefore have dismissed the appeal but varied the order for damages. 153 More recently, in Mitchell v Crimmin (1945) 47 WALR 46, the question of the recompense to which a purchaser is entitled when a vendor of land delays delivery was again said to be one of some difficulty; but was there approached from the standpoint that the defaulting vendor was in effect a trustee of sorts in relation to the rents: I think the normal position is that as from the date fixed for possession the vendor is, in a qualified sense, to be regarded as a trustee and the purchaser as equitable or beneficial owner [his Honour then sets out the consequential entitlements to rents and interest]… An example of most of these propositions will be found in the case of Bennett v Stone. There is a class of case however where these propositions fail to afford a sufficient remedy, such as where the property is to the knowledge of the vendor being acquired for a particular purpose, and it is essential possession should be given at the appointed date otherwise pecuniary loss particular to the special intended use will result from the delay. An instance of such circumstances may be found in the case of Jacques [sic] v Millar. Fry J, as he then was, there stated that the damages for delay were such as might reasonably be said to arise naturally from the delay or might reasonably be said to arise naturally from the delay or might reasonably be supposed to have been in contemplation of the parties as likely to arise, and this dictum has been followed in several subsequent cases. I suggest that it is not the value special to the purchaser which is the real factor for consideration, (see Daniel v Vassall ), but the known intended use and the profits normally to be expected therefrom, and I venture to think that damage should not be assessed on abnormal profits arising from a special ability of the actual purchaser, but rather on those obtainable from the special use by an ordinary purchaser. The damages awarded in the case under reference were apparently based on some estimate of probable profits from the special use for a limited period; the mode or period of assessment was not, however, made clear … 154 In Phillips v Lamdin [1949] 2 KB 33, Croom-Johnson J (at 41-45) considered this issue and adverted to the need for the plaintiff to prove its loss: Now with regard to the rest of the case, it is said: "This is mere delay. You cannot recover damages for mere delay for non-completion of a contract for the sale of land ." …. Damages for breach of contract for delay, even after the purchase and the sale of goods has been completed, are always recoverable in a proper case, provided that the plaintiff can prove them. … Jaques v. Miller [sic] is a distinct authority for giving damages against a vendor, in addition to specific performance, in respect of delay caused by wilful refusal to carry out a contract, and for the measure to be applied in ascertaining the damages, namely, such damages as may reasonably be said to have naturally arisen from the delay, or which may reasonably be supposed to have been in the contemplation of the parties as likely to arise from the partial breach of contract. … on those lines it seems to me that this plaintiff has made out her case for damages. (My emphasis) 155 In McLean v Grace [1953] NZLR 566, Adams J in the Supreme Court in New Zealand, said (at 572): In this case, the measure of damages must be the loss which plaintiff has sustained by being deprived of the use of the land from the time when he ought to have been let into possession down to the present time, such damages to be assessed on the assumption, which the parties would naturally contemplate, that Turner's block would be worked by the plaintiff in conjunction with the other land acquired by him from the defendant. … It is impossible to make an exact calculation, and I must assess the damages much in the way that a jury would do. 156 As noted above, in Vanmeld v Cussen, Einfeld J distinguished cases involving "special damage" from loss of ability to earn profits from cases involving equitable adjustment of interest and rent as between vendor and purchaser, stating that the former: … cases refer to situations where special damage is shown to be reasonably likely to have followed the breach, for example where a delay caused the plaintiff to be unable to ply his trade and therefore to lose certain profits: Jacques v Millar [sic] (1877) 6 Ch D 153, or where land in the meantime deteriorated: eg Prothero v Phelps [1855] 7 De G M & G 722 at 734; 44 ER 280 at 285 discussed by a Full Court of the New South Wales Supreme Court in Griffin where majority upheld an order for an inquiry into damages where the bank's failure to execute a release of debts in exchange for conveyance of the plaintiff's property rights for over a year was held reasonably likely to prejudice his financial position in respect of dealings with other lenders. In Griffin such damages were explained as distinct not only from those prohibited by Bain v Fothergill (1874) LR 7 HL 158 (as to which see Manning J at 260-1), but also from questions of interest. At 253 Foster J cited Chinnock v Marchioness of Ely (1865) 34 LJ Ch 399, a case in which Wood VC refused to order an inquiry into damages against a vendor who delayed completing because no "special damage" was shown. … Foster J distinguished it on the basis that the case was one where the defendant having kept the property, the plaintiff had retained the purchase money, the interest of which was looked upon as sufficient compensation for the loss of the property. 157 In Shaw v Harris (No2) (1992) 3 Tas R 167 (at [79]-[81]) Wright J drew a distinction between the tests applicable in cases of trespass and those in relation to delayed transfer: The plaintiffs claim damages in the nature of mesne profits. They argue that as Mr. and Mrs. Harris have been in possession of "Tahara House" since 20 December 1988, they should be obliged to pay a fair rental value for the premises from that date until possession. … It was argued by Mr. Welch, counsel for the defendants that as the plaintiffs' evidence discloses that they originally planned to finance the purchase of "Tahara House" by obtaining a loan at high interest from Westpac, such recurrent outlays would have more than offset the fair rental assessed by either of the two valuers who gave evidence. This argument however seems to presuppose that the plaintiffs have established an entitlement to mesne profits in principle. In my opinion they have not shown such an entitlement. Assuming that damages must be assessed as at the date of judgment, ( Wroth v. Tyler (1974) Ch 30, Johnson v. Agnew (1980) AC 367), there is nothing in the evidence which persuades me that the plaintiffs have suffered any special or identifiable loss or damage. There is no evidence that the plaintiffs had in mind some profitable business venture which was prevented by the defendants' breach so that they became entitled to damages in accordance with the principles discussed in Jacques v. Millar (1877) 6 ChD 153 and Royal Bristol Permanent Building Society v. Bomash (1887) 36 ChD 390. There is certainly nothing to suggest that the property is worth less now than when it was transferred to "Winamurra" nor is there any material to suggest that it has fallen into disrepair. On the other hand, these last mentioned authorities, which were applied in Jones v. Gardiner (1902) 1 Ch 191 and Phillips v. Landiss [sic] (1949) 2 KB 33 and which do not appear to have been overruled or dissented from since, establish that an award of general damages may be made in a case like the present where the plaintiffs have been delayed in obtaining vacant possession. Such an assessment does not necessarily equate with rent or mesne profits. Indeed, having regard to the uncertainties about the use to which the plaintiffs would have put the property over the last three years, I think any sum awarded should be moderate only. All in all, I think an award of $5,000 would be appropriate. 158 In Palasty v Parlby [2007] NSWCA 345, Mason P, with whom Tobias JA and Handley AJA agreed, observed, in the context of a claim by the vendor for interest from a defaulting purchaser (at [55]): It would be anomalous if the vendor could not recover damages in the nature of interest from the defaulting purchaser for the delayed receipt of the balance of the purchase price. It has long been established that a purchaser can recover damages for loss of the net rents and profits due to delayed performance by the vendor: Wenham v Ella (1972) 127 CLR 454; Royal Bristol Permanent Building Society v Bomarsh [sic] (1887) 35 Ch D 390. 159 Clearly a purchaser can recover damages for loss of the net rents and profits. However, I do not take Mason P in the above passage to mean that a purchaser will recover such damages if it fails to establish its loss. · Normal measure of damages? 160 The authors of McGregor on Damages say (at 22-011): The normal measure of damages [for delay in completion] is the value of the user of the land, which will generally be taken as its rental value, for the period from the contractual time for completion to the date of actual completion. This is so whether the delay is brought to an end by the voluntary action of an indolent seller or by a decree of specific performance against a recalcitrant seller. This measure was applied in Royal Bristol Permanent Building Society v Bomash where the claimant purchaser had agreed to let the property within five days of due completion and the delay resulted in this sub-contracting falling through: the damages were assessed at the rent that the claimant would have received from his tenant on the basis that this represented the value of the user of the property. 161 Other than Bomash, no authority is cited by the authors of McGregor for the proposition that this is the "normal measure", although reference is made in the footnotes to Ford-Hunt v Ragbhir Singh [1973] 1 WLR 378. In Ford-Hunt, however, Brightman J did not seem to consider that delay would necessarily or ordinarily give the plaintiff a right to recover damages for loss of user assessable at the market rent, but rather that such damages would need to be proved: A vendor who seeks specific performance is entitled to damages for delay, if he can prove that he has suffered damage: see Jaques v Millar (1877) 6 Ch D 153, to which I shall refer later, and Jones v Gardiner [1902] 1 Ch 191. and ordered an enquiry as to "whether the plaintiffs have suffered any and what damage after that date by reason of the defendant's delay in completing the sale agreement" such damages to be confined "in the usual way" to: ". . . the damages which may be reasonably said to have naturally arisen from the delay, or which may be reasonably supposed to have been in the contemplation of the parties as likely to arise from the partial breach of the contract; . . .": per Fry J. in Jaques v. Millar (1877) 6 Ch.D. 153, 160. 162 In that case, there was an issue as to whether the costs of bridging finance might be recoverable and Brightman J seems to have contemplated that, upon the inquiry, it may be that no damage was proved (at 742). 163 Accepting that the above cases establish that damages by way of loss of rent would be damages of a kind ordinarily seen as likely to flow from a failure to transfer real estate in specie (and hence satisfying the remoteness test in the first limb of Hadley v Baxendale), this does not mean the plaintiff seeking such damages need establish only the relevant breach of contract and the rent which may or could have been received from that property, in order to establish its claim for loss of rent. In almost all of the older cases, the plaintiff is asserting a particular loss suffered. The judgments appear to turn on whether that loss is seen as too remote, and whether that loss has indeed been suffered. (For example, in Jones v Gardiner [1902] 1 Ch 191 Byrne J discounted the award to the plaintiffs, who were asserting that they would have redeveloped and let out the property, because their claim was, in part, untenable and exaggerated and the evidence loose and unsatisfactory.) Nevertheless, those cases do not dispense with the requirement that the plaintiff must prove its loss (whether that be loss naturally flowing from the beach or some kind of special loss). 164 More recently, in Chen v Lord Energy Limited [2002] HKFCA 11 in the Final Court of Appeal of the Hong Kong SAR, the question of damage from delay in completion was considered. There, the issue arose tangentially as the parties had agreed that the proper measure of damages suffered as a result of the stay of an earlier specific performance order (by reason of which property had not been transferred while the stay, later set aside, was in place) was that which would be awarded for breach of contract in a delayed completion case. 165 The purchaser had contended that its loss was to be measured by the difference in the market value of the property between the date on which the Court of Appeal first ordered the stay and the date approximately eight months later when the property was finally transferred. The vendors contended that the loss was to be assessed by reference to the loss of use of the property (calculated in terms of loss of rental) during the relevant period (in which case, taking into account the interest accrued on the purchase price, the damages would be assessed as nil). 166 Counsel for the vendors in Chen (Mr Griffiths SC) submitted that the normal award of damages would be the loss of rental due to deprivation of use of the property resulting from the delay in completion unless the vendor was expressly put on notice of some special circumstances, (in this case, the purchaser's intention to resell the property after assignment); and that it was necessary for the vendors to have actual knowledge of such intention before they could be held liable for any drop in the market value of the property. (This rider was necessary because in Chen, there was evidence of a change of intention on the part of the purchaser from an earlier intention to rent to a later intention to re-sell but a dispute as to whether the vendors were on notice of that change of mind.) 167 The principal judgment of the court was that of Chan PJ. Lord Hoffman NPJ gave very brief concurring reasons. Li CJ and Bokhary and Ribeiro PJJ agreed with both judgments of Chan PJ and Lord Hoffman NPJ. 168 Chan PJ noted what had been said by Fry J in Jaques v Millar as to the damages to which a purchaser should be entitled and that this was accepted as the correct approach by Brightman J in Ford-Hunt v. Raghbir Singh at (742 B). Chan PJ accepted that the "normal" award of damages in the case of a breach of an agreement for the sale of land was the loss of rental due to loss of use of the property, but held that this was displaced where other losses had come within the reasonable contemplation of the parties or where it was possible to impute knowledge of special circumstances to the vendor. 169 However, what was before the court in Hong Kong was again an issue of remoteness, as is clear from the fact that Chan PJ expressly characterised the approach suggested in Jaques v Millar as being referable to the first limb of the rule for assessing damages for breach of contract as enunciated in Hadley v Baxendale. Chan PJ noted, (as did Mason P in Castle Constructions Pty Limited v Fekala Pty Limited (2006) 65 NSWLR 648 at 656) that the demarcation line between the two limbs in Hadley v Baxendale was sometimes blurred. 170 The Court of Appeal in Chen had earlier made it clear that there was a distinction between causation and remoteness. There was no suggestion that if damages were of a kind which might fairly and reasonably be considered as arising naturally from the breach then this, of itself, would satisfy the causation requirement. 171 In the Court of Appeal in Lord Energy Limited v Chen [2000] HKCA 506, Keith JA giving the judgment of the court clearly distinguished the two factual enquiries to be made – the first was what would the purchaser in fact have done with the flat if it had been conveyed and the second being what the vendors could reasonably have contemplated the purchaser would do with it (the latter question being "simply the application of the thinking which informs the rules relating to the remoteness of damages for breach of contract"). Nowhere was it suggested that evidence was not required as to what the purchaser would in fact have done at the relevant time. Indeed the Master's finding as to the evidence of intention was set aside by the Court of Appeal on the basis that the truthfulness of the purchaser's affirmation had never really been challenged. Therefore, there is no basis on which to suggest that evidence of the particular plaintiff's intention was not considered relevant. 172 I cannot accept Mr Epstein's submission that the personal proclivities of the plaintiff are irrelevant, since the test, after all, is to put the particular plaintiff – not some reasonable person in his or her shoes – in the position in which he or she would have been but for the breach. 173 I consider that it was incumbent on the Joseph Lahoud interests (notwithstanding that they were seeking what has been described as the "normal" measure of damages or the kind of damages "generally" awarded in cases of this kind) to prove what it is likely they would have done had the Units been transferred on 6 August 2001 (being the date from which damages are claimed). (Insofar as the period of delay was a lengthy one, if the Joseph Lahoud interests had established, on an objective basis, that there would or might have been a change in use over the period of the delay then I see no reason why a damages order could not encompass this factor assuming the change of use was not itself too remote. Therefore, I do not see that the length of the delay produces any more artificial or unrealistic an exercise, when assessing damages, than would otherwise be the case. It may well be that the calculation of such damages would not have been simple and would have required a not insignificant amount of estimation or even guess work. Mr Epstein rightly notes that courts are used to performing such tasks. However, in the present case, the Joseph interests have neither asserted the bases of loss (beyond the rental claim) nor supported them with available evidence as would be necessary to allow this task to be performed (see Sunley at 748-749).) 174 Before considering the evidence of intention in this case, and whether the Joseph Lahoud interests have in fact established that they suffered loss by way of rental income, I comment on two other conceptual bases on which damages might have been said to be recoverable. · Loss of opportunity 175 In his oral submissions, Mr Epstein appeared to see the loss of rent claim as equivalent to a claim for loss of an opportunity to derive rent; in other words a loss of an opportunity to earn profits by reason of the delay, those lost profits being the market rent (less expenses) which would have been obtained over that period of time. 176 No loss of opportunity claim was particularised as such, although clearly the Joseph Lahoud interests by reason of the breach were deprived not only of the ownership of the Units but also were deprived of the opportunity to decide what they wanted to do with the Units in August 2001 and then to pursue that course. 177 In any event, if what had been brought was a loss of opportunity claim, the burden of proving their loss would still squarely lie upon the Joseph interests. As McHugh J's judgment in Amann makes clear, damages for the loss of an opportunity to obtain profits (as opposed to loss of user) are not awarded as a matter of course and certainly not without some evidence being adduced as to whether the plaintiff would in fact have pursued the opportunity. Nor does Wenham v Ella suggest otherwise. · Loss of user damages 178 Mr Epstein's submission that the Joseph Lahoud interests are entitled to the actual or market rent referable to the Units without evidence of what they would have done with the property had the contract not been breached evokes, in some respects, what have been described as "loss of user" or "user principle" damages. 179 The classic statement of the principle is found in the judgment of the Earl of Halsbury LC in The Mediana [1900] AC 113 at 117: Now, in the particular case before us, apart from a circumstance which I will refer to immediately, the broad proposition seems to me to be that by a wrongful act of the defendants the plaintiffs were deprived of their vessel. When I say deprived of their vessel, I will not use the phrase "the use of the vessel." What right has a wrongdoer to consider what use you are going to make of your vessel? … Here, as I say, the broad principle seems to me to be quite independent of the particular use the plaintiffs were going to make of the thing that was taken, except - and this I think has been the fallacy running through the arguments at the bar - when you are endeavouring to establish the specific loss of profit, or of something that you otherwise would have got which the law recognises as special damage. In that case you must shew it, and by precise evidence, so much so that in the old system of pleading you could not recover damages unless you had made a specific allegation in your pleading so as to give the persons responsible for making good the loss an opportunity of inquiring into it before they came into court. But when we are speaking of general damages no such principle applies at all, and the jury might give whatever they thought would be the proper equivalent for the unlawful withdrawal of the subject-matter then in question. It seems to me that that broad principle comprehends within it many other things. 180 Nevertheless, while in The Mediana it was said that "the particular use the plaintiffs were going to make" of the property was irrelevant to the award of damages, there is a significant difference in the type of loss which was there being compensated and the logic underlying the award of damages to the plaintiff. 181 Loss of user damages are awarded as compensation for loss of property per se, abstracted from any particular benefit which might flow from its use. While such damages are sometimes measured by reference to rental value or interest upon capital value, this is on the basis that rent or interest provides a measure of the value of user, rather than on the basis that the plaintiff would (whether actually or presumably) have received rent or interest. 182 Here, the loss of rent claim was not put on any basis other than that the Joseph Lahoud interests had suffered a pecuniary loss because the court should presume, by reference to Hadley v Baxendale, that the Joseph Lahoud interests had lost the income from an income-producing asset (that being a natural and foreseeable consequence of the breach). For the reasons outlined above, I do not believe that the rule in Hadley v Baxendale operates in this fashion. 183 That said, insofar as Mr Epstein's submissions, the passage in McGregor, or certain cases in the Wenham line of authority (such as Reschke or Chen) could be interpreted as asserting something akin to a "user principle" in this context, for the reasons outlined below I am not satisfied that there is a clear basis in authority on which I could award loss of user damages, and, in the absence of any argument in relation to the point, it would not be appropriate for me to do so. 184 That loss of user damages are awarded on a conceptually different basis to a loss of rent claim as put in the current proceedings is clear from the discussion in Stoke-on-Trent City Council v Wass Limited [1988] 3 All ER 394, in which it was said by Nicholls LJ (at 402): It is an established principle concerning the assessment of damages that a person who has wrongfully used another's property without causing the latter any pecuniary loss may still be liable to that other for more than nominal damages. In general, he is liable to pay, as damages, a reasonable sum for the wrongful use he has made of the other's property. The law has reached this conclusion by giving to the concept of loss or damage in such a case a wider meaning than merely financial loss calculated by comparing the property owner's financial position after the wrongdoing with what it would have been had the wrongdoing never occurred. Furthermore, in such a case it is no answer for the wrongdoer to show that the property owner would probably not have used the property himself had the wrongdoer not done so. In Mediana (owners) v Comet (owners), The Mediana [1900] AC 113 at 117, [1900–3] All ER Rep 126 at 129 the Earl of Halsbury LC made the famous observation that a defendant who had deprived the plaintiff of one of the chairs in his room for 12 months could not diminish the damages by showing that the plaintiff did not usually sit on that chair or that there were plenty of other chairs in the room. What is in issue on this appeal is a novel application of this principle (which, for convenience, I shall call 'the user principle'). Heretofore that principle has been applied to the use of land. In 1896 Lindley LJ, in Whitwham v Westminster Brymbo Coal and Coke Co [1896] 2 Ch 538 at 542, observed 'that if one man runs trucks on rails over another man's land it does not do any harm whatever, and there is no pecuniary damage', but that the law was 'now settled'. He stated the principle thus (at 541–542): '… if one person has without leave of another been using that other's land for his own purposes, he ought to pay for such user. 185 It has sometimes been suggested that loss of user damages are hard to reconcile with the general object underlying tortious and contractual damages (namely to put the plaintiff in the position they would have been had the tort / breach not occurred). For example, in Finesky Holdings Pty Ltd v Minister For Transport For Western Australia [2002] WASCA 206, Steytler J, with whom Wallwork and Parker JJ agreed, said: There are other cases in which the Courts have, in situations in which the defendant had wrongfully used the plaintiff's property, been prepared to compensate the plaintiff regardless of whether or not it could show that it would have let the property to someone else, or even that it would otherwise have used the property itself and therefore regardless of whether it had suffered any actual loss as a result of the use of its property (see, for example, Swordheath Properties Ltd v Tabet [1979] 1 WLR 285 at 288; Inverugie Investments Ltd v Hackett [1995] 1 WLR 713 at 717; Attorney-General v Blake [2001] 1 AC 268 at 278 - 279 and Roberts v Rodney District Council [2001] 2 NZLR 402 at 407 - 409). … The extent to which ordinary principles of compensatory damages are departed from in cases of the kind to which I have referred depends upon the individual circumstances of each case. As was pointed out by Lord Lloyd of Berwick, who delivered the judgment of their Lordships in Inverugie Investments , at 717, whether or not such cases are an exception to the rule that damages in tort are compensatory depends how widely one defines the "loss" which the plaintiff has suffered. His Lordship also there mentioned, at 718, that, in Stoke-on-Trent City Council v W & J Wass Ltd [1988] 1 WLR 1406, Nicholls LJ had called the underlying principle in these cases the "user principle". He went on to say: "The plaintiff may not have suffered any actual loss by being deprived of the use of his property. But under the user principle he is entitled to recover a reasonable rent for the wrongful use of his property by the trespasser. Similarly, the trespasser may not have derived any actual benefit from the use of the property. But under the user principle he is obliged to pay a reasonable rent for the use which he has enjoyed. The principle need not be characterised as exclusively compensatory, or exclusively restitutionary; it combines elements of both." 186 Similarly, in Stoke-on-Trent City Council v W & J Wass Limited Nourse LJ noted (at 397-398) that: The general rule is that a successful plaintiff in an action in tort recovers damages equivalent to the loss which he has suffered, no more and no less. If he has suffered no loss, the most he can recover are nominal damages. A second general rule is that where the plaintiff has suffered loss to his property or some proprietary right, he recovers damages equivalent to the diminution in value of the property or right. The authorities establish that both these rules are subject to exceptions. 187 Nourse LJ then went on to identify three exceptions to this rule, namely detinue, trespass to land and patent infringement. These are generally the three categories of actions in which loss of user damages have historically been awarded, though the "detinue" category might be better described as encompassing any form of tortious interference with non-profitable chattels which, for a time, deprives the plaintiff of their use. 188 As noted by Finn J (at [1571]) in GEC Marconi Systems v BHP Information Technology, the "Mediana principle is clearly part of Australian law". However, the Australian application of the Mediana principle has generally been restricted to the first two categories identified by Nourse LJ (in the context of tortious interference with non profit earning chattels: Baume v Commonwealth (1906) 4 CLR 97 at 116 (books); Hoad v Scone Motors [1977] 1 NSWLR 88 at 103-104 (farm equipment); Bilambil-Terranora Pty Ltd v Tweed Shire Council [1980] 1 NSWLR 465 (gravel); Millar v Candy (1981) 38 ALR 299 (motor vehicle); Broken Hill Metals v Roberts (Court of Appeal of Western Australia, Malcolm CJ, Rowland J and Ipp J, unreported, 18 August 1994) (gravel); Anthanasopoulos v Moseley (2001) 52 NSWLR 262 at 267, 275 (motor vehicles); Yates v Mobile Marine Repairs [2007] NSWSC 1463 at [82]-[84] (fishing vessel); and in the context of trespass to land: Waters v Maynard (1924) 24 SR (NSW) 618; Bilambil-Terranora Pty Ltd v Tweed Shire Council [1980] 1 NSWLR 465; Westwood v Cordwell [1983] 1 Qd R 276; Sweeney v Coffey [1999] NSWCA 38 at [26]. Judicial caution has been advocated against the expansion of the application of this principle: Bilambil-Terranora Pty Ltd v Tweed Shire Council per Samuels JA in dissent at 487; Pargiter v Alexander (1995) 5 Tas R 158; Hadid v Australis Media (unreported, Sperling J, 30 June 1997)). 189 That said, the categories have arguably been subject to some broadening. First, the cases involving conversion of gravel (Bilambil and Broken Hill Metals) or destruction of farm equipment (Hoad) take the principle somewhat beyond a tort causing loss of use of chattels for a period of time. Secondly, some cases involving contracts to carry out works (Sweeney v Coffey and Yates v Mobile Marine) have appeared to award contractual damages on a loss of user basis (though in those cases, there were concurrent tortious claims). Thirdly, in BHP Coal v O & K Orenstein & Koppel [2008] QSC 141, McMurdo J held that the principle can apply to some forms of profit-earning chattels (distinguishing Zapulla v Perkins [1978] Qd R 92 and applying Woodman v Rasmussen [1953] St R Qd 202). Finally, and most relevantly, in GEC Marconi, Finn J applied something akin to the user principle for loss of use of real property consequent upon a breach of contract. 190 In that case, Finn J considered a claim for damages for breach of contract "sought to be explained as wasted expenditure in the performance of the original Head Contract". His Honour noted that the claim arose because the Commonwealth had to perform its contractual obligation for a period greater than that originally contracted for under the Head Contract because of delay in BHP-IT's performance of its obligation, but elected to discharge that continuing contractual obligation by continuing to use its own property (rather than commercially rented offices) and thus was deprived of the use of its own property. His Honour was satisfied (at [1569]) that a compensable loss had been suffered, namely: … a loss of use of property, not because of some wrong or injury to the property itself: cf The Mediana , above; Anthanasopoulos v Moseley [2001] NSWCA 266; Nauru Local Government Council v New Zealand Seamen's Industrial Union of Workers [1986] 1 NZLR 466; and see generally McGregor on Damages , para 1349ff (16th ed); Tilbury, Civil Remedies , vol 2, [12028]; nor because it was actually kept out of that property by reason of delay in the other party's performance: cf Restatement of Contracts, Second §348 and Comment (b); Dobbs, Law of Remedies , vol 3, 443ff (2nd ed); but because of the continuing need to commit its property in consequence of the other party's breach. 191 Nevertheless, in using its own property the Commonwealth had not lost an opportunity to use the building for income earning purposes, so the question was whether it had suffered any pecuniary loss. 192 Finn J referred (at [1573]) to the Mediana principle and the cases in which it had been applied: …Such reported loss of use of property cases as there are, are of two general varieties : the first, where the loss arises from a tort occasioning damage to the property itself; the second, where a breach of contract delays the use of property (eg because of delay in completion of a building on the innocent party's land). It has been said of English law in the latter class of case that the delay damages should, in principle, generally be the rental value for the use of the premises for the period of delay: see McGregor on Damages , para 1146 (16th ed). (My emphasis) and his Honour considered (at [1575]) that: … a variant on the fair rental measure is appropriate. In saying this I recognise (a) that the contractual principle referred to above was not designed to deal explicitly with the unusual circumstances of a case such as the present; and (b) that the Edmund Barton Building, as Commonwealth property, may not have had a rental value as such, but it did have a usable value to the Commonwealth. 193 Accordingly, it is possible that there is an arguable basis on which the Joseph Lahoud interests might have asserted an entitlement to damages on a loss of user basis. Indeed, it might be thought that, in certain cases, there is an unsatisfactory artificiality in the fact that a purchaser of property might recover different damages from a recalcitrant vendor refusing to give up possession depending upon whether title had passed and so whether the action was brought in contract or in trespass (though this is as much an argument that loss of user damages should not be available in either case as an argument that it should be available in both). 194 There may be a distinction to be drawn between the court making findings as to rights and causes of action, the basis for which has not been argued by the parties, and the court assessing damages on a basis which has not been argued. Nevertheless, it seems to me that, in circumstances where the claim for damages was not put (whether in the articulation of the claim in the Second Further Amended Particulars of Damage or in argument) on a loss of user basis (Mr Epstein instead relying upon Hadley v Baxendale to gainsay the need for reference to the circumstances of this particular plaintiff), where the adoption of a user principle would involve a degree of novelty (its application having historically been limited to other categories of claim), and where the Victor Lahoud interests did not have an opportunity to respond to the arguments or authorities considered above (those arguments and authorities not having been raised by the Joseph Lahoud interests), it is not open to me to make any determination of damages on this basis (see Farah v Say-Dee (2007) 230 CLR 89 at [132]-[133]; Friend v Brooker [2009] HCA 21 at [114]-[118] per Heydon J). · Conclusion as to burden of proof 195 In the present case, it is obvious as a matter of fact that the Joseph Lahoud interests lost the opportunity to rent out the Units (just as they lost the opportunity, if they so chose, to sell or otherwise deal with one or both of them). However, none of the authorities suggests that damages can be awarded for a valuable loss of opportunity in circumstances where there was no prospect that the opportunity would be realised because the plaintiff would or could not have pursued that opportunity or where the plaintiff has not given evidence as to the use he or she would have made of the property. 196 In many of the cases relating to profit-making chattels, there may be no doubt that the plaintiff would have availed itself of the lost opportunity to make profits, and indeed, where unchallenged, the court might be able to draw an inference to that effect from other evidence. However, the onus must lie upon the Joseph Lahoud interests to establish (to at least some degree of possibility) that they would have taken the opportunity. So, for example, Brennan J in Sellars v Adelaide Petroleum N L said (at 365): Thus, in my view, it is clear that in order for a plaintiff to establish that a negligent defendant's conduct has caused a valuable loss of opportunity, he or she must establish by evidence that, but for the contravening conduct of the defendant, he or she could have and would have taken the opportunity and the benefit that it would have yielded: see Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 Gates v City Mutual Life Assurance Society , supra, at 13; Sellars v Adelaide Petroleum NL , supra, at 362. 197 This means that, absent proof of an intention to rent out the Units (or facts from which I could infer a likelihood of such action) there is no evidence of a loss of rental income and it would appear, as Mr Einfeld succinctly put the situation, the Joseph Lahoud interests are in a vacuum of their own making. Evidence of intention 198 The Victor Lahoud interests' position, as I understand it, and the limited reliance placed on paragraph 11(a)(i) of their submissions, was that one should not assume that the Joseph Lahoud interests would have retained the Units had they in fact been transferred (T 32) (and hence the court cannot assume that the Joseph Lahoud interests' loss can be measured by the loss of rental). Mr Einfeld submits that one cannot engage in speculation as to what would have happened in the absence of a proven case of the plaintiff (T 36). 199 In the submissions made for the Victor Lahoud interests, it is asserted that the evidence shows that the Joseph Lahoud interests would not have retained the units if they had been transferred in 2001, but would have sold them. In that regard, reliance was placed by Mr Einfeld on the fact that Joseph Lahoud had sought orders for the units to be delivered with vacant possession (something which was said to be inherently unlikely if he had intended to retain the existing tenants for the Units and obtain the rental income therefrom). Joseph Lahoud's affidavit evidence did not address this issue (other than insofar as he turned attention to what he might have done had the Units been sold prior to August 2001 – the so-called "sale scenario"). 200 The question as to what the Joseph Lahoud interests would have done had the Units been transferred to them in August 2001 (and their expectations arising from performance of the Terms of Settlement) must of course be determined objectively. 201 There was evidence that, at about the time the Terms of Settlement were signed, it was the intention of Joseph Lahoud to sell the Units. Joseph Lahoud accepted that before signing the Terms of Settlement he had formed the intention to have the Units sold and not retained (T 83); and that this was conveyed to Victor Lahoud or his lawyers during the negotiations. Although Joseph Lahoud appeared to resist directly answering the question, ultimately he conceded that he was keen to sell the Units but "at the reserve price", "not at any price" (T 85), saying that he was "keen to sell at the right price". 202 In February 2001, Joseph Lahoud had discussions with a real estate agent (Mr Mazzoni of Century 21 Real Estate) in relation to the possible sale prices of the Units (T 65). Mr Einfeld tendered paragraph 102 of an affidavit of Joseph Lahoud of 20 February 2004 (Ex 11), in which Joseph Lahoud deposes to such a conversation. The advice received from Mr Mazzoni was that two bedroom units might achieve $530,000; three bedroom units $720,000 to $790,000. Joseph Lahoud says he asked if the Units might achieve higher amounts ($600,000 to $650,000 for Unit 4; $800,000 to $850,000 for Unit 31) which Mr Mazzoni did not rule out but which, from Mr Mazzoni's reported response, seemed unlikely. (It seems that Joseph Lahoud was proposing to set the higher prices as the reserve on any auction.) 203 Joseph Lahoud claims to have understood that the procedure specified in Schedule 1 for the sale of the Units also entitled him to set a reserve price on any sale by private treaty (T 68 and T 74) insofar as he was entitled to instruct solicitors and agents on a sale, although I would have read paragraph 1 of Schedule 1 as relating to the administrative procedures for sale and, at best, giving Joseph Lahoud an effective right of veto over any sale price with which he did not agree. (I also note that if his evidence is accepted on this point then given that Joseph Lahoud appears to have pitched the reserve price for each Unit, in his own mind, in excess of the values advised by Mr Mazzoni and in excess of what the valuer later called by him to give evidence in these proceedings contends was the market price for the Units at the relevant time, there must be a doubt – particularly as to Unit 4 - as to whether any sale could have been achieved at auction, since what Joseph Lahoud was proposing to set appears to be have been an unrealistic reserve (see T 66).) 204 Cowley Hearne at about this time obtained estimates for the cost of conveyancing services in relation to the sale of the Units (and for an audit of "Castle Constructions Pty Limited Warringah Road Project", see facsimile transmission of 23 March 2001 from Cowley Hearne to Joseph Lahoud, p 288 revised damages tender bundle). 205 The initial steps taken by Joseph Lahoud in relation to the marketing of the Units in February 2001 are consistent with implementation of the process which had been agreed between the brothers for sale of the Units in the period up to August 2001. I therefore do not think any inference can be drawn, from the fact that Joseph Lahoud had spoken with real estate agents about the sale of the Units in February 2001 (and his lawyers had obtained quotes for conveyancing costs), as to what would have been done had the Units actually been transferred in August 2001. 206 Joseph Lahoud accepted that he did not retain any agent to put the Units to auction in 2001 (T 86). However, during 2001 the parties were in dispute as to whether the Terms were binding and there was apparently an issue about access to keys to the Units (T 86), which makes such delay in arranging a sale explicable. 207 It was put to Joseph Lahoud in cross-examination that in March 2001 (or on 15 March 2001) he had advised his solicitor that he wanted to sell the Units as soon as possible to be able to start a project of his own in which he was interested. Joseph Lahoud did not recall that, but acknowledged that he could have said that and accepted that, if he had, it would have been true (T 164.26-46). Reference was made to an affidavit sworn by Joseph Lahoud on 20 February 2004 in the damages proceedings, in which he had recorded his then legal representative (Mr Chaffey) as having said (in a meeting at which Joseph and Victor Lahoud were both present on 6 February 2001 at the Commission) words to the effect that Joseph did not wish to have the units transferred and preferred to have them sold. Joseph Lahoud accepted that this had been said (T 84). However, there is little if any evidence as to what project, if any, Joseph Lahoud might have had in contemplation either then or later in August 2001. In the witness box Joseph Lahoud could not recall any such project. 208 Further, he accepted that in March 2002 he was looking to acquire a property in Castlecrag (to which any proceeds from a sale of the Units might have been applied), that evidence does not in my view support a finding that, had the Units been transferred in August 2001, Joseph Lahoud would at once have proceeded to sell them in order to procure funds with which such a property might later be acquired (or any project then pursued). 209 In 2004, the Further Amended Summons sought orders for transfer of the Units "free of encumbrances". However, this is more likely to be explained by reference to the issue later raised before Palmer J as to whether the Units were to be transferred subject to or free from mortgage encumbrances. There is no suggestion that the parties were at that time turning their attention to the tenancy status of the Units. 210 Points of Claim filed by baron & associates (then acting for the Joseph Lahoud interests) on 23 June 2005 as to the form of orders sought by the Joseph Lahoud interests in the hearing before Palmer J included that the Victor Lahoud interests give vacant possession on completion. 211 It was put to Joseph Lahoud (T 87-88) that he had pursued the sale of the Units long after August 2001, in that he had sought vacant possession of the Units by notice of motion dated 15 August 2006, relatively shortly before the Units were in fact transferred to him. (I was taken to correspondence – tendered as Exhibits E and F - in which, as late as July/August 2006 (and seemingly after the Joseph Lahoud interests were on notice that one or both of the Units might be tenanted) the Joseph Lahoud interests were pressing for orders for the transfer and unencumbered titles to be delivered with vacant possession (but on the basis that they did not accept the "genuiness" [sic] of the "purported" lease over Unit 31). 212 Joseph Lahoud denied that the purpose of seeking vacant possession of both Units in August 2006 was to sell the Units (T 92). Joseph Lahoud's response (to the suggestion that the desire to obtain vacant possession in late 2006 was in order to receive Unit 31 without an incumbent tenant) was, "So I can rent them myself, either rent both of them or rent out and live in one myself" (T 89). When it was put to Joseph Lahoud that it would be illogical to remove a tenant before finding out what the rent was, Joseph Lahoud gave what I regarded as a singularly unconvincing response (T 92): Q. As a person with the experience you have just described, it is quite possible that you asked the Court for vacant possession of a unit you would then rent out, possibly for less rent than you could have received under the existing lease. That's your sworn evidence is it, sir? A. If it was being rented for a certain price, I don't think the probabilities are that you would rent it for less if that particular tenant moved out. Q. What I suggest to you is the evidence that you have given in answer to my questions about what motivated your desire for vacant possession of the unit, are completely and utterly fatuous, just a reconstruction as you sit there in the witness box, aren't they? A. No, they're not. If you have one particular tenant renting at a particular price, if that tenant moves out, from my experience it is unlikely, it is possible, that you would get a lower rent; it is more possible that you would get the same or a higher rate. Q. Is that something that exercised your mind in August 2006 or are you just saying that today? A. I can't remember if it did or not. It may have, yes. 213 Nevertheless, I do not consider any inference can be drawn from the fact that an application was made in August 2006 for the Units to be transferred with vacant possession, among other things because it is by no means apparent that Joseph Lahoud was aware that the properties were in fact tenanted (or of the identity of the incumbent tenant(s)) at the time that application was made. 214 Joseph Lahoud said he could not remember whether Unit 31 was in fact occupied by Mitsui in August 2006, but became aware of it "at some stage". As noted earlier, from the transcript to which I was taken of the hearing (in July 2005) before Palmer J as to the form of the orders then to be made, it appears that the Joseph Lahoud interests became aware of the Mitsui lease only during the course of that hearing and that they were told at that time that the lease of Unit 31 was due to expire in early 2006 and that there would be no issue with the provision of vacant possession of Unit 4 if that was what Joseph Lahoud wanted. Moreover, what Joseph Lahoud may have been seeking to do in relation to the Units in 2006 does not necessarily tell me anything as to what he would have done some five years earlier; there being every possibility that his circumstances or intentions (or the property market itself) may have changed over that period. 215 The best (and, on the evidence before me, only real) indication of what the Joseph Lahoud interests would have done in August 2001, it seems to me, is to be gleaned from what was said at or about the time the Terms of Settlement were signed. At that stage, Joseph Lahoud intended there to be a sale of the Units and his preference was apparently to receive the sale proceeds rather than a transfer in specie. Therefore, it might be thought that the more likely outcome would have been that (absent any change in circumstances to cause Joseph Lahoud to take a different view as at August 2001) had they obtained the Units in August 2001, with or without vacant possession, the Joseph Lahoud interests would have been looking to sell the Units. 216 Certainly, as at February 2001 what would seem objectively to have been Joseph Lahoud's primary intention was to obtain the proceeds of sale (and, by inference from paragraph 8 of Schedule 1 perhaps, the means of obtaining such proceeds by transfer of the Units to him if the sale could not be completed by August 2001). The material put to Joseph Lahoud in cross-examination as to his intentions in February 2001 supports the probability that in early 2001 the Joseph Lahoud interests were contemplating a sale of the Units. 217 Against that, it might be suggested that the distinction between a joint sale of the Units prior to 6 August 2001 and a transfer in specie thereafter was consistent with an understanding that from 6 August 2001 it would be open to the Joseph Lahoud interests to do what they liked with the Units (and perhaps it might be inferred that the common assumption was that a transfer in specie would only need to take place if it had proved impossible to sell the Units at a mutually satisfactory price before then, perhaps making it more likely that they would be retained). 218 The element of speculation which this debate highlights leads me to the conclusion that there is insufficient evidence from which I could ultimately be satisfied that the Joseph Lahoud interests would have taken any one particular course of action (whether sale/rental/retention for own use or otherwise) for one or both of the Units in preference to any of the other courses of action open to them, had the Units been transferred in August 2001. 219 Joseph Lahoud accepted, when the matter came before me, that the position was he was not certain that in 2001 (or for that matter in 2006) that he would have rented out both Units (T 90). Significantly, Joseph Lahoud accepted in cross-examination that he might not have rented out both Units; he might have lived in one; and that he had the possibility to do either and said he "would have decided that at some stage" (T 89). The only thing he was firm about was that "my intention was to keep them" (T 79). In the witness box, Joseph Lahoud was adamant in his denial that it was always his intention to sell the Units and to utilise the proceeds of sale for other purposes (T 77, T 78). He conceded (when it was put to him) that there was no mention in his affidavits in these proceedings of any intention to retain the Units (T 79), even though elsewhere in the preparation of his affidavits he had given some consideration to what his intention would have been in various alternative scenarios (para 11, of his 30 April (22 para) affidavit). In this regard, he described his 30 April affidavit as relating to his intention as to the hypothetical situation if the Units were sold, not as stating any intention as to what he would have done had he received the Units. 220 In the absence of anything objectively to support the assertion by Joseph Lahoud that he always intended to keep the Units (particularly when this seems inconsistent with his intention in early 2001 to sell them and utilise the proceeds elsewhere), I must treat this evidence with a high degree of caution. I note, in that regard, the observations of McLelland CJ in Eq in Watson v Foxman (1995) 49 NSWLR 315 at 319. I cannot help but think that Joseph Lahoud's assertion now, as to what his intention was or would have been back then (particularly where there is such a stark contrast between the adamance of his denial of an intention to sell but his acknowledgement of uncertainty as to how they would have been used if the Units had been retained), has been consciously or unconsciously influenced by the nature of the relief he is now seeking. 221 As to what the Joseph Lahoud interests in fact did when the Units were transferred in 2007, I think no useful inference can be drawn therefrom given the lapse of time. Both Units were vacant for a period of time after the transfer in February 2007. At present, Unit 4 is occupied by Joseph Lahoud and Unit 31 is rented out. There seems to have been no real attempt to advertise Unit 4 after it was transferred to Joseph Lahoud. Joseph Lahoud said he was concerned about malicious damage to the property and conceded that Unit 4 remained vacant for almost five months. Whatever be the case as to the delay in leasing Unit 4, and its subsequent use by Joseph Lahoud, I do not see how the fact that when the Units were finally transferred they were used in a particular way sheds any real light (particularly given the lengthy delay) on what would have happened had they been transferred earlier. 222 I suspect that the real answer is that, whatever Joseph Lahoud may have intended in February 2001, had the Units been transferred in August 2001 he would have considered the options open to him at that stage, and in the light of whatever were his then circumstances. What he would then have done I do not know (and Joseph Lahoud led no evidence to assist me on this point). 223 I am unable to find (to any sufficiently particular degree of probability or possibility) that, had the Units been transferred in August 2001, or any time thereafter, Joseph Lahoud would have made any particular decision (ie to sell/rent/retain/give away/or other) in relation to either of the Units in preference to any other decision that would have been open to him to make at that time. 224 What I think I can, however, reasonably assume is that it is not likely that Joseph Lahoud would have placed himself in breach of any obligations owed under leases to third parties by which he would have been bound in August 2001 had the Units been transferred to him. Mr Epstein submitted that there was demonstrable damage at least to the extent of the rental receipts from those tenancies until they expired (T 300). 225 In the absence of evidence that the Units were likely to have been sold (subject to the existing leases) at that time, I therefore consider that what the Joseph Lahoud interests have established that they were deprived of are the actual rents from the leases which were on foot as at August 2001 for such time until those particular leases expired. In the case of the Mitsui lease for Unit 31, at the relevant time that lease was the subject of an option for renewal (as of right) by Mitsui. The current Mitsui lease as at 6 August 2001 (p 555 revised damages bundle) was for a term of 12 months to June 2002 with an option for a further 12 months (ie to June 2003) at new rent. Rent for the first year was $750 per week, for the second year, (if the option was taken up, $775 per week). 226 Unit 4 was rented as at August 2001 but it seems that the rental arrangements were coming to an end by about the end of October 2001, as a new 12 month lease commenced on 1 November 2001. 227 Accordingly, as at 6 August 2001, the position would have been that, absent any other agreement reached with Mitsui, if Mitsui chose (as it in fact later did) to exercise its option for a new lease, then the Joseph Lahoud interests could not have obtained vacant possession of Unit 31 until June 2003 at the earliest, though they could have obtained vacant possession of Unit 4 shortly after August 2001. Of course, it would have been possible for either Unit to be sold subject to existing leases but there is no evidence as to the likelihood of such a sale (and the stance adopted in 2006 was one of seeking vacant possession in circumstances where there was no knowledge of a lease which suggests that had the Joseph Lahoud interests looked to sell the Units in August 2001 they would have wished to do so with the benefit of vacant possession). Therefore, it may be unlikely that Joseph Lahoud would have proceeded to market the Units while they were tenanted. 228 The very adamance of Joseph Lahoud's evidence that he did not have the intention to sell the Units, coupled with his evidence that he "might" have rented one or both, suggests that he really could not say what he would have done (and the fact that he was quick to reject the one option, that of sale, which seemingly had been foremost in early 2001, is likely in my view to involve an element of reconstruction, akin to that explained in Watson v Foxman). 229 Therefore, while I am satisfied that the Joseph Lahoud interests have established that they lost the benefit of the actual rental from the Units from August 2001 until the expiry of the leases which were then on foot and, in the case of Unit 31, the option lease (since on my reading of that lease, it was wholly within the discretion of Mitsui whether to exercise the option and it did so), I am not satisfied the Joseph Lahoud interests have established a claim for damages in relation to loss of rental income (actual or market) beyond that amount. 230 I note that the Joseph Lahoud interests would have had to pay expenses in relation to the leasing of the Units and expenses in connection with the Units otherwise than as passed on to or recouped from the tenants. Those monthly outgoings are itemised in the Second Further Amended Particulars of Damage. 231 I note that Joseph Lahoud accepted in cross-examination that had he received and rented the Units out from August 2001 he would have been paying tax on any income from that source (T 96), but it was not submitted that I should take that into account when determining the damages. Capital value loss 232 It was at one stage put to me by Mr Epstein (in response to a question I had raised as to the reference in Wenham to lack of any evidence to suggest a lesser return from the property) that on any view the Joseph Lahoud interests have suffered compensable loss (or loss exceeding the capital gain represented by the increase in value of the property from 2001 to 2007) by reference to interest on the capital value of the properties as at 2001. The way in which this claim was put was not altogether clear to me. 233 As I understand it, what is said is that, whatever be accepted to be the market value of the Units as at 6 August 2001, if one applied the court rate of interest to that amount and offset that against the increase in the market value as at 2007, the Joseph Lahoud interests would still be "out of pocket". This was the way in which it seems the Joseph Lahoud interests ultimately sought to maintain their so-called s 100 interest claim as having some form of independent operation (ie over and above a claim for interest or any damages by way of lost rental income which might be ordered). 234 To calculate such a loss (assuming for the moment a claim for such a loss is sustainable) it is necessary to come to a view as to the market value of the Units at the relevant times. This requires an assessment to be made of the valuation evidence put for both parties. · Valuation Evidence 235 While the valuers seem to have adopted the same primary valuation methodology, and were broadly agreed on the value of Unit 4 as at 2007 and Unit 31 as at 2001, there was a considerable gap between the values each put on Unit 4 as at 2001 and Unit 31 as at 2007 (and Mr Juniper's 2001 valuation was as at March 2001, whereas Mr Hubbard's was as at July 2001, ie much closer to the relevant date). 236 On Mr Hubbard's assessment, the increase in market value of Unit 4 from 2001 to 2007 was $75,000 or 14.28% and for Unit 31 was $75,000 or 10.34%; compared to the increase in value on Mr Juniper's figures of $170,000 or 40.47% for Unit 4 and $225,000 or 31.46% for Unit 31. 237 Unit 4 is a two bedroom apartment; Unit 31 is a three bedroom apartment. It seems to be accepted that, in the subject building, Unit 4 is physically comparable to Unit 13, as is Unit 31 to Unit 9. 238 Both valuers considered comparable sales within the Northbridge development itself and within the area (although Mr Juniper considered there to be fewer (and in the case of Unit 31 in 2007 only one) helpful comparables). 239 Mr Juniper considered that the only really helpful or comparable sales of units were those either within the subject (Northbridge) development or within the development virtually directly opposite at Strathallen Avenue (T 238). Mr Juniper accepted that Mr Hubbard had referred to sales of units in other buildings in the area (to which he had not) which might have been of general assistance but was of the view that most were not directly comparable (T 238). 240 In general terms, I found Mr Juniper to be the more careful and considered witness, and I would place more reliance on his analysis. There were criticisms made (which I accept) of his failure to include in his report matters which, under the Expert Witness Code, should have been included, in particular another sale which he said in the witness box he had omitted to record in the report (of Unit 25, a three bedroom unit in the subject development, in 2005 (T 245 and T 258)); and his reliance on instructions and information from Victor Lahoud as to the refurbishment of one of the units in the building which had caused him to disregard a second sale (at a significant increase two months after the first) in August 1999 of Unit 20 (a seemingly comparable unit to Unit 4). Nevertheless, I do not believe those matters affected the reliability of his views as to the sales of units more directly comparable to the Units he was valuing. 241 Although some of the factual data set out as assumptions in his report were incorrect (such as the incorrect sale price noted for Unit 24 of the subject building in 2001), Mr Juniper gave evidence that he had verified certain of the factual data provided to him by way of assumptions by reference to computer databases RP Data and Commercial Property Monitor (T 235) (to at least the first of which databases Mr Hubbard also had reference). 242 Mr Juniper was able to explain logically the process by which he had taken into account the variables in respect of the comparable sales and the way in which he had made adjustments to take into account the timing of different sales. Mr Juniper had taken into account various factors in assessing the comparability of respective premises to which Mr Hubbard admitted he had not had regard (including the internal areas of units (T 176), the aspect of the respective units (T 181), cross-ventilation, air conditioning, car spaces, natural light, security, and the like (T 182) and aspects of the fittings (T 183-186)) even though Mr Hubbard conceded that they could be relevant. For example, after initial resistance to the proposition, Mr Hubbard ultimately accepted that traffic noise would be greater at a ground level at the front of the development on Sailors Bay Road than four storeys up in a building that did not face the street (T 185). 243 Mr Juniper had calculated the site areas of both Units from architectural drawings and inspected both Units. Mr Juniper (for reasons which appeared to me to be eminently rational) considered the Strathallen Avenue building a superior building, being brand new, with a superior outlook and no (or perhaps lesser) exposure to noise (T 239). (There was a difference in the exposure to noise as between the two bedroom and three bedroom units in Strathallen, the latter not being as exposed to the traffic noise.) He disregarded sales in buildings further away from both the subject development and that on Strathallen Avenue, for reasons that seemed to me to be perfectly logical. 244 Mr Hubbard, on the other hand, seems solely to have approached his valuations with a broad brush view as to how to adjust for the comparable sales (T 188) without explaining how those adjustment were subjectively arrived at and without undertaking a principled exercise of the kind carried out by Mr Juniper (where there would be a comparison of the physical features both of Units 4 and 31, and of the respective comparables in making adjustments for superior/inferior features). 245 Mr Hubbard frankly conceded that "All I did in valuing Unit 4 was have regard to other two bedroom units, knowing the size of those units, including balconies from strata plans" (T 188). His experience in valuing rental home units in the Lower North Shore was, apparently, limited to the particular valuation exercise undertaken by him for these proceedings (T 188). 246 Mr Juniper also applied a cross check based on rates per square metre – not as a primary method but as a tool to confirm (or not, as the case may be) the conclusions he had reached on the comparable sale methodology. Mr Juniper said that this was of assistance in giving an overview: It affords a useful means of cross-checking sales to derive indicative rates … essentially based on the living areas of the sold units and it is particularly useful in drawing comparisons between the units being valued and the sale units, particular where the unit areas are different. (T 237) 247 It was said that in his experience this was very commonly used as an indicative form of cross-check. So, for example, as to the 2001 valuation of Unit 4, Mr Juniper had derived a range of rate per square metre values from the range of two bedroom unit sales in the Strathallen building (this range being from $420,000 to $464,000) and tested his valuation of Unit 4 by seeing how that fell within that range of derived values. Similarly, for Unit 31, Mr Juniper considered that the supporting market evidence and sales of Strathallen units indicated a range of values between $4,900 and $5,600 per square metre (his assessment of Unit 31 translating to $5,458 per square metre). 248 Mr Hubbard did not appear to accept that such a methodology was useful – at least insofar as Mr Hubbard did not apparently carry out such a cross-check. He did not accept that factors such as those taken into account by Mr Juniper would "necessarily" produce a higher purchase price on a rate per square metre comparison (T 186). 249 Mr Hubbard conceded that, as a barometer of value, a reasonably reliable measure of changes in market value might be derived from a consideration of sales of particular properties at different points in time (T 190) at least if properties were sold and re-sold over time but could not recall whether he had had regard to changes in sale prices of units in the same building. He was aware that Unit 9 (a three bedroom unit closely comparable to Unit 31) had sold in early 2002 for $851,000 and again in June 2007 (for $1.025 million), but he gave no consideration to the increase in its value (T 191) and did not accept that was a useful yardstick against the values he attributed to the Units in question because Unit 9 had sold after the relevant date (T 227). He accepted that had he taken into account the June 2007 sale of Unit 9 that might have influenced his valuation result (T 277). (As noted, Unit 9 had sold on 8 March 2002 for $851,000 and on 12 June 2007 for $1,025,000, a 20% increase over a slightly later period, compared to the 10% and 14% increases in property values of Units 31 and 4, respectively, on Mr Hubbard's valuations.) Mr Hubbard conceded that the market value was buoyant over this period – it being a period of low or decreasing interest rates (T 195). A similar comparison of the sale and resale of a comparable unit to Unit 4 (Unit 4 in a Sailors Bay Road building) produced a 21% increase, but Mr Hubbard says that did not trouble him as he had relied on this sale only as a comparable for Unit 31. 250 While Mr Hubbard accepted that it was incongruous that on his figures there was around a 10% increase, compared to a 21% increase in other comparable sales, he said that price increases would not be worthy of consideration because "My valuation wasn't comparing increases between certain periods of 6 years. It was valuing respective units at respective dates" (my emphasis) (T 197). 251 In this regard Mr Hubbard appeared to be confused (at least in the witness box) as to what task he was performing in carrying out the valuation at hand. He explained that he had been involved in litigation matters in the past where he had been instructed not to assume post date sales because the valuer at the relevant date would not have known of the transaction (T 197). When questioned as to this, it became apparent that Mr Hubbard was referring to matters involving valuers' negligence. He seemed to accept that he was approaching the issue of valuation in this case as if he had been at the property on the relevant date (ie, say, 6 August 2001) trying to value the property on that day (not valuing it now as at that day) (T 193). 252 In those circumstances, I have more confidence in Mr Juniper's evidence than that of Mr Hubbard. Turning then to the respective Units, I comment briefly as follows. Unit 4 253 At T 201, Mr Hubbard explained his valuation "methodology" for Unit 4 as at 2001. He considered that Unit 20 in the Northbridge development was the primary comparable. It had sold in August 1999 for $515,000. He noted that Unit 13 (another comparable) had sold in 2001 for $535,000. He noted the market had moved from 1999 to December 2001 and therefore concluded that Unit 4 "had to have" a higher value than Unit 20, so would have to be over $515,000 and that the Unit 13 sale of $535,000 was a ceiling (T 201). 254 Mr Hubbard said that "as part of a logical conclusion of everything" he adopted value of $525,000 (T 202). He claimed to have carried out adjustments "in a general sense" to take into account the differences in characteristics between Unit 4 and Units 13/20, saying, "It is all part of the generalised adjustment". It was difficult from his report to see how that adjustment was carried out, or what matters were taken into account in so doing and Mr Hubbard was unable to shed further light on this in cross-examination. He certainly agreed he made no express adjustment for matters such as natural light, air conditioning, fixtures/fittings or the like. 255 It was therefore impossible to drill down into Mr Hubbard's reasoning process beyond a conclusion that he thought Unit 20 set the lower benchmark at $515,000 (T 212) and that he approached his valuation of Unit 4 as at 2001 with that in mind. He accepted that his assessment would be affected by knowledge of a comparable sale on almost exactly the same day (1 August 2001) for a price of $470,000 (see Ex 7). 256 By comparison, for the 2001 valuation of Unit 4, Mr Juniper took into account a range of sales of units in the Strathallen building and of the comparable units (13 and 4) in the subject development. Mr Juniper considered the other two bedroom unit sales relied upon by Mr Hubbard were not really of assistance since they were in significantly different locations. He assessed the relativity of the two Sailors Bay Road units and formed the view that Unit 4 was worth 85% of Unit 13. He discounted for escalation between March and December 2001 (when Unit 13 had last sold) and adopted a value of $420,000 for Unit 4 in 2001. He conceded this was at the bottom end of the range of comparables, but thought this was justified on the basis of the differences in physical characteristics for the units and his cross-check by rate per square metre. 257 As noted above, Mr Juniper had disregarded the August 1999 sale of Unit 20 (a two bedroom unit in the subject building) which had sold in June 1999 for $420,000 and had sold subsequently in August 1999 for a significant increase. Mr Juniper said the reason for the significant increase was an internal refurbishment of Unit 20 and hence regarded the June 1999 sale as more indicative. However, the knowledge as to the refurbishment came from Victor Lahoud. Mr Juniper accepted that he should have referred to this in his report. Absent the perceived idiosyncratic features of this sale, it would presumably have cast some doubt on a value of $420,000 for the subject property in March 2001. 258 In cross-examination (at T 253) it was accepted by Mr Juniper that if the relativity between Unit 4 of the subject development and Unit 4 Strathallen were correct (as was said to be the case by Mr Juniper when looking at comparables in February 2007) then applying that same relativity in March 2001 the former property in March 2001 would have been valued at $487,000. 259 While this logic might be queried to some extent by reference to the doubt as to whether Unit 4 Strathallen was a two bedroom unit in 2001 but converted to a three bedroom unit in 2007, if it was a comparable two bedroom unit then Mr Juniper readily conceded that the application of relativity of units and the methodology he had applied would give a likely sale price of Unit 4 in the subject development in March 2001 in the vicinity of $488,000. However, Mr Juniper said the more comparable units in 2001 were those nearer in size to the subject Units and hence remained of the view that $420,000 was correct (T 256). 260 At T 261, Mr Juniper accepted that Unit 4 Strathallen had sold in April 2001 for $455,900 and then a month later for $570,000. (This is the unit subsequently resold in February 2007 for $690,000.) Mr Juniper considered the earlier sale fitted reasonably in line with the mathematical methodology but that the $570,000 was "well and truly out of line" and an aberration (T 264). Strathallen was built in early 2001. Mr Juniper said that the strata plan was registered in March 2001 and there were sales off the strata plan for some time before and after that time. Mr Juniper said the market was reasonably stable until early 2001 but there was a pretty substantial market escalation in the two years up to the end of 2003. On that basis he considered that if someone had bought (Unit 4) off the plan in 2000 for $455,000 it would not be surprising if it had been resold in the middle of 2001 for a quite handsome profit (T 266). 261 As noted, there was some doubt as to whether Unit 4 in Strathallen was a two bedroom unit (more comparable to Unit 4 in the subject development) or a three bedroom unit (more comparable to Unit 31 in the subject development). I was informed by Counsel that the consent plans endorsed for the Strathallen building (access to which was obtained during the course of the hearing with some difficulty as the plans were with another tribunal for the purpose of a separate matter) showed Unit 4 as a two bedroom unit divided by other rooms but the evidence was that it was later advertised for sale in 2007 as a three bedroom unit (see Ex G. It was sold in February 2007 for $690,000. It would appear likely that in 2001 it was a two bedroom unit large enough to have capacity to be converted into (or described for later sale as) a three bedroom unit. In any event it seems it would be safe to assume it was a more capacious unit than Unit 4 in the subject development (and perhaps less capacious than Unit 31). Mr Juniper accepted that if there was potential for the unit to be changed to a three bedroom unit this would have added to its value. 262 For two bedroom apartments in 2007 there was, according to Mr Juniper, a more limited range of comparables. Principally he had regard to the Unit 13 sale (in the subject building – a directly comparable unit) in December 2001 and then adjusted to reflect escalation in the market from 2001 to 2007. Mr Juniper nevertheless did refer also the contemporaneous sale of Unit 4 in Strathallen in February 2007 for $690,000. 263 Mr Epstein took Mr Juniper through the percentage increases in sale prices between early 2001 and 2007. The subject Unit 4, on Mr Juniper's valuation, appreciated by 40%; Unit 4 in Strathallen on the other hand had appreciated only 27% in that period. Mr Juniper accepted this was an anomaly. 264 In my view, overall, Mr Juniper's evidence as to the property values was the more reliable and should be adopted but with some qualification. If the value is to be assessed at August 2001 (and the market was increasing in the latter half of the year, as Mr Juniper said it was), one would expect a higher price for Unit 4 valued in August 2001 than as valued in March 2001. In relation to Unit 4, there was evidence put to Mr Hubbard of the sale of another unit (Unit 4 in 282 Sailors Bay Road) on 1 August 2001 for $470,000 (Ex 7) which would suggest a higher value than $420,000 for Unit 4 in the Northbridge development as at August 2001. 265 Mr Epstein tested the methodology by which Mr Juniper had adjusted for market escalation in order to arrive at his assessments of value. Exhibit H represented the mathematical calculations put to Mr Juniper on the basis of which it was suggested (T 246) that, if the relativities between Units 13 and 4 were correct, then in August 2001 the value of Unit 4 would have been roughly $440,000 (assuming an adjustment of 85% of the value of Unit 13). 266 On balance I accept Mr Juniper's logic and methodology by which the relativities between Units 13 and 4 are to be applied, but this needs to be adapted for an August 2001 (rather than March 2001) assessment. (I accept that Unit 4 Strathallen, being a larger unit in a superior building would not be a direct comparable and therefore Unit 13 would be a more reliable indicator of value in 2001.) 267 Had it been necessary I would have assessed the value of Unit 4 as at August 2001 at $440,000 and I would have accepted Mr Juniper's valuation of Unit 4 at February 2007 as $590,000 (being very close, I note, to Mr Hubbard's valuation as at that time of $600,000). Unit 31 268 Mr Juniper considered that the only reasonably comparable sale for the purpose of assessing the value of Unit 31 in 2001 was the sale of Unit 9 in the subject building in March 2002. Again Mr Juniper made an adjustment by reference to market escalation to assess the value of Unit 31 as at 2001. 269 On a similar mathematical adjustment exercise (Exhibit J) which Mr Epstein asked him to consider, Mr Juniper conceded that the value of Unit 31 in August 2001 would have been roughly $748,000 (assuming an adjustment of 93% of the value of Unit 9). 270 This puts Unit 31 at a higher value in August 2001 than either valuer did in their reports (Mr Juniper valuing it at $715,000 as at March 2001; Mr Hubbard valuing it as at July 2001 at $725,000). However, on the same logic as applicable for Unit 4, I consider the value, as shown by Mr Juniper's methodology as at August 2001 would have been $748,000. 271 For 2007, Mr Juniper was unable to identify any sales in Strathallen around that date and considered the only relevant sale to be Unit 9 in June 2007; although he said this was supported by another sale in the subject development (Unit 25 for $1.1 million in 2005) (not referred to in his report) (T 245). Again, he made an adjustment for market escalation. I would accept that calculation. Conclusion as to market values 272 Therefore, had it been necessary, I would have accepted that the market value to be placed on the properties at the respective times would be: Unit 4 August 2001 $440,000; February 2007 $590,000 Unit 31 August 2001 $748,000; February 2007 $940,000 273 The combined market value of the two Units in August 2001 I would thus have found to be $1,188,000. This is slightly in excess of the combined value attributed to the Units in the accounts of the Joseph Lahoud Family Trust (of $450,000 and $650,000 respectively totalling $1.1 million) and in Joseph Lahoud's own financial records (his tax returns being tendered in the revised damages bundle). (At T 113 Joseph Lahoud accepted that long after February 2001 he had formed the view that the Units were worth $1.1 million.) 274 Accordingly, any s 100 interest claim by way of the loss or deprivation of use of the capital value of the Units over that time would be calculated on the $344,000 difference between the combined market value or at August 2001 ($1.188 million) and at February 2007 ($1.53 million). For the reasons set out below, however, I do not accept that such a claim is sustainable. Interest claim 275 In relation to the interest claim, Brereton J in Hexiva Pty Limited v Lederer (No 2) [2007] NSWSC 49 considered the approach adopted by the courts to claims for interest as damages, in circumstances where the claim before him was (though in fact a claim for statutory pre-judgment interest under s 100(2) of the Civil Procedure Act 2005) in substance a claim for damages in the nature of interest for late payment of a debt. His Honour noted (at [97]) that: Courts have apparently adopted a far more stringent approach to what is required to prove a claim for interest as damages, than to claims for statutory pre-judgment interest . Whereas the cases on statutory pre-judgment interest suggest that loss from late payment will be assumed, the cases in which interest is claimed as damages for deprivation of money suggest that the plaintiff bears the onus of establishing the loss, which is not presumed to arise from the mere withholding of money [ Pooraka Holdings Pty Ltd v Participation Nominees Pty Ltd & McAuley (1991) 58 SASR 184 (FC); Hobartville Stud Pty Ltd v Union Insurance Co Limited (1991) 25 NSWLR 358, 363-4 (Giles J); Walker v FAI Insurance Limited [1991] TasR 258; (1991) 6 ANZ Ins Cas 61-081, 77,279 (Wright J); Eugenie Holdings Pty Ltd v Stratford (NSWSC, 12 November 1991, Giles J, BC9101436); McBeath v Sheldon (1993) Aust Tort Reports 81-208 (Giles J); affirmed Sheldon v McBeath (1993) Aust Tort Reports 81-209 (NSWCA); State Bank of NSW Limited v Yee (1994) 33 NSWLR 618, 636]. In Hobartville Stud Pty Limited v Union Insurance Co Limited (1991) 25 NSWLR 358 Giles J (as his Honour then was) held that the determination of a claim for damages for loss of use of money required investigation of the facts underlying the claim and that the court cannot simply award interest as damages without such investigation (at 363-364). (My emphasis) 276 Giles J (as his Honour then was) in Hobartville Stud v Union Insurance (1991) 25 NSWLR 358 had noted that the reference to an award of general damages distinguished damages within the first limb of Hadley v Baxendale from those in the second limb but that "It still remains necessary to undertake a factual investigation into the loss suffered through being held out of the money", noting various passages in the Hungerfords v Walker (1989) 171 CLR 125 which demonstrated that a plaintiff's loss and its quantum are to be found as a fact and assessed on the evidence "not assumed from the withholding of the money and automatically assessed by the application of current market rates of interest". 277 In Hexiva, Brereton J said (at [12]): In my view, therefore, the apparent difference in the courts' approach to the two types of claim for interest is explicable on the basis that, while loss will be presumed from deprivation of money due, so as to justify an award of simple interest from when the money became due until it is paid, proof of loss will be required where a plaintiff seeks to recover compensation for losses arising from the deprivation of money in excess of simple interest from the time when payment ought to have been made. 278 His Honour accepted that damage had been suffered by the delay in payment and considered that it was a reasonable and proper inference that had the moneys been available to the plaintiff it would have applied then either to reduction on its borrowings or by way of investment which would have generated a return. This was sufficient to justify the award of simple interest. 279 In Hexiva, there had been an enquiry before his Honour as to damages, evidence had been tendered and his Honour drew the inferences he did on the basis of that evidence. It was not suggested that interest as damages would be recoverable in excess of simple interest, absent proof of loss. Relevantly, in terms of quantification of the loss, the plaintiff in Hexiva had not proved it would have been derived a better return had the moneys been paid in a timely manner and invested. To the extent that it is suggested that loss in the nature of simple interest would be presumed without proof, this seem to be inconsistent with Hobartville. However, in this case it is not necessary to determine the issue as there is no evidence that moneys would have come into the hands of the Joseph Lahoud interests (and I note that Hexiva was not raised before me). 280 What have been referred to as "interest damages" were considered in Palasty v Parlby [2007] NSWCA 345, where the Court of Appeal determined the matter of interest on the evidence at first instance and noted that interest damages (damages for loss of use of money of the kind considered in Hungerford v Walker) are not to be confused with an award of statutory interest under s 100(1) of the Civil Procedure Act 2005 (though it was commonplace to calculate an award of interest damages by reference to the interest rates set out in Schedule 5 to the Rules). 281 Here no claim for "interest damages", as they have been explained above, was made in the Second Further Amended Particulars of Damage. The claim there was for s 100(1) interest, albeit calculated on the loss of the "capital value" of the Units. As Mr Einfeld pointed out in submissions, before interest is awarded under s 100(1) there must be an entitlement to a debt or in this case damages. Though, as Brereton J noted, statutory damages may in a particular case be conceptually no different from damages for loss of use of money in the Hungerfords v Walker sense, there remains a requirement that that loss (and its quantum) be proved. 282 In Investec Bank (Australia) Limited v Glodale Pty Ltd [2009] VSCA 97, the Court of Appeal in Victoria, citing Hobartville, noted that: If there was to be a claim for interest it should have been articulated as a claim in accordance with the principles set out in Hungerfords v Walker – as such it would have been a claim for damages based on the notional loss of use of the funds which would have been paid to the respondents as a result of a sale at market value (after paying out the bank). 283 The Victorian Court of Appeal clearly considered that not only should a claim of this kind have been pleaded, but that evidence was required to support it. 284 Here, Mr Epstein submits that the Joseph Lahoud interests lost the capital value of the Units for the period from August 2001 to February 2007. They certainly lost the benefit of ownership of the Units over that period. No claim is made that there has been a diminution in the capital value of the Units such that they were worth less when they were transferred in 2007. On the evidence of both valuers the Units have appreciated in value. The Joseph Lahoud interests now have the benefit of that appreciation in value. (And, as I understand it, this is the reason Mr Epstein makes no claim for loss of capital value as such and simply seeks interest damages referable to the capital value the Joseph Lahoud interests would have obtained had the Units been transferred in 2001.) However, any pecuniary loss sustained as a result of not having the capital value of the Units as at 2001 would arise only if one or both of the Units would have been sold (or perhaps used as security to raise funds) at the time and the proceeds so realised used in a particular way. 285 Mr Epstein submits that if the rental scenario is said to be incorrect, then it should be assumed a sale would have taken place and an amount representing market value in August 2001 received, and that should be compensation on the basis of such an assumption, ie sale proceeds (on a market value assumption) plus interest at s 100 rates deducted from the market value of the properties as at 2007 (T 361). 286 Mr Einfeld responded by saying there was no evidence as to whether the Joseph Lahoud interests would have kept or sold the Units; the claim was not particularised anywhere, and no submission was addressed to that effect. He submitted (and I agree) that paragraph 12 puts a claim for loss of the increase in capital value not a claim for compensation for loss of use of the increase in capital value. The only claim for damages (on which a s 100 interest claim would lie) is a claim for rent. 287 Mr Epstein submitted (T 364) that failure to deliver the properties with a market value of, say, $1.2 million constituted damage and interest would run on that damage at s 100 rates. 288 Whether or not such a loss would have been reasonably foreseeable for the purposes of Hadley v Baxendale is a separate issue. The difficulty I see with the submission of the Joseph Lahoud interests on this is that, before one gets to that point, it must first be established that such a loss was sustained. The fact that the Joseph Lahoud interests did not have the opportunity to sell or refinance the Units in 2001 so as to receive available funds is not to the point if they would not have done so. Therein lies the difficulty. There is no evidence that the capital value in one or both properties would have been realised in August 2001. 289 Indeed Joseph Lahoud was at pains in the witness box to deny that this is what he would have done, denying an intention to sell and asserting a far more indeterminate intention (he might have rented one or both out or lived in one – he would have made his mind up at some point). This does not support a s 100 interest claim based on loss of capital value. 290 What the Joseph Lahoud interests were deprived of in August 2001 was the opportunity to make a decision as to what they wanted to do with the Units. The evidence in my view is consistent with Joseph Lahoud having no firm intention at the time as to what he would do. Back in February 2001, he wanted the Units sold; there is evidence from which one might infer that he was considering utilising (or would have utilised) the sale proceedings in a development project, though this comes down to what Joseph Lahoud seems to have accepted that he said to his representatives at the time. If his intention did not change thereafter, then it might be inferred that the Joseph Lahoud interests would have sold the Units and invested the proceeds in some fashion – but there was no attempt (other than in relation to the alternative damages claims which were not pressed) to adduce evidence as to the loss which could be said to have been suffered as a result of not being able to choose to do so. 291 Ultimately, the s 100 interest on loss of capital value claim seemed to me to be put forward by way of a comparison – ie to say that even if the loss of rental claim was not made out, the Joseph Lahoud interests have nevertheless lost at least the loss of use of the capital value that could have been obtained had they not rented out the Units over the period. I do not consider that there was evidence to sustain such a claim. 292 Therefore, in my view the s 100(1) interest claim is limited to an award of interest at statutory rates on any award of damages I make in relation to the loss of rental income. Conclusion on damages enquiry 293 The Joseph Lahoud interests (in asserting they had no onus to establish their loss beyond establishing they were deprived of an income-producing asset) have put little or no evidence as to what would have been done had the Units been transferred, and hence have not established that the losses in respect of which they sought compensation were caused by the admitted breach by the Victor Lahoud interests of the obligation to transfer the Units. 294 While the calculation of damages can involve a degree of estimation or guess work and while courts are accustomed to performing such tasks with the evidence (incomplete though it often may be) that is available, where a party has denied the obligation to go into evidence (and has accordingly denied their opponents the opportunity to test and to challenge evidence), I consider that it is not open to me to resort to blind guess work. Although there is certainly evidence before me as to what rent was actually received by the Victor Lahoud interests and as to what rent (market rent) it is likely could have been achieved by the Joseph Lahoud interests, what was not before me was evidence from which I could infer that, after the expiry of the leases then on foot for Units 31 and 4, the Joseph Lahoud interests would have proceeded to rent one or both units (or would be likely to have taken some other course open to them at the time). 295 The purpose of the enquiry before me was to establish what loss, if any, has been suffered. In my view the only loss which has been established on that enquiry is the loss of actual rents for the period from August 2001 to the expiry of the leases on foot at that time in accordance with the terms and, in the case of Unit 31, the rent payable on the succeeding option lease (since the right to exercise the option reposed solely in the lessee and, on the facts, the lessee exercised that option – thus, there being no reason to think Mitsui would not have done so had the Joseph Lahoud interests been the lessor), less the monthly outgoings for that period as itemised in the Second Further Amended Particulars of Damage. 296 The monthly outgoings for Units 31 and 4 were particularised in the Second Further Amended Particulars of Damage. They were comprised of strata levies, water rates and Council rates (and, it is said in the case of Unit 4, an amount presumed for non-recoverable repairs). No land tax was payable for years prior to 2005. The net monthly rent for Unit 31 for the period 7 August 2001 to June 2003 (according to paragraph 7 of the Second Further Amended Particulars of Damage) totalled $65,702.44 (on my calculations). The net monthly rental for Unit 4 for the period 7 August 2001 to end October 2001 (according to item 1 of the Second Further Amended Particulars of Damage was $5,460.45 (again on my calculations). 297 Interest should be paid on the lost rental income, from the dates on which each payment of rent would have been received, in accordance with s 100 of the Act on a simple interest basis. Trust Issue 298 The thrust of the argument on this aspect of the defence is that any benefit received by Joseph Lahoud under the Terms of Settlement would not have been received by him in his personal capacity and therefore he has suffered no personal loss. 299 However, a trustee of an interest in a contract can recover damages suffered ultimately by the beneficiary by reason of breach of that contract. That a trustee can do so is presupposed in many of the cases dealing with privity of contract and/or the damages recoverable for a failure to confer a benefit on a third party. For example, in a dissenting judgment in Coulls v Bagot's Executor & Trustee Co Limited (1967) 119 CLR 460 at 501, Windeyer J said the following: The question which presents itself at this point is what is the measure of damages for breach of a promise to confer a benefit upon a third party? Take the case supposed above — a contract by A with B under which B is to pay $500 to C. A sues B for breach of contract. There are authorities which say that he could recover only nominal damages, because it is C who has suffered not he: see West v Houghton (1879) 4 CPD 197; Viles v Viles (1939) SASR 164; but cf Drimmie v Davies (1899) 1 IR 176. As Else-Mitchell J remarked in Cathels v Commissioner of Stamp Duties (1962) SR (NSW) 455, at p 472, the cases on this point are "conflicting and unsatisfactory". No difficulty would arise if a statement of Lush LJ; in Lloyd's v Harper (1880) 16 Ch D 290, at p 321, could be accepted without qualification and regardless of its context. He said: "I consider it to be an established rule of law that where a contract is made with A for the benefit of B, A can sue on the contract for the benefit of B and recover all that B could have recovered if the contract had been made with B himself." But I think we must take it that when the learned Lord Justice spoke of a contract for the benefit of B he was thinking of a contract of which A was a trustee for B — that is to say of a case in which A held his legal rights under a contract as a trustee for B. In such a case of course the question disappears …(my emphasis) 300 A number of the cases there referred to by his Honour depend upon the circumstances in which a trust would be held to exist so as to enable the beneficiary to sue upon the contract. 301 Young CJ in Eq, as his Honour then was, disposed of a question similar to the one raised in the present case in Dalton v Ellis; Estate of Bristow (2005) 65 NSWLR 134 at 143: What, if anything, is the significance of the fact that the first plaintiff [the trustee] has suffered no damage by breach of the deed? It is clear law that where a person is trustee for another on a deed or bond, she [ie the beneficiary] may sue on the deed and it matters not that the trustee is herself not damnified: Lamb v Vice (1840) 6 M & W 467; 151 ER 495; Lloyd's v Harper (1880) 16 Ch D 290 at 309. 302 Insofar as the complaint is simply that the proceedings were not commenced naming the plaintiff as "Joseph Lahoud as trustee of the Joseph Lahoud Family Trust", nothing turns, in my view, on the fact that the pleading did not identify that the suit was brought in a representative capacity (if that is a proper description) as trustee for the Joseph Lahoud Family Trust. In Ritchie's Uniform Civil Procedure NSW, it is noted (at [6.128.25]) that there is no requirement under the rules that a representative capacity be so disclosed (though it is said that it should be done). In Government Insurance Office (NSW) v Johnson [1981] 2 NSWLR 617, Hutley JA criticised (at 622) an earlier edition of Ritchie's Supreme Court Practice which had suggested that "[i]t is no longer necessary to indicate in the title of the proceedings that a party is being sued in a representative capacity". However the issues which were there considered by his Honour (namely the capacity of a representative to bind a deceased defendant's estate) do not arise in the present case where the Terms of Settlement was entered into by Joseph Lahoud (as well as his company) and so a legal right to sue upon the Terms of Settlement is naturally vested in him. 2. Audit claim 303 During the course of the hearing the questions for determination in relation to the audit proceedings were narrowed to the following three questions, it being agreed between the parties that the outcome of the claims in the audit proceedings would turn on the findings made by the court on these questions. 1. Upon the proper construction of the Deed dated 5 February 2007 and in the events which have happened: (a) Was the right to make an election for an audit under clause 2 of the Deed capable of exercise on and after 5 February 2007; or (b) Was the right to make an election of the kind described in clause 2 of the Deed capable of exercise only upon, and as and from, the execution of the Terms of Settlement on 6 February 2001? 2. If the answer to 1(a) above is in the negative and the answer to 1(b) above is in the affirmative, then (a) Upon the true construction of the Terms of Settlement, was the right to elect for an audit in paragraph 1 of the Terms available to the parties only for a reasonable time? (b) If the answer to (a) above is in the affirmative, and in the events which happened, had a reasonable time expired prior to the parties' entry into the Deed on 5 February 2007? 3. Does the term "audit", where respectively used in the Terms of Settlement of 6 February 2001 and Deed, allow an audit of the profits of the Cammeray project the subject of the proceedings or merely an audit of the figures appearing in annexure A to the Terms of Settlement alone. 304 It was agreed between the parties that: (a) If the answer to question 1(a) above is in the affirmative, the Victor Lahoud interests shall be entitled to the declaration in paragraph 1 of the Statement of Claim and the orders in sub-paragraphs 2(a), (b) and (c) of the Statement of Claim, and such other consequential orders as the court sees fit, and that the Joseph Lahoud interests' Amended Defence and Amended Cross-Claim shall be dismissed" (to the intent that the [Joseph Lahoud interests] shall not at any future time make any claim against the [Victor Lahoud interests] in or in relation to the subject matter thereof"; and (b) If the answer to question 1(a) is in the negative and the answers to questions 1(b) and 2(b) are in the affirmative, then the Statement of Claim shall be dismissed and the declaration in paragraph of the Amended Cross-Claim made. 305 It was conceded by Counsel appearing for the respective parties that the form of the declaration and consequential orders to be made if the answer to question 1(a) is in the affirmative, may be affected by the answer to question 3. Factual background to purported exercise of right to an audit 306 Referred to in the evidence before me were paragraphs 67-69 of an affidavit sworn 20 February 2004 served by Joseph Lahoud on the hearing before Palmer J of the circumstances in which Joseph Lahoud signed the Terms of Settlement. Broadly, those paragraphs detail part of the negotiations held at the Industrial Relations Commission during the morning of 6 February 2001. In his affidavit, Joseph Lahoud deposes to a private meeting with Victor Lahoud that meeting at the Commission in which he says he said, "I have been through the Cammeray figures myself and the figure you told me this morning must be incorrect. On my calculations, the figure is much higher than $570,000. It is closer to $870,000." 307 It is not disputed (as I understand it) that the "figures" which Joseph Lahoud said he had reviewed were those in Annexure A to the Terms of Settlement. According to Joseph Lahoud, Victor's response was, "I have been though the figures as well. According to my calculations, the figure is $570,000. That is the figure that should be inserted into the first paragraph of the terms." 308 It is clear that Joseph Lahoud's issue with the figures was whether they accurately recorded or reflected the profit on the project since his response to Victor Lahoud (he said) was, "You do not work on a project to make less profit than could have been achieved if one had sold the site with DA approval". 309 I note that, while the Terms of Settlement were typed, there were a number of handwritten annotations made by the parties to the terms, particularly in paragraph 1, which (with annotations) provided relevantly as follows: … The [Victor Lahoud interests] have provided written details of the profit calculation for the Cammeray Project, which is Annexure "A" hereto, and verily believe that those details are accurate. Either party may elect to have the figures audited by an accountant to be agreed or, in default of agreement, as nominated by the President of the Institute of Chartered Accountants. If on audit, the audited profit exceeds the said profit calculation, [Joseph Lahoud] is to be paid one half of the difference by the Respondents. If the audit profit is less than the said profit calculation, [Joseph Lahoud] will pay the [Victor Lahoud interests] one half of the difference. The reasonable costs of the audit are to be paid by the [Victor Lahoud interests] in the event of the audited profit figure exceeds the said profit calculation and by [Joseph Lahoud] in the event the audited profit is the same or less than the said profit calculation. 310 Annexure A comprised a summary two page document headed "Costs" which set out the total costs ($4,745,876.2) (but with no reference to costs such as stamp duty or the deposit paid on acquisition of the property) then set out various other items and discussed the gross profit as being $692,054.34 of which a 50% share of gross profit was $346,027.17. That figure, together with reimbursement to Joseph Lahoud of a sum of $223,402.90, represented the $570,000 ($569,420.07 rounded up) contained in paragraph 1 to the Terms of Settlement. There were then attached, as part of Annexure A, various supporting invoices or documents. 311 The first indication in correspondence between the parties that there might be a need to resort to the audit provisions of the Terms of Settlement came in the letter dated 7 March 2001 from Tillyard & Callanan to Windeyer Dibbs, in which an error in the profit calculations was noted, although that letter in its terms made no reference to an audit (and Victor Lahoud's contemporaneous correspondence to his lawyers indicated that he saw the request made in relation to the foreshadowed amendment to the profit calculation as being "unrelated to the auditing of the figure"). 312 By letter dated 22 May 2002, Tillyard & Callanan wrote to Haywards (then acting for the Joseph Lahoud interests) confirming that the Victor Lahoud interest were seeking avoidance of the Terms of Settlement and the repayment of $570,000, which sum, it was said, "represented a calculation of what was then [in February 2001] thought to be one half of the profit on the sale of the Cammeray project". That letter (p 184 revised audit tender bundle) sought, in effect, that the Joseph Lahoud interests account for the sum of $394,158.82, noting that the sum which had been paid on 6 February 2001 was subject to an audit at the option of either of Victor or Joseph Lahoud (though not in terms suggesting that there had been an audit), and attaching a letter dated 14 May 2002 from Castletons, accountants, advising that the financial statements of Castle Constructions showed the profit figures in relation to the project at $351,682.36 (p 185 revised audit tender bundle). 313 Haywards responded by seeking provision of all documents relied upon in preparing the financial statements of Castle Constructions in relation to the Cammeray Project (letter dated 17 June 2002, p 182 revised audit tender bundle). This led to what Campbell J, perhaps charitably, described as a "confused" course of correspondence between the solicitors on the topic of an alleged audit. 314 By letter dated 24 June 2002, Tillyard & Callanan responded to the request for provision of documentation in relation to the Cammeray project, stating "Without prejudice to our clients' rights [in relation to the Industrial Relations Commission proceedings] should your client wish to have the figures audited, then could he please nominate an auditor who can contact Messrs Castletons, chartered accountants, and make arrangements to commence such audit" (p 188 revised audit tender bundle). 315 The response from Haywards, by letter dated 28 June 2002, was to assert that "Your proposal for an audit contradicts your section 106 proceeding" and to note that "Clearly some sort of audit has already occurred, and we request the documentation relied upon so our client can make his own assessment" (p 189 revised audit tender bundle). 316 By letter dated 22 July 2002, Tillyard & Callanan wrote back saying: "Our client's invitation to your client to have the figures audited has no relationship to the Terms of Settlement whatsoever. Our client's accountants have determined the profit on the project and, whether or not your client is entitled to 50% of those profits, the invitation was simply to determine the precise amount of that profit by independent audit if your client so chooses" (p 190/191 revised audit tender bundle). From the content of that letter, it would appear that Tillyard & Callanan did not regard the demand for the difference between the sum received and the sum which they contended represented 50% of the profit, as referable to any audit. Tillyard & Callanan advised that, in the absence of a satisfactory response, proceedings would be instituted to recover that amount (this is what seems to have been encompassed by the insertion in October 2004 of paragraphs 12/14 of the Amended Notice of Cross-Claim, which were ultimately abandoned). 317 By letter dated 15 October 2002 (p 192 revised audit tender bundle), Tillyard & Callanan wrote to Haywards, apparently invoking the right to an audit, in the following terms: "We advise that our client has instructed us to seek that the Institute of Chartered Accountants appoint an auditor to audit the figures in relation to the Cammeray project … We will serve a copy of the audit report in due course". Though again not expressly referring to the audit provisions of the Terms of Settlement, this is what the parties appear to concede was a purported exercise of the right to elect for an audit. 318 In response, by letter dated 25 October 2002, Haywards noted that the audit "proposals" did not comply with the provisions of the Terms of Settlement and stated: "Your clients' decision to initiate an audit in relation to the Cammeray project is inconsistent with their section 106 claim in the Industrial Relations Commission, and their defence in the Supreme Court" and suggested that an inference could be drawn that the Victor Lahoud interests were "maintaining proceedings … with the knowledge that there are no real prospects of success … [or] for an ulterior purpose". The letter threatened an application for indemnity costs and reiterated the request for provision of the documentation relied upon for the Castletons financial statements (p 193 revised audit tender bundle). 319 By letter dated 1 November 2002, Tillyard & Callanan responded: "Our client's position is that, whichever client be successful in the current proceedings, whether in the Industrial Relations Commission or in the Supreme Court of New South Wales, our client is at least entitled to any difference between the sum of $570,000 and the actual amount independently audited should it be less" (p 194 revised audit tender bundle). An offer of access to the Castletons documentations was confirmed. 320 By letter dated 2 December 2002, Haywards enquired whether an audit was being undertaken, to which on 6 December 2002 Tillyard & Callanan responded by referring to a request which had been made to the Institute for nomination of auditors. 321 Campbell J referred to what he saw as being, in substance, a retraction of the offer for Joseph Lahoud's solicitors to inspect the Castletons documentation which apparently led to subpoenas being issued, which in turn the Victor Lahoud interests threatened to seek to set aside. Campbell J recited ([2006] NSWSC 126 at [18]), from a letter dated 18 December 2002 from Victor Lahoud's solicitors, the following: Your client is presently, as we understand from your correspondence, conducting an audit purportedly in accordance with the Terms of Settlement. The result of that audit may impact on any decision of the Court. While we do not concede that this audit is in accordance with the Terms of Settlement, the documents sought on subpoena are clearly relevant to that audit. 322 In January 2003, without any agreement by the Joseph Lahoud interests in that regard, the Victor Lahoud interests appointed Baker Taylor Pty Ltd to audit the financial report of the Cammeray project. 323 Campbell J ([2006] NSWSC 126 at [57]) noted that, by letter dated 20 February 2003, the solicitors for the Victor Lahoud interests had stated, "We are not aware of any election pursuant to paragraph 1 of the Terms of Settlement by either party". His Honour considered that this letter showed that, at least by 20 February 2003, the solicitors acting for the Victor Lahoud interests were aware that, if the Victor Lahoud interests had sought to exercise the right to obtain an audit under the Terms of Settlement, that action would involve the exercise of a right which was inconsistent with the assertion that the Terms of Settlement had been entirely rescinded, and could amount to an election to regard the Terms of Settlement as still on foot. 324 His Honour noted that all this correspondence occurred at a time when there was no issue on the pleadings relating to any alleged audit and that in April 2003 the Victor succeeded in having a subpoena aimed at eliciting financial documentation set aside, on the ground that an audit had not taken place. 325 An audit opinion was provided on 18 March 2003 and on 13 May 2003 that was forwarded to Haywards as being an audit report "obtained by [Victor Lahoud] to enable him to determine the final result of the [Cammeray] project" (p 208 revised audit tender bundle). Relevantly, it was said by Tillyard & Callanan that the Baker Taylor report was "submitted to assist your client in understanding the consequences of this audit result" and had foreshadowed that there might be a "further audit conducted in the future at the election of any party as a result of any court order or agreement between the parties as varied or confirmed by the court." 326 Clearly, at this stage, the Baker Taylor audit report was not being treated (at least by the Victor Lahoud interests' lawyers) as the result of an audit under the Terms of Settlement; nor was it read by Campbell J as suggesting that there had been an audit under the Terms of Settlement. His Honour read this letter as saying that the solicitors acting for the Victor Lahoud interests regarded the audit not as one which was carried out in accordance with the Terms of Settlement, but as a "trial run", which gave an indication of the sort of result which their client would obtain if they were to fail in asserting that the Terms of Settlement had been brought to an end "and were then to initiate the audit process" ([2006] NSWSC 126 at [57]). 327 Nevertheless, his Honour considered that an affidavit subsequently filed by the Victor Lahoud interests (Victor Lahoud's affidavit of 18 June 2004, referred to in the Particulars to paragraph 13 of the Amended Notice of Cross-Claim) amounted to an assertion that Mr Baker had effectively conducted an audit. 328 As at September 2004, therefore, the position seems to have been that the Victor Lahoud interests had apparently sought (by the 15 October 2002 letter) to invoke their right under the Terms of Settlement to an audit (though had not done so in the manner provided for in the Terms of Settlement) or else had chosen simply to commission an audit as a "trial run"; the Joseph Lahoud interests had responded, in effect, by asserting the inconsistency of both seeking to set aside the Terms of Settlement (or to argue they were unenforceable) and at the same time purporting to invoke rights thereunder (and had, in effect, impliedly accused the Victor Lahoud interests and/or their lawyers of impropriety in the conduct of the litigation); the Victor Lahoud interests had commissioned and received their own audit report of the final profit in relation to the project; and Victor Lahoud (inconsistently with what his lawyers had said in May 2003) was asserting in his affidavit filed in the proceedings that an audit had taken place. 329 The net result of those events was summarised by Campbell J ([2006] NSWSC 126 at [67]) as follows: In my view, the issue propounded in the Amended Notice of Cross-Claim, that Mr Baker's "audit" entitled Victor to be repaid the $570,000, was always a hopeless issue. The preconditions for there being a valid audit under the Terms of Settlement were that the parties attempt to agree on the identity of an auditor, and only in default of agreement turn to the President of the Institute to nominate an auditor. Here, there was no attempt to agree on the identity of an auditor. Further, the election which the Terms required had not been made. As Mr Callanan well realised, if such an election had been made it may well have had seriously detrimental effects on Victor's principal contention, that the Terms of Settlement had been validly rescinded. 330 Significantly, against this background, on 24 September 2004 the Joseph Lahoud interests' new lawyers, (Toomey Pegg Drevikovsky), in a letter expressed to be "Without prejudice except as to costs", asserted that "Our clients fail to see any point in conducting an audit until the status of the Terms of Settlement have been established by the Court. Would you please let us know what would be achieved by conducting an audit when your clients are seeking to have the Terms set aside" (my emphasis) (p 216 revised audit tender bundle). 331 A further letter by Toomey Pegg Drevikovsky, written on 6 October 2004, again on a "without prejudice except as to costs" basis, asserted that the audit conducted by Baker Taylor was not an audit conducted in accordance with the Terms of Settlement; noted that this had been conceded by Victor Lahoud and that there had been no opportunity for Joseph Lahoud to make submissions to the auditor or test the accuracy and completeness of the material briefed to him; and, relevantly, stated, "As to the audit proposal, we repeat that our clients see no point in going to the expense of having an audit conducted when, if your clients are successful, it will be a pointless exercise and of no practical commercial value" (my emphasis) (p 218 revised audit tender bundle). 332 Shortly thereafter (on 12 October 2004), the Amended Notice of Cross-Claim was filed in the damages proceedings in which, inter alia, paragraphs 12 – 14 were asserted and the Victor Lahoud interests relevantly pleaded, further and in the alternative, that if the Settlement Agreement is not set aside there was an entitlement to "have the profit calculation audited" and if, on audit the audited profit was less than the said profit calculation then there was an entitlement by the Victor Lahoud interests to one half of the difference (para 12); that on 18 March 2003 an audit was carried out (para 13); and that "by reason of the matters set out in paragraph 13" (ie that the 18 March 2003 audit had revealed a net loss on the Cammeray project of $16,829.32), the Victor Lahoud interests were entitled to repayment of the moneys paid in 2001 (para 14). A declaration was sought that the Joseph Lahoud interests were not entitled to specific performance of the Terms of Settlement and that the Terms of Settlement be set aside ab initio. It may be that this amendment was carefully drafted to avoid specifying that an audit had been conducted under the Terms of Settlement and to leave open whether the Baker Taylor audit was in fact one carried out pursuant to the Terms of Settlement. In any event, at most what was abandoned when those paragraphs were deleted was a claim based on the outcome of the Baker Taylor audit which (as all parties are now in furious agreement) cannot be said to have been an audit in compliance with the Terms of Settlement. 333 As noted earlier, after the Deed of Settlement was signed the right to an audit was formally exercised, on 6 February 2007. In response, by letter dated 2 March 2007, the lawyers then acting for the Joseph Lahoud interests (baron & associates), asserted that the claim for the return of funds paid under the Terms of Settlement (based on the allegation that an audit had determined a net loss) was abandoned in the course of the proceedings and that no current entitlement existed. The letter concluded by advising that "Accordingly, our clients decline to participate in any process of nomination of an accountant with respect to the profit figures provided by your clients" (p 394/5 revised audit tender bundle). 334 By letter dated 16 May 2007, this reasoning was expanded. It was asserted that the right to elect for an audit arose under the Terms of Settlement, that the repetition of those Terms of Settlement in the Deed of Settlement did not "detract" from this position; that the Victor Lahoud interests had previously purported to invoke the audit procedures of the Terms of Settlement (though failed to do so validly, for reasons described in the judgment of Campbell J) and that the time for undertaking of any audit had long since elapsed (p 398 revised audit tender bundle). 335 Relevantly, baron & associates, in their letter of 2 March 2007, appear to have conceded that the letter dated 15 October 2002 was a notification by the Victor Lahoud interests of the exercise of the right of election for an audit conferred under the Terms of Settlement. Agreed audit questions 336 The first question posed by agreement between the parties for determination by the court goes to the source of any right to make an election for audit, which involves a question of construction of the Deed of Settlement and its operation viz-a-viz the Terms of Settlement; the second question goes to the time within which an election for an audit had to be made under the Terms of Settlement (assuming that to be the operative source of the right to an audit). The final question relates to the scope of any audit to which the Victor Lahoud interests may be entitled. Question 1 – operation of clause 2 of the Deed of Settlement. · Does the Deed of Settlement have independent contractual force? 337 It was submitted by Mr Epstein that the Deed of Settlement does not constitute a contract as it was imposed on the parties by order of the court (and hence lacks the requisite consensus ad idem for a binding contract). 338 I have outlined above the circumstances in which the order was made (over the objection of the Joseph Lahoud interests) for the parties to execute a deed in performance of the obligations under paragraph 7 of the Terms of Settlement. I understood Mr Epstein to accept, in the course of argument before me, that the Deed of Settlement was binding but to contend that, though binding, it is not enforceable as a contract. It may be that I did not understand him correctly in that regard. In any event, his written submissions were to the effect that the Deed of Settlement was not a consensual contract, emphasising the voluntary nature of contractual relationships. Mr Epstein cited Carter on Contract [01-040, 01-090 and 01-100], where the author notes that the essence of a contract is consensus ad idem and the "voluntary assumption of a legally enforceable duty", having been described by the High Court in Australian Woollen Mills Pty Limited v Commonwealth (1954) 92 CLR 424 at 457 as "a principle which is fundamental to any conception of contract". 339 Mr Epstein argued that there was nothing at all "voluntary" about the Deed of Settlement, it having been imposed on the parties, over the Joseph Lahoud interests' resistance and at the Victor Lahoud interests' instigation, by order of the court. Accordingly, it was submitted that the Deed of Settlement "does not constitute a contract" but, rather, it is "an aspect of the court's enforcement of the parties' existing contract", ie of the Terms of Settlement. 340 It was said that the Deed of Settlement is simply a consequence of the requirement that, once an order for specific performance of the contract has been made, the future exercise of rights and the performance of obligations under the contract are matters which come under the control of the court; and those rights may be exercised only with the leave of the court (citing Buckman v Rose (1980) 1BPR 97059, Hughes v Pellicciari (1982) 2BPR 97139 and Zorbas v Titan Properties (Aust) [2005] NSWSC 440 in support of this proposition). 341 Thus it was said that if (as Mr Epstein submitted) the Victor Lahoud interests, in accordance with the contract constituted by the Terms of Settlement, did not (at the time the order for specific performance was made) have any right to procure an audit, then in its control of the contract constituted by the Terms of Settlement, the court should not authorise the Victor Lahoud interests' purported exercise of a right to commission an audit originally given by those Terms of Settlement but extinct by the time the final orders in the damages proceedings came into effect. 342 As a factual matter, the extent to which the deed was forced upon the Joseph Lahoud interests is a matter of some debate. 343 Specific performance of the Terms of Settlement was initially sought by the Joseph Lahoud interests and, insofar as specific performance is ordinarily ordered of an agreement in its entirety, the fact that the court might not be prepared to make a partial order of specific performance must have been contemplated at the time those orders were sought. I was taken to evidence in the transcript of argument that indicated a preparedness on the part of the Joseph Lahoud interests to execute the Deed of Settlement (Ex 12 Tab 43 p.279 line 26). 344 After the Court of Appeal dismissed the Victor Lahoud interests' appeal on 30 June 2006, baron & associates tendered (on 6 July 2006) a deed said to be in accordance with the first of the orders made by Palmer J on 13 October 2005 and requested that "unencumbered title to the Units be handed over within seven days" (p 354 revised audit tender bundle). 345 By letter dated 2 August 2006, Aitken McLachlan Thorpe, acting for the Victor Lahoud interests, forwarded amendments to the deed which had been prepared. Those amendments were apparently acceptable to the Joseph Lahoud interests and the Deed of Settlement was executed on 5 February 2007. 346 As executed, the opening words of clause 2 differed from the corresponding paragraph in the Terms of Settlement in that they recorded an acknowledgement of payment of the sum of $570,000 on 6 February 2001 and fixed the time at which the parties asserted a belief in the accuracy of the written details of the profit calculation as being as at 6 February 2001. Otherwise, clause 2 of the Deed of Settlement simply reproduces what was contained in paragraph 1 of the Terms of Settlement. The changes from the corresponding provision in the Terms of Settlement can be seen (as Aitken McLachlan Thorpe asserted) as putting into the past tense certain matters which as at 6 February 2001 were to take place but which, by the time of the Deed of Settlement, had since taken place. 347 I note that Aitken McLachlan Thorpe sought clarification prior to execution of the Deed of Settlement as to whether the Joseph Lahoud interests agreed with an "interpretation" of the orders of Palmer J which had been set out in their earlier correspondence on 25 July 2006. (That "interpretation" seemed to relate to the time at which title deeds were to be handed over since, by letter dated 21 December 2006, baron & associates wrote to Aitken McLachlan Thorpe noting that the amendments proposed on 2 August 2006 (except in relation to clause 7 Schedule 1) were incorporated "having regard to your client's [ie the Victor Lahoud interests] abandonment of the assertion that the interpretation of the Deed provided for the Title Deeds to be handed over six months from execution of the Deed.") 348 It seems, from baron & associates' response of 21 December 2006, to have been agreed between the parties that the Deed of Settlement was, at least in that respect, not to operate prospectively from its execution date (ie in relation to the date by which there was to be a hand over of the title deeds for the Units). This would not have been necessary had clause 2 simply been confirmatory of existing rights and not generative of any rights as from the date of the deed (as suggested by Mr Epstein). 349 By letter dated 22 January 2007, in response, Aitken McLachlan Thorpe wrote confirming that the Victor Lahoud interests "will not run any arguments, relying upon Clause 8 of Schedule 1 of the Deed, or otherwise, to the effect that the that Title Deeds will not be delivered up until 6 months after execution of the Deed but that Justice Palmer's orders requiring the delivery of such title deeds to be provided on or before 12 February 2007 will override that position, as it were". 350 Mr Epstein's submission, if I have understood it correctly, seems in essence to be suggesting either that the court order operates in a coercive manner (somewhat akin to duress) or that the Deed of Settlement executed under compulsion of the court should be construed as no more than a confirmation of whatever the position was under the Terms of Settlement as they then stood. 351 The execution of a contract (assuming for the moment that, the Deed of Settlement would otherwise embody a new contract) under the compulsion of a court order does not in my view lack (or at least should not be recognised as lacking) the requisite quality of voluntariness for the purposes of asking whether it constitutes a binding contract. 352 Section 94 of the Civil Procedure Act 2005 (which is, in substance, almost identical to the former s 100 of the Supreme Court Act 1970) provides: (1) If any person does not comply with a judgment or order directing the person: (a) to execute any conveyance, contract or other document, or (b) to endorse any negotiable instrument, the court may order that the conveyance, contract or other document be executed, or the negotiable instrument endorsed, by such person as the court may nominate for that purpose. (2) A conveyance, contract, document or instrument that is executed or endorsed pursuant to an order under subsection (1) operates, and is for all purposes available, as if it had been executed or endorsed by the person originally directed to execute or endorse it. 353 A contract will be a valid and enforceable contract where executed by a nominee in circumstances where there has been non-compliance with a court order that it be so executed notwithstanding the lack of "voluntariness". It would be a perverse result if a different result pertained where there was compliance with the court order. 354 It is not uncommon for the court to order parties to execute agreements by way of specific performance. To suggest that such agreements are not binding for want of "voluntariness" (especially in circumstances where the court has an express power to nominate a person to execute a binding and effective contract on behalf of a person in non-compliance with a court order) would make a mockery of the court's orders in this regard. 355 Courts dealing with orders to execute documents appear to have dealt with compliance with such orders as being a willed decision, at least to an extent. So, for example, in Savage v Norton [1908] 1 Ch 290, Parker J, in discussing whether an order could be made under section 14 of the Judicature Act 1884 (being the precursor to s 94 of the Civil Procedure Act and the former s 100 of the Supreme Court Act) in anticipation of (rather than consequent upon) neglect or refusal to comply, said the following (at 297): My own opinion is that, on the true construction of s. 14, the circumstance which gives rise to the jurisdiction is the neglect or refusal, and that the Court, before making the order, ought to satisfy itself that there has been a neglect or refusal and also as to the circumstances in which that neglect or refusal has taken place, because the order is only to be made "on such terms and conditions (if any) as may be just." Therefore, in making the order, the Court ought to know the circumstances of the refusal or neglect as well as the fact that there has been a refusal or neglect. The refusal may, for instance, have been due to some unforeseen cause, and the party all along may have been willing, and may still be willing, to comply, but may have been prevented by some accident—in which case I doubt whether the Court would, after considering the circumstances of the case, make any order. 356 Palmer J himself considered that any deed entered into in accordance with the Terms of Settlement would be amenable to a suit for specific performance, thereby suggesting that he saw such a deed has having operative force. 357 I do not accept that the Deed of Settlement should be treated as no more than an incident of the exercise of the court's supervisory jurisdiction over its orders. · Continued operation of the Terms of Settlement? 358 In oral argument it was submitted by Mr Epstein that the execution of later formal documents (pursuant to what might be described as contracts falling within the first category of case considered in Masters v Cameron (1954) 91 CLR 353 contracts) may or may not vary, by more full or different expression, the parties' contractual rights under the initial contract (T 397.32-33). 359 As I understand Mr Epstein's submissions, he seems to be contending that the Deed itself does not effect any variation or supersession (whether by termination or rescission or otherwise) of the Terms of Settlement, but that its execution was simply part of the performance of the obligations contained in the Terms of Settlement, intended to be a more formal description or engrossment of the agreement contained in and reflected by the Terms of Settlement and, as such, not relevantly generative of new rights and obligations. In this regard he appears to treat the Deed of Settlement as no more than confirmatory of the Terms of Settlement in its operation. 360 The effect of a subsequent document/contract will depend upon the application of ordinary principles of contractual formation and construction to each particular case. 361 French J (as his Honour then was) in Martech International v Energy World Corp (2006) 234 ALR 265 (a decision which was not overturned on this issue) said that: A longstanding distinction exists in English law between rescission and variation of contracts by subsequent agreements. … 362 His Honour noted that in Tallerman & Co Pty Ltd v Nathan's Merchandise (Victoria) Pty Ltd (1957) 98 CLR 93, Dixon CJ and Fullagar J described the distinction made between 'rescission' and 'variation' as 'not a satisfactory distinction'. It appeared to be 'a matter of degree' (at 113). His Honour quoted Taylor J in Tallerman (at 144): It is firmly established by a long line of cases commencing at least as early as Goss v Lord Nugent [(1833) 5 B & Ad 58] and ending with cases such as Morris v Baron & Co and British & Beningtons Ltd v North Western Cachar Tea Co Ltd — and, indeed, including Goss v Lord Nugent itself — that the parties to an agreement may vary some of its terms by a subsequent agreement. They may, of course, rescind the earlier agreement altogether, and this may be done either expressly or by implication, but the determining factor must always be the intention of the parties as disclosed by the later agreement. 363 In Martech, French J noted that Professor Carter, in an essay on Termination written for the 2nd Edition of The Law of Contract (ed M Furmston), Butterworths, London, 2003, had identified, at 1320–1321, two cases of consensual discharge by implication which may be paraphrased thus: (1) Where the parties to a contract enter into a second contract which is inconsistent with an intention that the contract by which the parties were originally bound should remain in force (at 1321): Then, what one party alleges to be a mere variation of the contract may go so much to the root of the original agreement that the parties' intention to terminate the original agreement may legitimately be inferred, for example, because it is impossible for both agreements to be performed. (2) When the conduct of the parties to an agreement is such that an agreement to terminate or abandon the former contract may be inferred or where their conduct creates an estoppel. 364 In Commissioner of Taxation v Sara Lee Household & Body Care (Australia) Pty Ltd (2000) 201 CLR 520 at 534, Gleeson CJ, Gaudron, McHugh and Hayne JJ, before endorsing what was said by Taylor J (in Tallerman) noted that: When the parties to an existing contract enter into a further contract by which they vary the original contract, then, by hypothesis, they have made two contracts. For one reason or another, it may be material to determine whether the effect of the second contract is to bring an end to the first contract and replace it with the second, or whether the effect is to leave the first contract standing, subject to the alteration. 365 In Concut Pty Limited v Worrell (2000) 176 ALR 693, Gleeson CJ, Gaudron, McHugh and Gummow JJ reiterated (at 698-699) what had been said in Sara Lee. 366 It is clear that a later contract can impliedly "rescind" an earlier contract not only where it deals with the same subject matter in different terms or otherwise varies the earlier contract, but also where it deals with the same subject matter in substantially (or entirely) the same terms (and so is inconsistent with the continued existence of the earlier contract). 367 For example, in Commissioner of State Revenue v Pinesales Pty Limited (2007) 34 WAR 360 the court addressed a circumstance in which the parties had entered into two contracts (on 10 December 2003 and then again on 10 August 2004) to purchase the same strata title unit, the contracts being on the same terms and conditions save as to the times for construction, completion and final payment. The appeal itself (which was dismissed) turned on questions of taxation legislation, but Heenan AJA, with whom Steytler P and Wheeler JA agreed, discussed Barker J's finding (as President of the State Administrative Tribunal ("SAT")) that the second contract had constituted a stand-alone contract for the sale and purchase of the proposed strata lot apartment, by which agreement the parties intended to terminate the original contract between them. (This finding was not challenged on appeal.) The court noted (at [11]) that: In reaching that conclusion [that the second contract terminated and entirely replaced the first contract] his Honour followed, and applied, the decisions in Dan v Barclays Australia Ltd (1983) 46 ALR 437 at 448; Commissioner of Taxation of the Commonwealth of Australia v Sara Lee Household and Body Care (Australia) Pty Ltd [2000] HCA 35; (2000) 201 CLR 520; and Concut Pty Ltd v Worrell [2000] HCA 64; 176 ALR 693; to the effect that, where parties to an existing contract enter into a second contract relating to the same subject matter as the first, the question of whether the second terminates the first depends on the intention of the parties. His Honour also noted that whether or not the parties intended termination or not could sometimes be inferred from the degree to which their contract had been modified: Tallerman & Co Pty Ltd v Nathan's Merchandise (Vic) Pty Ltd (1957) 98 CLR 93; and that occasionally courts have been disinclined to make a finding of termination because of the fact that parties to a commercial arrangement often modify their contractual regime as, for example, in Berry v Wong [2000] NSWSC 1002; Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11,110; and Vroon BV v Foster's Brewing Group Ltd [1994] 2 VR 32. 368 One of the ways in which Barker J had addressed the question was by asking ([2006] WASAT 202 at [68]) on which document the parties would have sued: Another way of approaching this question is to ask, as counsel for the applicant suggested, upon what document would the applicant or the vendor take action in the case of breach of contract. In my view, plainly the contract that the party would sue upon is the deed executed 10 August 2004. 369 On the other hand, in some circumstances, the execution of a whole new document in substantially the same terms as an earlier contract has been held not to evince an intention to terminate the earlier contract. 370 For example, in Lawrence v Finance Corporation of Australia Limited (unreported, 2 November 1990) Powell J, as his Honour then was, in the context of an application for discharge of a mortgage securing guarantees of the obligations of a third party under two Equipment Leasing Agreements (the guarantees expressly applying to any variation or extension of those agreements), considered the effect of the execution of New Equipment Leasing Agreements, which, but for the alterations as to term and repayment and other very minor discrepancies, were in substantially the same terms (essentially the defendant's standard form documents) as the original agreement. 371 Powell J expressed the view that the reasons for adopting the unorthodox course by which the term of the original agreements was intended to extended were "little, if at all, easier to understand than was the conversation to which Alice was subjected when at the Mad Hatter's tea party". 372 His Honour held that, notwithstanding the unorthodox methods adopted, … the arrangements which were made leading up to, and including, the execution of the new Equipment Leasing Agreements [ought not] be regarded as involving a rescission, or termination, of the original Leasing Agreements, and their replacement by the new Equipment Leasing Agreements - for that to be regarded as the position it must appear either directly, or by inference, from the evidence that it was the intention of, at least, Roonga and the Defendant that, as from 30th September 1985, their rights and liabilities were to be determined by reference to the terms of the new Equipment Leasing Agreements, and not by reference to what had earlier occurred. This, so it seems to me, cannot be shown to have been the intention of the parties, notwithstanding the utterly inept, and antic, way in which the Defendant went about attempting to document their future relations. 373 Turning back to what I understand to be Mr Epstein's submission (namely that the execution of later formal documents pursuant to the first class of contracts in Masters v Cameron may or may not vary by more full or different expressions the parties' contractual rights under the initial contract), if it were to be the case that the execution of a later formal document (if the terms are identical to those contained in the initial contract) is not generative of a new contract with any prospective operation, then the execution of the formal document would indeed seem to be an exercise in futility (as Mr Epstein suggested the execution of the Deed of Settlement would be). It would not be a document on which a party could sue, and indeed such a document may well not be relevant or admissible to prove what the terms of the initial agreement were. 374 Ordinarily, therefore, I would infer from an agreement (such as that contained in the Terms of Settlement) that a subsequent document be entered into more formally recording the parties' agreement, that the parties did intend the later document to have contractual force and, where the later document in effect encapsulates the whole of the earlier agreement (with or without additions or amendments), that it would (at the time of its execution) be intended to supersede the earlier contract. 375 The plain meaning of the words in clause 2, which are prescriptive rather than descriptive, weighs heavily against Mr Epstein's construction. That the Deed itself is not intended entirely to be descriptive, is supported by clause 7 which clearly imports a new provision. Clause 7, which contemplates that claims, "may arise from or relate to this Deed", in effect acknowledges that the Deed of Settlement would impose obligations on, and give rights to, the parties thereto. 376 In terms of the parties' intentions, it is clear that the parties understood that the Deed of Settlement would have binding force, since they were at pains to record their agreement that, notwithstanding the terms of the Deed of Settlement in relation to delivery of the title deeds, those provisions were to be disregarded in terms of timing. The parties were also careful to address the fact that the sum of $570,000 had already been paid (presumably so as to preclude any argument arising that a further sum of $570,000 remained to be paid) – something which would be entirely unnecessary if the Deed of Settlement was only to be confirmatory of the Terms of Settlement and have no independent force. 377 There is no doubt that clause 3 of the Deed of Settlement is otiose. As Mr Epstein submits the clause makes reference to a time period (15 February 2001) which has long since passed and to the nomination of the three bedroom unit by the Joseph Lahoud interests which they had long ago made. Similarly, the detailed provisions of Schedule 1 of the Deed of Settlement are otiose (in setting out detailed requirements for the sale of the units in the period prior to the in specie transfer obligation being triggered on 6 August 2001) as is the agreement recorded in clause 5 of the Deed of Settlement for the dismissal of the Summons in the Industrial Relations Commission proceedings, which took place on 6 February 2001. 378 The fact that not all clauses can have operative effect does not suggest that I should treat the others as having no force. 379 As a general principle of construction, a court will endeavour to construe a contract in a manner, which will give effect to all parts of it, rendering no part inoperative or otiose (Re Strand Music Hall (1865) 35 Beav 153; 55 ER 853). While some parts of the Deed of Settlement are clearly otiose and not capable of being given sensible effect (such as clause 3) a construction which gives some meaning and effect to those provisions which are capable of meaning and effect is to be preferred. 380 I accept that principles of construction are no more than guides in the primary endeavour "to discover the intention of the parties from the words of the instrument in which the contract is embodied" (Gibbs CJ in Australian Broadcasting Commission v Australasian Performing Right Association (1973) 129 CLR 99 at 109). It is, of course, possible to conceive of a document in which so many of the provisions are otiose or merely descriptive that a court would not find that any other provisions (that were of themselves capable of being given binding effect) were intended to have binding force. In the present case, however, it is apparent on the face of the Deed of Settlement, that the parties have turned their minds (at least to some extent) to recasting redundant obligations under the Terms in descriptive language and have left others unaltered, it is a reasonable inference to draw that, where a term is capable of being given prospective operation as a contractual term it was intended that that be the case. 381 Mr Epstein urged me to look outside the four corners of the document to prefer a different construction, but the primary external factor to which he referred was the alleged want of volition. For the reasons outlined above, I do not consider that factor to be particularly persuasive. 382 The circumstances in which the Terms of Settlement were signed are relevant in this regard. Steps had already been taken at that stage to commence drafting a Deed of Settlement. The parties seem to have placed weight at the time on there being a deed which would reflect the intended tax treatment of their settlement. They clearly intended the Terms of Settlement themselves to be binding (and it has not been suggested otherwise) and acted immediately upon them in consenting to the orders made that day for the dismissal of the Industrial Relations Commission proceedings and by the payment of the sum of $570,000. However, at the same time they intended a more formal record of their agreement to be put in place; not that there be a document amending or varying the Terms of Settlement but that there be a new (and more formal, since it was to be operative as a deed) document and apparently one intended to be a stand-alone document. 383 To the extent that, seemingly, the deed was to incorporate both the existing Terms of Settlement and the new terms (clauses 7 and 8) the context of which was foreshadowed in the Terms of Settlement, I would infer that the new deed was intended by the parties to operate as a termination of the Terms of Settlement. (However, for the reasons I come to later, there would be no material difference between the position as I see it where the Deed of Settlement, once signed, operated to terminate or discharge the Terms of Settlement and was to speak from that date and the position akin to that in Lawrence where the subsequent document is read as an amendment of or to be read together with the earlier Terms of Settlement, since in either case I think a reasonable time for the exercise of the right to elect for an audit has not elapsed.) 384 It seems to me unlikely in the extreme that if a document in terms of the Deed of Settlement had been signed on, say 6 February 2001, either party would seriously have suggested that the operative agreement was not thereafter the Deed of Settlement (but instead the earlier Terms of Settlement) or that the Deed of Settlement did not speak from the time it was signed. I see no reason for that position not equally to pertain to the situation where the parties (for the reasons earlier set out) did not actually sign the Deed of Settlement until some years later. 385 As noted above, Palmer J clearly envisaged that the deed to be signed by the parties would have independent operative force and that it would give rise to obligations enforceable in their own right. 386 It may well be that the parties simply failed to turn their minds to the timing or continuance of the audit provision. That does not justify a departure from the ordinary rule of construction in this regard. 387 The submission was further put by Mr Epstein that at no time did Joseph Lahoud apply for summary dismissal of the cross-claim and that, insofar as parties were engaged in protracted litigation to determine the enforceability of the Terms of Settlement, it must have followed that this included either party's entitlement to requisition the audit. I am not persuaded that it follows from the fact that the enforceability of the Terms of Settlement were in issue that there was any admission by the Joseph Lahoud interests that the entitlement to an audit was directly in issue in the sense that the time for the election of the right to an audit was in any way suspended, nor do I consider that, by not seeking summary dismissal of the cross-claim, the Joseph Lahoud interests had in any way represented that the question of entitlement to an audit was in some way deferred until the conclusion of the hearing. 388 In short, my answer to 1(a) is "Yes" and my answer to 1(b) is "No". 389 Without wishing to be pedantic, I note that question 1(b) insofar as it refers to a "right to make an election of the kind described in clause 2 of the Deed" might be thought to refer to one of two rights (both being rights of the kind described in clause 2 of the Deed of Settlement existed); the first, which arose upon execution of the Terms of Settlement and was discharged (if it had not already expired through the effluxion of time) upon execution of the Deed of Settlement; the second, which arose upon execution of the Deed of Settlement, being one capable of exercise upon, and as from, the execution of the Deed. I think nothing was intended to turn on this distinction but if I am incorrect, this should be reflected in the orders to be made. Question 2 - Time 390 This question does not strictly arise. If I had answered 1(a) in the negative and 1(b) in the affirmative the answer to 2(a) would be "Yes" as was conceded by the Victor Lahoud interests. 391 Generally (though it is not always the case) where a contract provides one party with a right, but there is no restriction as to the time within which it may be exercised, a term may be implied restricting the exercise of the right to a reasonable time. 392 One of the commonly cited statements of principle in this regard is that of Dixon J in Reid v Moreland Timber (1946) 73 CLR 1 at 13: … I do not regard the right as interminable. I think that the common implication would be made restricting the exercise of the right to a reasonable time. In other words, it should be understood as a right within a reasonable time to cut and remove the timber on the land. An implication of a reasonable time when none is expressly limited is, in general, to be made unless there are indications to the contrary: See Ellis v Thompson (1838) 3 M & W 445 [150 ER 1219]; Picturesque Atlas Co Ltd v Bradbury (1893) 19 VLR 439; Picturesque Atlas Co Ltd v Searle (1892) 18 VLR 633; Lynn v Creati (1892) 18 VLR 629. 393 (See also York Air Conditioning v The Commonwealth (1949) 80 CLR 11 at 62; Ballas v Theophilos (1957) 98 CLR 193 at 197-199; Rudi's Enterprises Pty Ltd v Jay (1987) 10 NSWLR 568 at 575-576; Malding v Metcalfe [1990] ANZ ConvR 110; Ellmore (Maitland) Pty Limited v Tull (1995) 7 BPR 14,305; Handley v Gunner [2008] NSWCA 113 at [85]-[107]; [120]-[130]; Business and Professional Leasing v Akuity [2008] QCA 215 at [45]-[49].) 394 It was not disputed by the Victor Lahoud interests that the right to elect for an audit under paragraph 1 of the Terms of Settlement was one available to be exercised only within "a reasonable time". 395 In the present case, even had it not been conceded, I would have found that there was an implied term that the right to elect to have an audit conducted could only be exercised within a reasonable time. 396 In particular, it seems to me to be relevant that the purpose of the Terms of Settlement (unfortunately not achieved, as it transpired) was to bring to an end the disputes between the parties in relation to their joint involvement in the property development projects. The purpose of the audit provision was to permit either party to reach a level of satisfaction as to the profit (or, as Mr Epstein contends, as to the profit figures) of the Cammeray project so as to enable them to draw the project to an end. 397 In those circumstances, there is nothing to warrant the conclusion that this was a right which was open to be exercised indefinitely. 398 I turn then to the question in 2(b). On my answers to question 1, this does not arise but I address it because it demonstrates why I think it does not ultimately matter whether the source of the present right to an audit lies in the Deed of Settlement or (as Mr Epstein contends) this was a right only open to be exercised under the Terms of Settlement and, as at 5 February 2007 had lapsed. 399 It is relatively clear that what is a reasonable period of time is not determined as at the date of the contract (see Hick v Raymond & Reid [1893] AC 22; Hart v MacDonald (1910) 10 CLR 417, in both of which cases consideration was given to the actual circumstances subsequent to the contract). Griffith CJ in Hart stated (at 422): The material conditions which actually prevailed are another element to be regarded in determining whether a reasonable time had elapsed for the fulfilment of the contract. 400 Although the authorities have not always been entirely unequivocal on this point (see Re Longlands Farm [1968] 3 All ER 552, Cross J (at 556), noted by Young CJ in Eq (as his Honour then was) at first instance in Handley v Gunner [2007] NSWSC 601 (at [55])), the statement of Cross J was explained by Campbell CJ, with whom Demack J agreed, in Telina Developments Pty Ltd v Stay Enterprises Pty Limited [1984] 2 Qd R 585 at 586-587: The question as to what is a reasonable time is a question of fact and the onus of proving that the time which elapsed was unreasonable rests on the party alleging it, here the respondent; Stonham, Vendor and Purchaser , para. 1477. This Court has the power itself to make such a finding (R.S.C. (Qld) O. 70, r. 11). It is well settled that what is a reasonable time means a reasonable time under or dependent upon the circumstances : Per Isaacs J. in Maynard v. Goode (1926) 37 C.L.R. 529, at p. 538; per Griffith C.J. in Canning v. Temby (1905) 3 C.L.R. 419, at p. 426; Hick v. Raymond [1893] A.C. 22 at p. 29, per Lord Herschell L.C.; Perri v. Coolangatta Investments Pty. Ltd . (1982) 56 A.L.J.R. 455, at p. 458 per Brennan J. … In my opinion, Cross J. was not implying … that subsequent events may not be taken into account when determining what is a reasonable time, but was merely saying that, in making such determination, regard must be had to the circumstances existing at the date of the contract such as the nature of the contract itself, the relative situations of the parties, the terms of the contract, the facts known to the parties when they entered into the contract, what was then in the contemplation of the parties or foreseeable by both as to when it should be completed, and so on. (My emphasis) 401 Both Re Longlands and Hick v Raymond Reid were referred to by McLelland J in Spencer v Hanson Pastoral Co Pty Limited (1979) 2 BPR 9151 at 9153. This in turn was accepted by Cohen J (also referring to Telina) in Malding Pty Limited v Metcalfe [1990] ANZ ConvR 110. 402 In Rudi's Enterprises Pty Limited v Jay, Samuels AP, with whom Priestley and McHugh JJA agreed, addressed whether or not a relevant consent had been obtained within a reasonable time (at 575-576): As Mr Walker, for the purchaser, pointed out, the question must be decided at the point when the lapse of time is said by the party seeking to rely upon the provision to have occurred. It cannot be determined at the date of execution of the contract. What is reasonable must necessarily be affected by external events. Thus the quality of a period of time must be influenced by what occurs as it elapses. To determine it when time starts to run would be to exclude considerations of major importance. 403 This principle has been accepted and repeated recently by the Courts of Appeal in Queensland and New South Wales. 404 In Handley v Gunner [2008] NSWCA 113, Mason P, with whom Hodgson and Campbell JJA agreed, (though finding that there was not any implication of a reasonable time restriction) said (at [97]): If there was any implication requiring something to be done by the appellants within a reasonable time, then that time started to run upon the occurring of the external event triggering the right in the appellants to call for it to be done. And what was reasonable in the circumstances had to be justified by what occurred as time elapsed, not as from the date of the Deed (see Rudi's Enterprises Pty Ltd v Jay (1987) 10 NSWLR 568 at 576). 405 Similarly, in Business and Professional Leasing Pty Limited v Akuity Pty Limited [2008] QCA 215, Muir JA, with whom Fraser JA and Lyons J agreed, stated (at [46]) that: What constitutes a reasonable time for the exercise of a right such as the one under consideration is to be determined in the light of the circumstances existing at the time the right is exercised ( Australian Blue Metal Ltd v Hughes [1963] AC 74 at 99 (PC): Rudi's Enterprises Pty Ltd v Jay (1987) 10 NSWLR 568 at 576; Stickney v Keeble [1915] AC 386 at 419 and Laurinda v Capalaba Park Shopping Centre Pty Ltd (1988) 166 CLR 623 at 638 and 639). 406 As to what circumstances are taken into account, by analogy with cases concerning contractual obligations to perform within a reasonable time, the court may look to various factors in existence and within the contemplation of the parties at the time the contract was made as well as those occurring after the making of the contract. 407 Ordinarily, six years would seem to be a long time to allow for what seems to be a relatively commonplace audit (whether of "figures" or of the profits of a project) to be carried out, assuming (as was the case) the project had been completed. 408 However, the Victor Lahoud interests argue that, in the circumstances which had transpired, a reasonable time had not elapsed by February 2007, even if there was no fresh right to an audit given by the Deed of Settlement. 409 This gives rise to the significance of the stance taken by the Victor Lahoud interests in the proceedings commenced after entry into the Terms of Settlement. 410 The Joseph Lahoud interests place much reliance on the fact that in the various proceedings brought in 2001, and, indeed in this court, the Victor Lahoud interests had maintained the stance that the Terms of Settlement should be declared void ab initio or set aside. As I understand it, their submission is that, having adopted that (ultimately unsuccessful) position (and hence, having been to an extent responsible for the delay in exercise of the audit rights by having chosen not to pursue remedies or rights inconsistent with the way in which their claim was being run in the court proceedings) it is not open to them to contest that a reasonable time had elapsed. 411 Mr Epstein submitted that Victor Lahoud, "having nailed his colours to the mast" (in relation to the alleged unenforceability of the Terms of Settlement), could not now complain that he had lost his entitlement to elect for an audit. It was said that there was never a reasonable basis to deny the validity or continuing force of the Terms of Settlement and that Victor Lahoud was effectively in a position where he could not both approbate and reprobate; having chosen not to undertake an audit, that was that. 412 Mr Epstein (T 387) says that the apparent answer from the Victor Lahoud interests (that there was a legitimate mistaken insistence on or attempt to enforce the alleged oral agreement) could only be sustainable if the oral agreement provided a reasonable legal basis for asserting that the Terms of Settlement were rendered void ab initio or otherwise not complied with. It was said that the oral agreement was never one which Victor sought to have enforced – just one he wished to use as a basis for not honouring his obligations under the Terms of Settlement and therefore that the reason time has elapsed is because it was a legally hopeless case. 413 Without entering into debate as to the submission by Mr Epstein (disputed by Mr Einfeld) that the assertions made by Victor Lahoud in the damages proceedings were baseless and untenable, I nevertheless note that in the Court of Appeal Hodgson JA did not appear disposed to treat the allegations as always doomed to fail. Hodgson JA considered (Lahood v Lahood [2006] NSWCA 169 at [101]) that there were factors detrimental to Joseph's credibility and said that he would not regard Joseph as a reliable witness to the content of certain conversations. 414 The mere fact of the litigation itself is not in my view a circumstance which would "extend" what would otherwise amount to a reasonable time for the election to be made. 415 The position of the Joseph Lahoud interests, broadly speaking, is that the Victor Lahoud interests did not, or did not validly, elect for an audit under paragraph 1 of the Terms of Settlement (because to have done so would have been inconsistent with their stance from early 2001, that the contract constituted by the Terms of Settlement was no longer in effect). Effectively, it was submitted that where a party takes the course of not exercising its rights within a reasonable time as is required by its contract, on a view that the contract is no longer in force, it does so at its own risk. 416 Whether or not the Victor Lahoud interests were in a position where they could have pressed for an audit at the same time as denying the validity of the Terms of Settlement without thereby prejudicing their contention that the Terms of Settlement should be set aside (having regard to what was noted by Finn J in GEC Marconi (at [358]) and the cases there cited by his Honour and to Champtaloup v Thomas [1976] 2 NSWLR 264), I accept that if the Victor Lahoud interests had simply sat back and allowed the litigation to run its course before exercising any right to an audit there would be a real risk that the right to an audit had lapsed. 417 As the fact that the parties had been embroiled in litigation (however meritorious or unmeritorious) for a number of years (during which the audit was not undertaken) was a circumstance which the Victor Lahoud interests might themselves be said to have brought about (see Hick v Raymond & Reid at 29 per Lord Herschell LC), it does not seem to me to be a relevant circumstance in favour of the Victor Lahoud interests' argument that a reasonable time for the exercise of the right to an audit had not elapsed. 418 However, what is significant in my view is that in October 2002, well within what would in my view have been seen as a reasonable time (given the parties for at least half that time were negotiating/arguing over what were the precise terms of their agreement), the Victor Lahoud interests in fact took the step of invoking the right to an audit or at least made it known that they wish to do so; and the response (after some further to'ing and fro'ing) was a suggestion that this was a pointless or futile exercise, coupled with a refusal by the Joseph Lahoud interests to acknowledge the validity of the exercise or to participate in an audit process. 419 The Joseph Lahoud interests in one respect might be said to have sought to use the request for an audit as leverage to force the Victor Lahoud interests to abandon their claims in relation to the validity of the Terms of Settlement. I do not suggest any improper conduct on the part of the Joseph Lahoud interests. Rather, I note this to indicate that what the Victor Lahoud interests were faced with was an attitude that made it clear that the Joseph Lahoud interests would not participate (or did not see any point in participating) in an audit, at least while the Joseph Lahoud interests disputed the validity of the Terms of Settlement, until after the litigation was concluded so as to make it impossible for an audit for which the Victor Lahoud interests had elected to take place. 420 Most significantly, the lawyers acting for the Joseph Lahoud interests expressly relied upon the futility of an audit while the court case was on foot as a basis for (it would seem) the implicit suggestion that any exercise of audit rights should be suspended or deferred (or simply not take place) while the court proceedings were ongoing. While that was a sensible course, in my view, it makes it extraordinary for the Joseph Lahoud interests now to suggest that, the Victor Lahoud interests (having apparently adopted that suggestion and not pressed for an audit), the right to an audit has been lost by reason of the lapse of time referable to the litigation. 421 The Joseph Lahoud interests' representation that an audit ought not be carried out until the conclusion of the litigation is clearly a relevant circumstance in determining what would be a reasonable time within which the election for an audit should be made. 422 Mr Einfeld submitted that the Joseph Lahoud interests cannot now be heard to assert that, during the same period in which they were resisting an audit, the Victor Lahoud interests ought to have been formally electing to have the audit undertaken (if they were to do so within a "reasonable time") and failing this they would be shut out of their rights to an audit. I agree. 423 It was also submitted by Mr Einfeld that, insofar as the Joseph Lahoud interests did not apply for summary dismissal of Victor's cross-claim and, throughout the period 2001 and 2007, were engaged in protracted litigation to determine the enforceability of the Terms of Settlement, it must have followed, that either party's entitlement to requisition the audit was also the subject matter of proceedings. I am less convinced of this submission. I nevertheless think it is significant that, when asked what could the Victor Lahoud interests have done in the circumstances for Joseph Lahoud to admit that there was a right to an audit (or for Victor Lahoud not to have lost the right to an audit), Mr Epstein's response (T 383) was that they should have done what they ultimately did in the proceedings before Palmer J (ie seek to enforce the oral agreement but not take the position that the Terms of Settlement were void ab initio). Mr Epstein therefore submitted that the "audit saga" stemmed from Victor Lahoud's failure to press for the enforcement of the right to an audit (T 386). That seems to me to be inconsistent with the stance which the lawyers acting for Joseph Lahoud had adopted, which was to assert the futility of an audit until the parties' rights under the Terms of Settlement had been determined. 424 I note that in Business and Professional Leasing v Akuity, where the court was considering whether a right to purchase the assets of a particular business (after termination of a rental agreement) remained or had expired by effluxion of time, Muir JA said (at [46]): What constitutes a reasonable time for the exercise of a right such as the one under consideration is to be determined in the light of the circumstances existing at the time the right is exercised ( Australian Blue Metal Ltd v Hughes [1963] AC 74 at 99 (PC): Rudi's Enterprises Pty Ltd v Jay (1987) 10 NSWLR 568 at 576; Stickney v Keeble [1915] AC 386 at 419 and Laurinda v Capalaba Park Shopping Centre Pty Ltd (1988) 166 CLR 623 at 638 and 639). The right to acquire should be taken as having been exercised, at the latest, by the claim for specific performance. 425 The purchase price (a sum of $1.00) however, was neither paid nor tendered. There was no evidence as to any response to the letter in effect exercising the right to purchase the business. Muir J said (at [48]-[49]): The right [of Akuity] to acquire the x-ray equipment could be exercised only by payment of the sum of $1.00 unless BPL agreed to the contrary. It may also be the case, as BPL contends, that the right could not be exercised until all instalments of rent were paid. But, whatever the position, no restrictive view can be taken of what amounted to a reasonable time within which to exercise the right in the peculiar circumstances of this case. BPL, it may be inferred, did not want the equipment. Akuity had possession of it. Once the termination took place it may be inferred, safely, that until the litigation was resolved any tender of the sum of $1 would have been futile. BPL and Macquarie, having by their conduct made it obvious to Akuity that there was no point in Akuity tendering the consideration of $1, it was excused from so doing (see Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd (1954) 90 CLR 235, at 246–247 per Dixon CJ; Kelly v Desnoe [1985] 2 Qd R 477 at p 495 per Williams J; Nyhuis v Anton [1980] Qd R 34 at 41; Grieve v Enge [2006] QCA 213 at [22]–[25]). Akuity had made it plain in its December 2003 letter that it wished to exercise its right and BPL was thus acquainted with Akuity's position. Even if Akuity was not excused from notifying BPL of the exercise of its rights and making payment it could not be said that it had failed to act within a reasonable time. Time did not run against it, in the circumstances I have outlined, whilst acts in exercise of its rights to purchase would have been pointless. Consequently, the right to acquire the equipment was not lost through the effluxion of time. (My emphasis) 426 The present case is, of course, somewhat different in that, here, the Victor Lahoud interests were maintaining (and litigating on the basis of) what transpired to be an incorrect characterisation of the legal relationship then existing between the parties. Also, the question as to whether or not Akuity had been excused from tendering performance is an issue not relevant to the present case. That said, it is clear that Muir JA considered, as circumstances relevant to the assessment of reasonable time, both the existence of litigation between the parties which would determine their contractual rights (and which rendered further action to exercise the parties' contracted rights as pointless) and the fact that one party had acquainted the other with its desire to exercise its contractual right. 427 Therefore, while the existence of the litigation itself is a circumstance which (having been brought about by the Victor Lahoud interests) should not bear on what is considered to be a reasonable time, the Joseph Lahoud interests' representation that the audit ought not be conducted until after disposal of the litigation is in my view a clear factor which operates to extend what might otherwise be said to be a reasonable time. 428 For completeness I note that, insofar as Joseph Lahoud interests argued that considerations of practicality as to the continuing existence of the necessary audit evidence made it the case that six years was an unreasonable time, there was no evidence to support this. I was asked to infer that this would be the case. I do not see, in the circumstances where the parties have been embroiled in disputes over a lengthy period that such a difficulty is likely to arise. I think it more likely that the parties would have (and been advised to have) taken care to preserve documents of potential relevance (lest they suffer from any contra spoliatores presumption). Question 3 – Profit/profit figures 429 Mr Epstein submits that it is clear that, in the language both of the Terms of Settlement and Deed of Settlement, the audit was an audit of "the figures" and was not for an audit of "the profit". It is said that the concept of "profit" is not sufficiently precise to make it susceptible to audit; and that an "audit" involves the review of a task which has already been performed but does not involve that task being performed again. Mr Epstein referred to Buckleys Law of Companies for the submission that "profit" is susceptible of a variety of meanings. 430 Mr Einfeld, in response, points to the definition of "audit" in the Concise Oxford Dictionary, 7th Ed, to mean "official examination of accounts" such as, for example, the accounts of the Cammeray Project. It is submitted that the balance of clause 2 contemplates a comparison between the audited profit of the Cammeray Project and the calculation in Annexure A and that the same distinction was drawn by the handwritten annotations to the Terms of Settlement, there being thus no warrant to confine the meaning of the term "audit" in the manner suggested by Joseph. 431 It seems to me that the fact that "profit" may be used in a variety of contexts does not mean that the word is too uncertain to be capable of meaning in the Deed of Settlement or, for that matter, in the Terms of Settlement. In an audit context, I find it hard to believe that an auditor appointed by the Institute to carry out an audit of the profits of the development would not be able to form a view as to what, ordinarily, would be regarded as the audited profit of a development project and hence I do not accept the first of Mr Epstein's submissions in this regard. 432 It is also submitted by Mr Epstein that a variety of legitimate accounting methods might be used to calculate the figures for the profit calculation of a property development project and that, where the extent to which some or all of the possible indirect costs of the property development project report may be brought to account is a matter which is capable of a variety of equally valid approaches, the choice of which approach to use is not per se a matter of audit. 433 It was submitted that the profit calculation figures in the Terms of Settlement were chosen on the basis of a particular approach as to the treatment of the indirect costs of the project and that it could form no part of any audit that a different approach to the treatment of indirect costs now be propounded. There was no direct evidence of this. Rather, as I understand it, I am asked to infer that this was what had been intended by reference to what was comprised by Annexure A and inferences to be drawn from the way in which the project had previously been treated in the accounts. 434 Mr Epstein, thus, submitted that it was relevant to take into account what the parties understood to be the basis of the accounting used for the project up to the point at which they had agreed to provide for either to elect for an audit. He submitted that it was demonstrable from the company's own accounting material that a valid way of accounting for the profit was the concept used in the Terms of Settlement and that, in the absence of anything else, a change in methodology would not be regarded an audit of the profit calculation figure (T 287). 435 For those reasons, it was said that it should be declared that, in any audit undertaken under the Terms or the Deed, the audit is confined to the figures appearing to annexure "A" to the Terms of Settlement alone. 436 Mr Einfeld submitted that there was nothing ambiguous in the Deed of Settlement, that the accounting records tendered by the Joseph Lahoud interests were historical material predating the Deed of Settlement and was inadmissible as an aid to construction. However, I admitted (at first provisionally and later subject to relevance), over the objections of the Victor Lahoud interests, various MYOB records and accounting documents said to show the basis on which the company (Castle Constructions) had previously accounted for the revenue/expenses of Cammeray project. 437 In this regard, particular reference was made to the treatment of overheads. It was said that if (as the accounts suggest) historically there was no apportionment in the accounts of the company as between overheads in respect of various projects, it would be inappropriate (or impossible) now to attribute a share of overheads to one particular project. Similarly, it was said that if other expenses (such as depreciation) had not historically been attributed to particular projects, they should not now be included. 438 In response, Mr Einfeld submitted that the Joseph Lahoud argument would have to go further than to show that historically expenses had been dealt with in a particular way, but would also have to show that the parties did not contemplate that an auditor carrying out an audit of the project would bring into account costs which might have been omitted from a MYOB document, say, the day before Terms of Settlement were signed, but which were nevertheless undeniably referable to project profits. He submitted that "audit profit" in the Deed of Settlement could only mean profit from the Cammeray project. 439 While Mr Einfeld submitted that the Deed is clear on its face (and, as such, extrinsic evidence was not necessary, or perhaps even admissible, to construe its terms – as to which, see para [23] above), he nevertheless took the position that if this were not the case then the court would be entitled to have regard to the fact that what had passed between the parties is reference to profit overall without confinement and without excluding overheads or any particular costs that might have been omitted from Annexure A. Mr Einfeld submitted that if Joseph Lahoud had anticipated ascertaining the gross profit from the Cammeray project, as it appeared he had from the conversation with his brother to which he had deposed, he must accept that all costs, including acquisition costs (such as stamp duty and deposit) as well as labour and site costs, would have to be taken into account. Since Annexure A did not include, for example, the deposit (a cost which must have been expected to be brought into account), it must be clear that the contemplated audit would go beyond the figures in Annexure A. 440 Mr Epstein, on the other hand, says that the context in which the Deed of Settlement must be construed is that the relationship was in the nature of a joint venture (T 420) and, as part of the settlement, the claim for Joseph Lahoud's expenses on the project was to be the subject of a reimbursement to him; in other words the settlement was not just to give him a share of the profits but to put back in Joseph Lahoud's pocket money by which he was otherwise out of pocket (and, hence, it could not have been expected that the profit could go down substantially). 441 Reference was made by Mr Epstein to the handwritten amendments which made it clear that the parties contemplated the profit could go up or down. In that regard, as I understand it, Mr Epstein says that since the sale costs were fixed the profit could never go up (and hence the audit must have been intended to be limited to Annexure A figures or it would be one sided). If so, it is hard to understand why Joseph Lahoud was concerned to press for an audit in the first place. It can only realistically be thought that he considered it likely that the profits would increase if expenses were found not to have been included properly – hence the request for an audit. 442 Annexure A does not necessarily deal only with direct costs. Some of the entries in Annexure A disclose the movement of funds which may or may not have reflected overhead costs. 443 If the consequence of the stance taken by the Joseph Lahoud interests would be that amounts, which in my view must unquestionably form part of the overall costs of the project (such as stamp duty or the deposit paid on the purchase), would be excluded from the overall profit calculations (as they were not included in the "figures") then this counts heavily against Mr Epstein's submission on the third question. 444 Ultimately, I think it is a matter for the auditor appointed to determine what properly should be treated as project costs to be taken into account in determining the net profit of the project (by reference to accepted industry standards and having taken into account whatever submissions may be made by the respective parties). I do not see the scope for dispute on this issue as a reason for holding that the clause itself does not allow for an audit of the project profit. 445 A pre-contractual conversation can form part of the objectively known surrounding circumstances to which the court may have regard. The issue of pre-contractual conversations was dealt with by Beazley JA, with whom Mason P and Ipp JA, agreed in Boreland v Docker [2007] NSWCA 94: [70] Alternatively, if there is some ambiguity in the terms of the offer, in the sense that more than one possible construction of its terms is available, then the surrounding circumstances also support the construction which I prefer. In accordance with the principles in Codelfa Constructions v State Rail Authority and Royal Botanic Gardens and Domain Trust , that ambiguity is resolved by having regard to the content of the conversation between the second respondent and the appellant so as to objectively determine the surrounding circumstances known to the parties. [71] There may be a question in a particular case whether a pre-contractual conversation in fact constitutes part of the relevant surrounding circumstances to which regard may be had. That may be particularly so if there are a number of conversations or the conversations are between different people. A case where there were conversations between legal representatives as well as parties would provide an example. However, in this case, where there was a single conversation, about which there was no dispute, and which was the genesis of the letter of offer, the content of that conversation provides "the objective framework of facts within which the contract came into existence and … the parties' presumed intention in this setting": Codelfa Constructions v State Rail Authority per Mason J at 352. 446 In Boreland, Beazley JA treated (at [72]) the fact of a known and communicated desire of one party as a relevant objective fact. Here, I think what emerges from the evidence of the conversation between Victor and Joseph Lahoud on the morning of 6 February 2001 is that the provision for an audit was included in the Terms of Settlement in circumstances where Joseph Lahoud had expressed disbelief as to the profit attributed by his brother to the Cammeray project. The relevant objective fact is that the parties were seeking a mechanism by which any doubts or concerns by the parties as to the profit could be independently resolved. 447 Once the conversation between Victor and Joseph Lahoud is taken into account, it seems to me beyond question that what was intended by the audit provision was to enable both Joseph Lahoud and Victor Lahoud to have independent verification, if either so chose, of what the net profits were. Joseph Lahoud's position was that he did not accept that the profits of the project could be so low (having regard to the estimate previously given to him by his brother and, it would seem, on the basis that it made no commercial sense for what in effect might then be said to be a loss-making project to be pursued). The audit provision was intended to resolve that concern. It could only do so in a sensible way if what was to be the subject of the audit was the "profit" of the project, not simply the figures on which the profit had been estimated for the purposes of the sum referred to in the Terms of Settlement. 448 Mr Epstein complained that at no stage had the Victor Lahoud interests provided any meaningful or useful information as to the nature of the alleged audit errors. However, that does not seem relevant to the construction of the Deed of Settlement itself. Conclusions re audit 449 Accordingly, I answer the agreed questions for determination as follows: 1. (a) Yes (b) No. 2. (a) Not applicable. Had this question arisen for determination, I would have answered, "Yes". (b) Again, not applicable. Had this question arisen for determination, I would have answered "No". 3. The term "audit", where so used, should be construed as allowing an audit of the profits of the Cammeray project and not confined to an audit of the accuracy or veracity of the "figures" in Annexure A. 450 It follows from the above, and in accordance with the agreement reached between the parties as to the outcome of the answers to the agreed questions, that the Victor Lahoud interests are entitled to the declaration in paragraph 1 of the Amended Statement of Claim in the audit proceedings and the orders in sub-paragraphs 2(a), (b) and (c) thereof, and the Amended Defence and Amended Cross-Claim of the Joseph Lahoud interests shall be dismissed. I note the parties' agreement that this dismissal be with the intent that the Joseph Lahoud interests shall not at any future time make any claim against the Victor Lahoud interests in or in relation to the subject matter of their Amended Defence and Amended Cross-Claim. Relief 451 In the damages proceedings I propose to order that the Victor Lahoud interests pay to the Joseph Lahoud interests the sum which represents the actual rent (less monthly outgoings) paid for each of the Units from 6 August 2001 to the expiry of the leases then on foot for each Unit (and, in the case of Unit 31, under the ensuing 12 month option lease) plus interest on a simple interest basis at Supreme Court rates. The parties may wish to agree the exact figure for the purposes of the order to be made. 452 In the audit proceedings the appropriate orders, having regard to the basis on which the agreed questions were posed for determination, will be: 1. A declaration that the Victor Lahoud interests are entitled to have clause 2 of the Deed of Settlement dated 5 February 2007 specifically performed and brought into effect. 2. An order that the Joseph Lahoud interests specifically perform and carry into effect the Deed of Settlement by: (a) taking reasonable steps to agree upon the identity of a person to carry out an audit pursuant to clause 2 of the Deed of Settlement; (b) signing the Deed of Indemnity required by the Institute of Chartered Accountants in Australia so as to enable the default nomination, by its President, to take effect; (c) otherwise taking all reasonable steps to enable the contractual process of audit referred to in clause 2 of the Deed of Settlement to take effect. 3. A declaration that the term "audit" where respectively used in the Terms of Settlement and the Deed of Settlement allow an audit of the profits of the Cammeray project and not merely an audit of the figures appearing in Annexure A to the Terms of Settlement. 4. The Amended Defence and Amended Cross-Claim be dismissed. 5. The court notes the parties' agreement that the dismissal of the Amended Defence and Amended Cross-Claim be with the intent that the Joseph Lahoud interests shall not at any future time make any claim against the Victor Lahoud interests in or in relation to the subject matter of their Amended Defence and Amended Cross-Claim. 453 I will hear the parties as to costs and as to whether any further orders are required in order to give effect to the audit process (noting that the agreed orders 2(a) – (c) do not encompass all of the orders sought in this regard in the Amended Statement of Claim filed in the audit proceedings). ********** 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. 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