Supreme Court New South Wales Medium Neutral Citation: Bank of Western Australia v Renato Licata [2012] NSWSC 78 Hearing dates: 13/02/2012, 14/02/2012, 15/02/2012, 16/02/2012 and 17/02/2012 Decision date: 17 February 2012 Jurisdiction: Equity Division - Commercial List Before: McDougall J Decision: Judgment for plaintiff for $10,352,085.56 against each defendant, stayed until 27 February 2012. Judgment for cross-defendant on each cross-claim Catchwords: GUARANTEE AND INDEMNITY - enforcement of guarantees - whether bank entitled to judgment in accordance with guarantees - whether defendants prevented from exercising or claiming any set off in accordance with guarantees - whether cross-claimants have any right to damages pursuant to guarantees - assessment of market value - whether bank breached obligation to exercise power of sale in good faith in accordance with s 420A Corporations Act 2001 (Cth) - whether bank engaged in unconscionable conduct within the meaning of ss 12CA, 12CB and/or 12CC of the ASIC Act 2001 (Cth) Legislation Cited: ASIC Act 2001 (Cth) Contracts Review Act 1980 (NSW) Corporations Act 2001(Cth) Cases Cited: Coastal Estate Pty Ltd v Bass Shire Council [1993] 2VR 566 Pendlebury v Colonial Mutual Life Assurance Society Limited (1912) 13 CLR (676) Spencer v The Commonwealth (1907) 5 CLR 418 Category: Principal judgment Parties: Bank of Western Australia Limited (ABN 22 050 494 454) (Plaintiff / Cross-Defendant) Renato Licata (First Defendant / First Cross-Claimant) Zdenko Herceg (Second Defendant / Second Cross-Claimant) Diego Iaria (Third Defendant) Alex George Fahd (Fourth Defendant) Pasquale Gilio (Fifth Defendant / Fifth Cross-Claimant) Dominic Sorbara (Sixth Defendant / Fourth-Cross-Claimant) Gianfranco Placanica (Seventh Defendant / Third Cross-Claimant) Representation: A Leopold SC / B K Koch (Plaintiff / Cross-Defendant) Renato Licata (In person) (First Defendant / Cross-Claimant) A R R Vincent (Sixth and Seventh Defendants / Third and Fourth Cross-Claimants) Henry Davis York (Plaintiff / Cross-Defendant) Thomsons Lawyers (Sixth and Seventh Defendants / Third and Fourth Cross-Claimants) File Number(s): 2009/298745 Judgment - ex tempore 1HIS HONOUR: The plaintiff (the Bank) sues the defendants on guarantees given by them of the obligations of Stateland Holdings Pty Limited (Stateland) to the Bank. The amount claimed, including interest, exceeds $10.3 million. 2The active defendants (the first defendant, Mr Licata, and the sixth and seventh defendants) say that they have no liability to the Bank, or that any liability they may have should be diminished, because the Bank failed to exercise proper care to sell the primary security for its market value and, as a result, sold it at a substantial undervalue. 3For the reasons that follow, I conclude that the defendants' answer to the Bank's case fails, and that the Bank is entitled to judgment. A procedural note 4As I have said, the active defendants are Mr Licata and the sixth and seventh defendants. Mr Licata represented himself at the hearing. Mr A R R Vincent of counsel appeared for the sixth and seventh defendants. The remaining defendants did not appear at the hearing. I am satisfied that they were given proper notice of the hearing. The real issues 5Mr Leopold of Senior Counsel, who appeared with Mr Koch of counsel for the Bank, stated the real issues for decision as follows: Alleged breach of duty by the Bank 1. Have the defendants established that the plaintiff ("Bank") failed to disclose to prospective purchasers of the property that Stateland had previously gained approval for the lapsed development approvals referred to in paragraph 12(a)(i)-(vii) of the Second Further Amended Cross-Claim Response ("Lapsed DAs"). 2. Have the defendants established that Coles was legally bound to lease a substantial part of the property from Stateland. 3. Have the defendants established that, in all the circumstances, the Bank breached its obligation to exercise its power of sale in good faith, or alternatively its obligation to adhere to the standard specified in section 420A of the Corporations Act 2001 (Cth), by: 3.1. Failing to take reasonable steps to attempt to obtain fresh development approvals substantially corresponding with the Lapsed DAs. 3.2. Failing to make the disclosure referred to in 1 above if there was such a failure. 3.3. Failing to disclose to potential purchasers the fact referred to in 2 above if that was the fact. 3.4. Failing to disclose to potential purchasers that Aldi had submitted an offer to lease part of the property. 3.5. Placing the words "mortgagee sale" on advertising material. 3.6. Failing to mention in advertising that the property was within the corridor adjacent to the M7 motorway. 3.7. Selling the Property at less than market value. Alleged unconscionable conduct 4. Have the defendants established that the Bank engaged in unconscionable conduct, within the meaning of sections 12CA, 12CB and/or 12CC of the ASIC Act 2001 (Cth), as a consequence of the facts in 3.2, 3.3, 3.4, 3.5 and/or 3.6 above if they were facts and/or by its reliance on clauses 11 and 14 of each Guarantee and Indemnity. 5. Whether the financial services supplied by the Bank to Stateland were of a kind ordinarily acquired for personal, domestic or household use. Loss flowing from any breach by the Bank 6. Have the defendants established that the market value of the property as at 24 August 2009 was in excess of $8 million (exclusive of GST)? 7. If the answer to 3.1 and 6 above is " Yes ", have the defendants established that, if the Bank had taken reasonable steps to attempt to obtain fresh development approvals substantially corresponding with the Lapsed DAs, such development approvals would have been given? 8. If " Yes " to any part of 3 and/or to 4 above and to 6 above, have the defendants established that, if the Bank had adhered to its duty and/or not engaged in unconscionable conduct, the property would have been sold for its market value or alternatively a price higher than $8 million (exclusive of GST) and less than its market value? The operation of clauses 10.1, 11(a), 14.1, 19.4, 24 and 25 of the Guarantees 9. If the answer to any part of 3 and/or to 4 above is " Yes ": 9.1. Whether clauses 11 and/or 14 of each Guarantee and Indemnity prevent the defendants from exercising or claiming any set-off (or otherwise seeking to reduce their liability) by virtue of that breach prior to payment by the defendants to the Bank discharging Stateland's indebtedness to the Bank. 9.2. Whether, apart from any claims under the ASIC Act , the cross -claimants have any right to claim damages for that breach in any event and, if they do, whether clauses 10.1, 11(a), 14.1, 19.4, 24 and/or 25 of each Guarantee and Indemnity prevent them from pursuing that claim or prevent liability to them on the part of the Bank arising? 9.3. Alternatively, whether clauses 11 and/or 14 of each Guarantee and Indemnity requires payment by the defendants to the Bank before any claim can be made by the defendants against the Bank. 9.4. Whether the defendants should be entitled to relief having the effect that clauses 11(a) and/or 14.1 of each Guarantee and Indemnity are unenforceable by virtue of any contraventions of sections 12CA, 12CB and/or 12CC of the ASIC Act and/or by virtue of the Contracts Review Act 1980 (NSW) and/or in equity. Quantum 10. The quantification of the liability (if any) of each of the defendants to the Bank. 6Subject to what follows, Mr Vincent accepted that those were the real issues in dispute, and I agree. Issue 3.6 was not pressed. Nor was reliance on the Contracts Review Act , or on s 12CB of the ASIC Act . 7Mr Vincent said, in his final submissions, that the key question was that of the value of the subject property at the time of sale. Again, I agree. Factual background 8In 2002 and 2003, Stateland acquired four contiguous parcels of land at West Hoxton Park, in the south west of the greater Sydney metropolitan region. Stateland wished to resubdivide those parcels, and to develop what would, in effect, be a township with residential, retail, commercial and professional facilities and with all the other necessities and conveniences of modern urban life. 9The first part of that project was performed. The lands were resubdivided into lots known as lot 100, lot 101 and lot 102. From time to time, I shall refer to lots 100 and 101 as "the land". Lot 102 was a public reserve lot. Lots 100 and 101, which were zoned in part for residential purposes and in part for business purposes, were to be further developed. Stateland proposed to resubdivide those lots into some ten or eleven "super lots". The total area in question was about 6.2 hectares. Lot 100 comprised about 2.16 hectares, and lot 101 the balance. The zonings of the land permitted (with consent) a wide variety of uses. 10The Bank and Stateland entered into a "Facility Agreement" on 9 June 2008. On the same date, each of the defendants gave his or her joint and several guarantee to the Bank of Stateland's obligations under the facility agreement. The facility agreement provided for a limit in excess of $10 million. That sum was required partly to refinance existing debt and partly to finance the development. 11The facility agreement was amended by three deeds of variation. Nothing turns on those deeds, except to note that the amount of the facility was increased, ultimately, to a total (on two accounts) of $12.25 million. 12The facility, as amended, was secured by a first registered mortgage granted by Stateland to the Bank over the land, and by a fixed and floating charge over the assets of Stateland. 13It is convenient to note at this point, that each of the defendants provided a "Declaration" to the Bank, witnessed by a solicitor, to the effect that he or she had received independent legal advice before entering into, and understood the guarantee. Development applications and consents 14Stateland submitted a number of applications for development consent to the consent authority, Liverpool City Council (the Council). One of those, known as DA 64/2007, provided for the super lot resubdivision. DA 64/2007 was the subject of a consent given, on conditions, on 5 October 2006. It is convenient to adopt the parties' usage and to refer to that consent as "DA 64/2007". 15DA 64/2007 was amended, in ways that are for present purposes immaterial, by DA 64/2007A, to which consent was given on 21 November 2007. DA 64/2007 lapsed, according to its terms, on 5 October 2008. There had been no substantial commencement of the works to which that consent related. 16There were other, inter-related, applications for development consent and consents granted. Each of them depended in substance on the effecting of a subdivision in accordance with DA 64/2007. Two only of those other applications and consents are of present relevance. 17On 13 July 2007, the Council granted consent to applications DA 835/2007 and DA 836/2007. Again, it is convenient to refer to those consents individually as, "DA 835/2007" and "DA 836/2007" respectively; and to refer to them together as "the residential consents". 18Between them, the residential consents authorised the resubdivision of proposed super lots known as R (or residential) 3 and R4 into 26 separate allotments, and the construction of dwellings on those allotments. 19The residential consents provided for "deferred commencement". In effect, they were not to commence until DA 64/2007 was carried into execution by construction of the requisite road, drainage and other works and registration of the plan of subdivision. I quote from DA 835/2007 (the terms of DA 836/2007 are relevantly identical): PROPOSED DEVELOPMENT: INTEGRATED HOUSING - SUBDIVISION OF PROPOSED LOT 3 INTO ELEVEN (11) ALLOTMENTS AND THE ERECTION OF NINE (9) TERRACE HOUSES AND TWO (2) DETACHED DWELLINGS ... CONSENT TO OPERATION FROM: THE CONSENT IS INOPERATIVE UNTIL THE CONDITIONS CONTAINED IN PART ONE HAVE BEEN SUBMITTED AND COUNCIL HAS NOTIFIED THE APPLICANT IN WRITING THAT IT IS SATISFIED WITH THE INFORMATION. THE INFORMATION REQUIRED IN PART ONE IS TO BE SUBMITTED WITHIN SIX (6) MONTHS FROM THE DATE OF THIS NOTICE. ... CONSENT TO LAPSE ON: THIS WILL BE ADIVSED WHEN COUNCIL INDICATES IN WRITING THAT IS SATISFIED WITH THE INFORMATION SUBMITTED. 1. CONDITIONS OF APPROVAL ... PART ONE: DEFERRED COMMENCEMENT CONDITIONS Development consent shall be deferred pursuant to Section 80(3) of the Environmental Planning and Assessment Act 1979, until the submission to Council of: (a) An Engineering Construction Certificate is issued by the Principal Certifying Authority for the construction of the road and drainage works associated with the Development Consent DA64/2007. (b) All conditions relating to the issue of the Subdivision Certificate for DA64/2007 are to be completed to the satisfaction of Council and that the proposed lots are to be registered with the Lands Title Office. 20The residential consents have lapsed, along with DA 64/2007. Default, demands and subsequent events 21The facility was repayable, according to its terms, by 16 August 2008. Stateland did not repay it then, or on subsequent demand. Thereafter, demands were made on the defendants pursuant to their guarantees. 22On 10 March 2009, the Bank appointed Messrs N J Singleton and S J Parbury (the Bank's agents) as its joint and several agents to exercise the Bank's powers as mortgagee and chargee. Pursuant to that appointment, the Bank's agents conducted a marketing campaign. On 24 August 2009, they entered into a contract for sale of the land. The purchase price was $8 million plus GST, subject to adjustments. The purchaser was a company known as De Angelis Investments Pty Limited (De Angelis). Settlement occurred on 19 November 2009. The duty alleged 23The defendants asserted that the Bank owed them an equitable duty of good faith, which was either expressed in or to be understood in accordance with s 420A of the Corporations Act 2001 (Cth). That section reads: Controller's duty of care in exercising power of sale (1) In exercising a power of sale in respect of property of a corporation, a controller must take all reasonable care to sell the property for: (a) of, when it is sold, it has a market value--not less than that market value; or (b) otherwise--the best price that is reasonably obtainable, having regard to the circumstances existing when the property is sold. (2) Nothing in subsection (1) limits the generality of anything in section 180, 181, 182, 183 or 184. 24I proceed on the basis that the relevant duty is either that formulated in, or one formulated in accordance with, s 420A(1)(a). The alleged deficiencies in the marketing process The marketing campaign 25Before the Bank's agents were appointed, the Bank had recommended to Stateland that it appoint Mr D P Hobart, an experienced real estate agent and property consultant, in effect to investigate and advise. Stateland did so appoint Mr Hobart. 26Once the Bank's agents were appointed, they engaged Mr Hobart to coordinate the sale of the land. Mr Hobart received and considered a quantity of documents relating to the land, and attended a number of meetings. One such meeting was with (among others) officers of the Council. They advised that all consents (save that for the three lot resubdivision, which had been carried out) had lapsed and could not be extended or reinstated. They advised further that: (1) in consequence, fresh development applications would be required for any further approvals; (2) it was likely that applications to the effect of the residential consents would receive favourable consideration; but (3) otherwise, the Council was unlikely to approve applications equivalent to the other lapsed consents. 27Mr Hobart sought proposals from three real estate agents to assist in the sale of the property. He received three detailed submissions. Those submissions projected selling prices in the range $13 million to $18 to $20 million. 28Mr Hobart recommended the appointment of Mr Glen Madsen of L J Hooker Land Marketing. No criticism is made of that decision or the reasons for it. Mr Madsen was appointed accordingly. In essence, Mr Hobart coordinated and administered the marketing programme and Mr Madsen dealt with advertising, and had contact with prospective purchasers. 29Mr Hobart reported regularly to Mr P J Gunson, a director of the firm PPB (of which the Bank's agents were partners). Mr Gunson was assisting Mr Singleton. As between Messrs Singleton and Parbury, it was Mr Singleton who was the "active" agent. Mr Gunson drafted regular reports, which Mr Singleton settled and sent to the bank. 30Mr Hobart assisted in drafting an information memorandum. He took legal advice on the matters that should be included in, or excluded from, that document. He acted on the advice that was given. It is not suggested that the advice (or other legal advice given in connection with the marketing programme) was patently wrong. 31Mr Hobart also assisted in the preparation of an "electronic data room" to which prospective purchasers might have access. Again, he took and acted on legal advice as to what should or should not be held in that data room. 32The documents in the data room included a draft contract for sale. That disclosed the Bank's agents as vendors, in their capacity as agents for the Bank as mortgagee in possession. To jump ahead: it also included a copy of a caveat lodged by Coles Supermarkets Australia Pty Limited (Coles), and documents relevant to that caveat. 33Mr Hobart sent a copy of the draft information memorandum to Mr A Pizzolato of the Council. (Mr Pizzolato was one of the Council officers with whom Mr Hobart had earlier met.) Mr Pizzolato reviewed the draft, and made some comments on it. He also agreed that the final version of the information memorandum could include his name and contact details, so that any prospective purchaser could discuss with him planning controls and other relevant matters (within his knowledge) relating to the land. There is no suggestion that Mr Pizzolato was unaware of the history of applications, consents and lapsing to which I have referred. 34Messrs Hobart and Madsen prepared a brochure describing the land and sent it to entities on their respective databases whom they thought might be interested in purchasing the land. 35The land was advertised for sale on three occasions in the Australian Financial Review (between 23 April and 7 May 2009), and on three occasions in the Sydney Morning Herald (between 25 April and 9 May 2009). 36As a result of the marketing campaign, there were received some 35 expressions of interest. Of those interested enquirers, 26 requested and received the information memorandum. Six of those interested registered to obtain access to the electronic data room. 37Although a number of entities, including Coles, had expressed interest and mentioned figures, only one - De Angelis - made a firm and formal offer. That offer was originally for $7 million inclusive of GST. Ultimately, after negotiations, De Angelis offered to pay $8 million plus GST. That was accepted, and the contract for sale was made. 38Before contracts were exchanged, the Bank's agents obtained an independent valuation of the land. That valuation, which was for $6,850,000 was admitted on a limited basis: to show that the Bank, through its agents had sought and obtained the advice of an independent valuer before proceeding with the sale. 39I turn to the criticisms made of the marketing process. Alleged failure to "reactivate" the consents 40In terms, what was required to "reactivate" or "resurrect" (both expressions were used) the consents was the submissions of fresh applications. Clearly enough, that would involve the expenditure of some amounts of money, and would take some time to carry through. Further, it is clear that it was unlikely that all the consents could be "reactivated" or "resurrected": I refer to what I have said earlier as to the advice given by the Council to Mr Hobart. 41Although the pleaded case appeared to refer to the consents generally, focus at the hearing was directed to the residential consents. As I have said, the Council indicated that it would be likely to give favourable consideration to further applications substantially equivalent to those consents. However, it is necessary to note that even if such consents had been sought and granted, they could not be carried into execution until the underlying subdivision works had been performed. That is because of the "deferred commencement" provisions to which I have referred earlier. Thus, if the residential consents were to be in some way resurrected, the Bank or its agents would be required to incur not only the expenditure relating to that but also, in order to make the consents effective, the much more substantial expenditure necessary to carry out the underlying subdivision. The evidence as to the amount of that expenditure suggests that it might have ranged from $5.2 million to $7 million. 42In my view, it could not have been required of the Bank or its agents to undertake even the relatively limited expense of seeking to revive the residential consents, let alone the far more substantial expense necessary to make those consents effective. As Isaacs J said in Pendlebury v Colonial Mutual Life Assurance Society Limited (1912) 13 CLR 676 at 701, there could be no requirement for a mortgagee to make further outlays, to improve the mortgaged property before sale, unless those outlays could be regarded as "manifestly safe". There is no basis for thinking that the outlays in question - even the more limited ones, relating simply to gaining the (in any event inutile) consents - could have been seen as "manifestly safe". 43There are further problems with this complaint. Even if the residential consents had been in some way resurrected, it is by no means clear that they would have added substantial value to the land. I accept that Mr Hobart said that it is likely that having those consents in place would make the land "worth more". There was, however, no estimation of what that increment in value might be. In this context, I note that the residential consents related to less than 20 per cent of the land by area and less than 15 per cent by value. 44Further, it is not self-evident that resurrected residential consents would be of any great value to another developer. It is likely that anyone buying the land for development purposes (and there could be no other real object in buying it) would have a particular form of development in mind. That might or might not include the precise development and uses that would be authorised by hypothetically resurrected residential consents. 45Mr Singleton considered the matter and discussed it with those who advised him. He concluded that resurrecting the residential consents would not add value to the site. In my view, there was ample reason for him to come to that conclusion. 46It should be noted, further, that anyone who was interested in purchasing the site would have obtained, among other things, the information memorandum. Any such person (by definition, a person willing and able to spend millions of dollars on the land) would carry out independent investigations. The information memorandum gave Mr Pizzolato's contact details. Any interested purchaser could make enquiries of Mr Pizzolato and find out precisely what could and could not be done (and what Council might or might not be likely to approve), including, if necessary, development in effect according to the residential consents. Alleged failure to disclose the lapsed consents 47In my view, this complaint goes nowhere. 48The Bank and its agents were advised that the information memorandum should not disclose the existence of the lapsed consents. The reason given for that was fear of making misleading or deceptive representations in relation to the planning status, or capacity for development, of the land. 49In any event, as I have said, any seriously interested purchaser could, and in my view would, have contacted Mr Pizzolato to find out precisely what consents had been granted and what sorts of consents might be granted. 50It should also be noted that the advertising material referred to the land as a "development site". It said that there was potential to subdivide the land into eleven lots. It referred to a variety of uses that could be carried on, with consent. Those uses included supermarkets, other retail purposes, a tavern, a medical centre, residential purposes and others. Clearly enough, those matters were referable to the lapsed consents, even though they did not, in terms, invoke them. 51Again, in all the circumstances, I conclude that it was reasonable for the Bank and its agents to act on the advice given. I conclude, further, that even if there were some hypothetical breach of duty by failing to make the disclosures, that would go nowhere in circumstances where, as I have said, any seriously interested purchaser would make enquiries of the Council in any event. Failure to disclose the alleged "binding agreement" with Coles 52The Bank's agents received advice on whether or not the offer to lease hitherto made by Coles should be included in the electronic due diligence room. They were advised that it should not be, and acted on that advice. 53The "binding agreement" with Coles comprised an accepted letter of offer from Coles to Stateland dated 20 July 2007. That accepted offer was stated to be one that brought the parties into a contractual relationship, although subject to the consent of the board of Coles. That consent was subsequently given. The agreement however, provided that no lease would come into effect until the defined "lessor works" had been carried out. Those works could not be carried out unless and until the relevant development consents had been activated and executed. At the time the Bank's agents were appointed, Coles was entitled to terminate the agreement that had been made with Stateland. 54Coles did not then terminate the agreement. On the contrary, it lodged a caveat to protect what it said was its interest under the agreement. As I have noted, that caveat and documents relating to it were disclosed in the contract. The caveat stated the interest as an equitable interest pursuant to an agreement for lease. Thus, in any event, any prospective purchaser who took the trouble to read the contract would have been aware that Coles claimed to have the benefit of an agreement for lease. 55Mr Madsen gave evidence that, when he discussed the matter with prospective purchasers, he informed them of the interest that had been shown by retail tenants such as Coles (and, to jump ahead for a moment, Aldi). 56In my view, it is unlikely in the extreme that the failure to make explicit mention of the Coles agreement for lease in the documents held in the electronic data room had any detrimental impact on the marketing of the property. In substance, the information was available to anyone who cared to ask. Failure to disclose the offer from Aldi 57Aldi made an offer to lease on 29 January 2009. Acceptance of that offer could not create any legal relationship. There were many substantial conditions precedent. There was also required to be obtained the approval of Aldi's board and "full feasibility to determine the suitability of the site", together with agreement on commercial terms. The Bank's agents were advised not to disclose that material. They acted on that advice. 58Mr Madsen said that he contacted Mr Smith of Aldi on 7 May 2009. Mr Smith gave consent to Aldi's earlier offer being quoted, and said that the interested purchasers could contact him. Thereafter, Mr Madsen said, it was his invariable practice to disclose, to those with whom he discussed the purchase, the Aldi offer. Advertising as "mortgagee sale" 59There is no doubt that the advertisements, and the coloured brochure, noted that the sale was a mortgagee sale. The defendants complain that this was stated over-prominently, that it advertised the sale as a "distressed asset" sale, and (an allegation made only at the hearing) that it would convey to interested parties that the land was the subject of a failed development. 60There is no doubt that the words "mortgagee sale" were clear to be seen on the advertisements and colour brochures. However, Messrs Hobart and Madsen were of the view that including those words was beneficial. They said, among other things, that it would convey to interested purchasers that the vendor was not simply testing the market, but that the property was definitely available for purchase. They said further, that it would thus increase competitive tension between prospective purchasers. 61As I have said, any interested purchaser who obtained access to the electronic data room would have ascertained, from the draft contract for sale included therein, that the sale was a mortgagee sale. 62In my view, even if it could be thought that advertising the sale as a mortgagee sale in some way detracted from the value of the property, that is at most, an expression of opinion against which there are countervailing expressions of opinion on the part of Messrs Madsen and Hobart. It was open to the Bank's agents to act on the view of their experienced sale agents. I do not think that they can be criticised for doing so. Failure to disclose proximity to the M7 motorway 63This complaint was not pressed at the hearing. That, no doubt, reflects the fact that it was wrong as a matter of fact. The information memorandum disclosed that the property was bounded on one side by the M7. The colour brochures included a photograph which showed, among other roads, the M7. Conclusion on alleged deficiencies 64None of the alleged deficiencies in the exercise of the power of sale has been made out. 65There is one more matter to deal with in this context. Mr A A Hyam, an expert valuer called by the sixth and seventh defendants, purported to give evidence of what he regarded as deficiencies in the marketing campaign. I rejected that evidence. I did so because: (1) Mr Hyam had no demonstrated specialised knowledge, based on training, study or experience, in the marketing of real estate in general or of "greenfields" development sites in particular; and (2) in any event, this aspect of his report was argumentative, and disclosed no recognisable or comprehensible process of reasoning. Market value 66The defendants also assert that the Bank failed to sell at market value. That is relied on, seemingly, as a free-standing complaint of breach of duty. It is also relevant because, as Mr Vincent acknowledged, if the land were sold for market value, any (on my conclusions, hypothetical) breach of duty would not sound in loss. 67The defendants relied on Mr Hyam's evidence of value. The Bank relied on the evidence of another independent valuer, Mr C J Hubbard. Mr Hubbard had not hitherto been engaged by the Bank or its agents in relation to the land. 68The valuers met and produced a joint report. They agreed that a hypothetical realisation of a hypothetical resubdivision of the land, as at the date of sale (28 August 2009) was $17,765,000. But that was the extent of their agreement. Mr Hyam proceeded by reliance on what he regarded as a comparable sale. Mr Hubbard concluded that there was no sufficiently relevant comparable sale, and thus relied on the hypothetical development method. 69I accept that, where possible, comparable sales are the best basis on which to value land. However, as Gobbo J observed in Coastal Estate Pty Ltd v Bass Shire Council [1993] 2 VR 566 at 577, it is a question of fact in each case as to what is the appropriate method of valuation. Further, and as his Honour there pointed out, if there are no comparable sales, then one must needs have resort to the hypothetical development method; and if the comparable sales evidence is scanty, the hypothetical development method should be used as a check. 70In my view, there are such substantial deficiencies in Mr Hyam's reasoning process as to render his conclusions and opinions unacceptable. 71The exercise with which both valuers were faced was to determine the amount a purchaser would pay on 28 August 2009, in accordance with the, "Spencer" principle ( Spencer v The Commonwealth (1907) 5 CLR 418). 72The valuers agreed, as I have said, that one should estimate the gross realisations that such a purchaser would expect to receive (in this case, from the hypothetical resubdivision into super lots) and the costs that would be incurred to get to that point. 73Mr Hubbard took into account all costs that he said would be incurred. They included not only the $5.2 million which each valuer assumed as the amount required for the civil engineering works, but also selling costs, interest on development costs, holding charges and interest on acquisition costs. 74By contrast, Mr Hyam thought that there should be brought to account only the subdivision costs, assessed at $5.2 million. In my view, that evidence is illogical. The question is what a hypothetical purchaser would pay to get the realisations in question. Obviously enough, the purchaser, in assessing what to pay, would add, to the amount for the land itself, what it would cost to bring about the hypothetical realisations, to ensure that there might be some profit margin. To include some of those costs but not others makes no sense whatsoever. 75Mr Hyam accepted that what should be deducted, from the hypothetical realisation, was "whatever amount it was which equated to all costs which the hypothetical purchaser would have to expend in order to" obtain that realisation. But he did not do so. 76The reason that Mr Hyam gave was, apparently, that the hypothetical purchaser would not simply seek that realisation, but would hold the land, develop it further, and make its profit from the further development. Two things may be said about that. The first is that it is entirely speculative. The second is that it ignores the very nature of the exercise which Messrs Hyam and Hubbard were required to undertake. 77In my view, accepting as Mr Hyam did, that the costs incurred to yield the realisation figure should be deducted from the gross realisation, that requires the deduction of all costs. 78In addition, there is the question of a profit and risk factor. Mr Licata accepted in his evidence that any developer would be looking at a profit and risk allowance of the order of 20 per cent. If one is to take that into account, it would diminish still further the amount that a prospective purchaser might pay. 79There is another problem with this aspect of the valuation process. As I have said, each valuer took $5.2 million as the cost of the capital works. That was based on a quantity surveyor's report apparently prepared in January 2008. But later in 2008, in separate documents, Mr Licata said that the subdivision costs would be of the order of $7 million (or in one case $7.5 million). Mr Licata sought to rationalise that in various ways. 80The first explanation was that he might have included the cost of construction of some dwellings. The second was that a large developer would assess the development costs as a "grossed up amount'". I do not understand the latter explanation, but I do not regard either as credible. 81It is clear that the documents prepared by Mr Licata were intended to be serious. One was directed to potential investors and the other to the Bank. Mr Licata intended each of the targets to rely on the document. It is likely that he would have sought to be accurate. 82Of course, if development costs are taken at $7 (or $7.5) million rather than $5.2 million, the amount to be deducted from the hypothetical gross realisation increases accordingly. 83There is another problem with Mr Hyam's evidence, in the way that he analysed what he claimed was a relevant comparable sale. Mr Hyam allocated the hypothetical super lots into different parcels, and sought to derive a value for each parcel on a dollar per square metre basis. He sought to do this by reference to what he regarded as a comparable sale. In doing so, he agreed (or purported to agree) with the analysis of another valuer, Mr R Burdekin of Jones Lang LaSalle (JLL). 84Mr Hyam relied on the JLL evidence, of a sale in Wrights Road, Kellyville (in the north western outskirts of the greater Sydney metropolitan region) to deduce a rate of $515 per square metre for his first parcel which comprised notional super lots numbered 1, 2, 3, 5 and 6. He said that he agreed with JLL in doing so. However, it is clear from reading the JLL valuation that Mr Burdekin was of the view that the Kellyville site was relevant to super lots 3 and 7 only, not to lots 1, 2, 5 and 6. In relation to super lots 1, 5 and 6, JLL deduced a value some 33 per cent lower. They treated super lot 2 differently again. 85Mr Hyam was cross-examined on what appears, quite clearly, to be a misinterpretation of the JLL valuation. His attempts to explain his problems were entirely unconvincing. The reasoning that he gave, which he claimed was implicit in his report but could have been, "worded... better", was entirely novel; and entirely unpersuasive. 86If one takes the comparable sale evidence at face value (and Mr Hubbard did not regard it as comparable), it shows only that part of the first parcel, namely, lot 3, could be regarded as having a value of $515 per square metre. Lots 1, 5 and 6 should be valued only at $340 per square metre (being the rate of $400 per square metre adopted by JLL less a discount of 15 per cent which was agreed to be appropriate to reflect the effect of the global financial crisis). If one extrapolates that over the area of the super lots in question, it represents a $3.8 million overstatement of value. 87Mr Hyam's second parcel comprised super lots 4, 7 and 8. He stated simply that in his view, they should be valued at $400 per square metre. He gave no reasoning in his report to support that conclusion. Nor was he able to do so in cross-examination. 88I find Mr Hyam's analysis to be illogical and unconvincing, and flawed in its application of the data on which he purported to rely. I do not accept his evidence. There were other unsatisfactory aspects of Mr Hyam's evidence. It is not necessary to detail them. 89That is sufficient to dispose of the case that the land was sold at an undervalue because, unless Mr Hyam's evidence is accepted, there is no evidence of a value in excess of $8 million plus GST. 90In any event, I conclude that Mr Hubbard's logic was clear. He sustained it in the face of cross-examination. Mr Hubbard acknowledged that, where possible, the comparable sales method should be used. He said however, that in his view there were no sufficiently comparable sales. I accept that evidence. 91There was no attack on the mechanics of Mr Hubbard's application of the hypothetical developed method, as opposed to his decision to use it. Thus, with one qualification, I accept Mr Hubbard's evidence. The qualification is that, for the reasons that I have given in relation to the amount allowed for development costs, his opinion is likely to overstate the value of the land. 92Before leaving the issue of valuation, I need to deal with two evidentiary matters. First, Mr Vincent sought to rely on the JLL valuation as evidence of value. I admitted it only as evidence of communication (relevantly, to the Bank and its agents) of the facts and opinions asserted in it. I did so because: (1) the valuer, Mr Burdekin, had not subscribed to the expert witness Code of Conduct; (2) Mr Burdekin had not participated in the conference of experts, or in the joint report; (3) it was not clear what material had been given to or considered by Mr Burdekin; and (4) of much less significance, the valuation date was some 6 months prior to the date of sale. 93Second, Mr Licata cross-examined numerous witnesses to show what he thought were desirable and "value adding" features of the land, its zoning and Stateland's proposed development. The evidence thus adduced adds nothing to the debate. Both Mr Hyam and Mr Hubbard valued the land on the basis of its highest and best use. No doubt, they took into account such of the matters to which Mr Licata referred as they thought were relevant. It was not put to either that his valuation would be any different by reason of any of those matters. Other issues 94Other questions were raised, to some extent as reflected in the agreed issues. It is not necessary to deal with them. I should however, say that in my view, there is no evidence of unconscientious or unconscionable conduct on the part of the Bank, nor any basis for the application of the Contracts Review Act . The amount of the claim 95An affidavit of a bank officer proves the amount owing under the guarantees, as at 10 February 2012 as $10,352,085.56. Orders (1) I direct entry of judgment for the plaintiff against each defendant in the sum of $10,352,085.56. (2) I direct that those judgments take effect from 10 February 2012. (3) I direct entry of judgment for the cross-defendant on each cross-claim. (4) I order that the exhibits be handed out. (5) I note that the plaintiff does not seek an order for costs because the question of costs is covered by the terms of its securities. (6) I stay execution on the judgments entered pursuant to order 1 until 27 February 2012. (7) I reserve liberty to the plaintiff if so advised to apply for an order for costs; any such application to be made by notice of motion filed within 7 days. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 22 February 2012