Supreme Court New South Wales Medium Neutral Citation: Damjan Zugic v Vesuvius Australia Pty Ltd [2018] NSWSC 1544 Hearing dates: 2 & 9 October 2018 Decision date: 09 October 2018 Jurisdiction: Equity Before: Rees J Decision: Orders made for expert evidence Catchwords: EVIDENCE – Directions for expert evidence –Whether scope of expert evidence supported by pleadings – Claim for equitable compensation – Plaintiff's directions made. Legislation Cited: Supreme Court Act 1970 (NSW), Cases Cited: Davidovic v Vesuvius Australia Pty Ltd [2014] NSWSC 1066 Davidovic v Vesuvius Australia Pty Ltd (No 2) 2016 NSWSC 1679 Davidovic v Vesuvius Australia Pty Ltd (No 3) [2017] NSWSC 76 Zugic v Vesuvius Australia Pty Ltd, 4 September 2017 (Unreported) Vesuvius Australia Pty Ltd v V & M Davidovic Pty Ltd [2011] NSWSC 539 Pilmer v Duke Group Ltd (in liq) (2001) 75 ALJR 1067 Day v Mead [1987] 2 NZLR 443 at 462 (CA) Category: Procedural and other rulings Parties: Damjan Zugic - Plaintiff Vesuvius Australia Pty Ltd - Defendant Representation: Counsel: J R Young - Plaintiff P T Russell - Defendant Solicitors: James Legal Pty Limited - Plaintiff Pikes & Verekers - Defendant File Number(s): 2013/385037 ex tempore Judgment 1. HER HONOUR: This matter has been referred to me by the Registrar for directions to be made in respect of expert evidence. 2. These proceedings were commenced in December 2013 and have a complicated and difficult procedural history which is the subject of judgments by Darke J in Davidovic v Vesuvius Australia Pty Ltd [2014] NSWSC 1066, Stevenson J in Davidovic v Vesuvius Australia Pty Ltd (No 2) 2016 NSWSC 1679 and Davidovic v Vesuvius Australia Pty Ltd (No 3) [2017] NSWSC 76 and Parker J (Unreported, Zugic v Vesuvius Australia Pty Ltd, 4 September 2017). 3. The proceedings concern leasing negotiations between V & M Davidovic Pty Ltd (V&M) and Vesuvius Australia Pty Ltd in respect of two sites: 1. land with a factory at 32-34 Doyle Avenue, Unanderra, NSW ("the Doyle land"); and 2. unimproved land at 10-12 Sylvester Avenue, Unanderra, NSW ("the Sylvester land"). The plaintiff sues as an assignee of V&M's causes of action against Vesuvius Australia Pty Ltd, although the validity of the assignment is disputed by the defendant. 1. In the last mentioned judgment, Parker J heard a Motion by the plaintiff to amend his pleading, and by the defendant to dismiss the proceedings for want of prosecution. The Statement of Claim had, prior to the hearing before Parker J, sought the following relief: 1. Equitable compensation … for loss and damage suffered by the plaintiff not entering into a lease of the Doyle land … on the terms of the lease annexed to the Deed. 2 Alternatively, damages for breach of the Sylvester Agreement … 1. By the proposed Amended Statement of Claim, the plaintiff proposed (amongst other amendments) to: 1. delete the claim for equitable compensation suffered by failure to enter into a lease of the Doyle land; and 2. no longer assert that there was a binding agreement in relation to the Sylvester land but merely a proposal. 1. Paragraph 56 of the Statement of Claim was to be deleted. It had pleaded: The plaintiff says that: (a) V&M was induced by the conduct of the first defendant in making the First Sylvester Representation to believe that it no longer had any obligation to carry out its obligations under the Deed, including completion of the Works, as first defendant would enter into a lease of the Sylvester land on the terms of the Sylvester Proposal; ... (c) It has suffered detriment by ceasing to carry out its obligations under the Deed, including completion of the Works in that it was deprived of the opportunity to enter into the Doyle lease…: (d) First defendant's conduct in inducing V&M to cease to carry out its obligations under the Deed, including completion of the Works, and not informing V&M that the first defendant might not enter into a lease of the Sylvester land … was unconscionable (e) In the premises, first defendant is estopped from denying that it would have entered into the Doyle Lease; and (f) V&M is entitled to be compensated for the loss it has suffered by not entering into the Doyle lease. Particulars V&M's lost profit on the rent it would have earned on the Doyle lease, less the expenses it would have incurred in developing the Doyle land to enable it to be leased to the first defendant. Further particulars may be provided in due course. 1. Whilst there were no submissions or argument before Parker J in respect of these amendments, the defendant submits that there was to be no claim or pleading of a breach of the agreement in respect of the Doyle land, nor could there be, because it was accepted in earlier proceedings that it was properly terminated. I take this to be a reference to the judgment of Biscoe AJ in Vesuvius Australia Pty Ltd v V & M Davidovic Pty Ltd [2011] NSWSC 539 in which his Honour noted that V&M accepted that the lease in respect of the Doyle land had been terminated, either by Vesuvius Australia Pty Ltd issuing a Termination Notice of the Deed of Option to Lease, or the acceptance by V&M of the defendant's repudiatory conduct in issuing a Termination Notice and V&M proceeding to terminate the lease itself. Such an acknowledgment by V&M does not appear to me to preclude V&M seeking damages in respect of the termination, and indeed both V&M and Vesuvius Australia Pty Ltd sought damages in those proceedings as I understand it. 2. During argument before Parker J on 29 August 2017, the plaintiff's counsel agreed to further amend the proposed pleading by deleting a claim for damages pursuant to s 68 of the Supreme Court Act 1970 (NSW), commonly referred to as Lord Cairns' Act damages. Current pleading 1. The Amended Statement of Claim was filed on 11 September 2017. The plaintiff seeks the following relief: 1. Equitable compensation for the loss and damage suffered by the plaintiff not proceeding on the Sylvester Proposal (as defined below). 2. Alternatively to prayer 1 above, equitable compensation, for the loss and damage suffered by the plaintiff not entering into a lease of the Sylvester land (as defined below). 3. In the alternative to prayers 1 to 2 above, equitable compensation in respect of the costs and expenses incurred by the plaintiff with respect to the proposed lease of the Sylvester land (as defined below) to the defendant. 1. It is pleaded that, in 2006, the defendant was interested in relocating its manufacturing operations to the Sylvester land (at [6]-[8], Amended Statement of Claim). However, from September 2006 to April 2008, the defendant turned its attention to the Doyle land and V&M went to considerable lengths to develop the Doyle land to the defendant's satisfaction, including purchasing the adjacent lot for $1,595,000 to facilitate access and arranging for third parties to redevelop the site including project managers, surveyors, electricians, architects, traffic engineers and consulting engineers. 2. On 6 October 2007, V&M and the defendant executed a Deed of Options for Lease in respect of the Doyle land under which V&M granted the defendant an option to lease the Doyle land for 20 years with an option for a further 20 years at an initial annual rent of $560,000 per annum plus GST. The deed obliged V&M to carry out Works on the Doyle land. The defendant paid a deposit of $560,000 in accordance with the Deed of Options for Lease and V&M continued to carry out the Works on the Doyle land. The defendant exercised its option under the Deed and V&M undertook additional work at the defendant's request including obtaining additional space for further car parking spaces. 3. However, in April 2008, the defendant turned its gaze back to the Sylvester land as a better site for its needs than the Doyle land. The defendant sent V&M a proposal to lease the Sylvester land instead of the Doyle land for 20 years plus 20 years at an annual rent of $744,000 per annum. It is pleaded that the defendant represented that V&M would cease to be bound by the terms of the Deed of Options for Lease, including its obligation to carry out Works on the Doyle land and that V&M would instead undertake capital improvements on the Sylvester land. It is pleaded that V&M relied on these representations and ceased to carry out its obligations under the Deed and instead carried out works on the Sylvester land. Paragraph 32 of the Amended Statement of Claim pleads: But for the First Sylvester Representation, V&M would have complied with its obligations under the Deed, including carrying out the necessary steps to complete the Works. 1. It is then pleaded that, on 8 April 2010, the defendant commenced proceedings against V&M in the Supreme Court of New South Wales No. 2010/84991 seeking recovery of the deposit paid pursuant to the Deed: [42], Amended Statement of Claim. V&M filed a Cross-Claim in those proceedings seeking damages for misleading and deceptive conduct and unconscionable conduct and sought to have such damages set off against the claim for return of the security deposit. 2. It is pleaded that the defendant did not ultimately proceed to lease the Sylvester land but leased different premises in Port Kembla. 3. The following portions of the Amended Statement of Claim plead damages: [45] V&M has suffered damages as a consequence of the defendant's conduct. Particulars V&M's lost profit on the rent it would have earned on the lease of the Sylvester land, less the expenses it would have incurred in constructing the factory building, administration building and car park and all other associated costs in developing the Sylvester land to enable it to be leased to the defendant. Further particulars may be provided in due course. [47] V&M alleges that… (h) V&M is entitled to be compensated by the defendant for the loss it has suffered by not having entered into a lease of the Sylvester land on the terms of the Sylvester Proposal. Particulars V&M's lost profit on the rent it would have earned on the lease of the Sylvester land, less the expenses it would have incurred in constructing the factory building, administration building and car park and all other associated costs in developing the Sylvester land to enable it to be leased to the defendant. Further particulars may be provided in due course. [53] V&M was entitled to be compensated by the defendant for the loss it has suffered by not having entered into a lease of the Sylvester land on the terms of the Sylvester Proposal. Particulars V&M's lost profit on the rent it would have earned on the lease of the Sylvester land, less the expenses it would have incurred in constructing the factory building, administration building and car park and all other associated costs in developing the Sylvester land to enable it to be leased to the defendant. Further particulars may be provided in due course. [54] In the alternative to paragraphs 45 to 53 above, V&M: … (f) V&M was entitled to be compensated by the defendant for the loss it has suffered by carrying out the work and incurring the expenses it did. Particulars Particulars to be provided in due course. 1. Leave to amend the Statement of Claim having been granted by Parker J, the parties proceeded to file their lay evidence. In August 2018, attention turned to expert evidence. The plaintiff proposed that experts calculate loss on four scenarios. Scenario 1: The loss suffered by V&M, assuming that the parties had never entered into the Sylvester lease and had instead proceeded with the Doyle Lease, with commencement on 8 March 2009. Scenario 2: The loss suffered by V&M, assuming that the parties proceeded with the Sylvester lease with a commencement on 31 July 2010 (scenario 2a) and on 1 February 2011 (scenario 2b) without actual costs incurred in relation to the Doyle lease and with these costs scenarios 2c and 2d respectively. Scenario 3: The costs and expenses incurred by V&M in relation to the proposed lease of the Sylvester site. Scenario 4: Calculate the loss suffered by V&M due to the failure to proceed with the lease of the Sylvester property. 1. The defendant queried the relevance of these scenarios having regard to the pleadings. The plaintiff responded: The Report answers the following questions: Scenario 1: The loss suffered by V&M in relation to the Doyle lease; Scenario 2: The loss suffered by V&M in relation to the Sylvester lease (with a commencement date 31 July 2010 (scenario 2a) and 1 February 2011 (scenario 2b)) without actual costs incurred in relation to the Doyle lease and with these costs for scenario 2c and scenario 2d respectively: Scenario 3: the costs and expenses incurred by V&M in relation to the Sylvester lease. 1. The defendant did not agree and proposed a narrower scope for expert opinion. The plaintiff replied: Your proposal appears to us to ignore part of the pleaded case for example in relation to paragraphs 53 and 54(f) of the Amended statement of claim. Further prayers 1 and 2 claim equitable compensation in relation to the loss and damage concerning the Sylvester proposal and the Sylvester Lease. We accept that there will be an argument at trial about whether the costs and expenses in relation to the Doyle lease can be claimed. In our view that matter is included in the damage which is claimed in the Amended Statement of Claim. 1. The defendant submitted that the plaintiff, having properly abandoned its claims in relation to the Doyle land, is now attempting to revive that claim by quantifying damages which are outside the pleadings. The plaintiff submitted that, whilst he is not entitled to claim equitable compensation for any breach of the Doyle agreement, he remains entitled to include loss or expense which arose from the Doyle land as equitable compensation from the claim in relation to the Sylvester proposal. 2. The plaintiff seeks to appoint an expert to opine on the following matters. 1. V&M's lost profit on the rent it would have earned on the lease of the Sylvester land, less the expenses V&M would have incurred in constructing the factory building, administration building and car park and all other associated costs in developing the Sylvester land to enable it to be leased to Vesuvius (as claimed, pleaded and particularised in prayers 1 and 2 and paragraphs 45, 47(h) and 53 of the Amended Statement of Claim ("ASC")). 2. V&M's loss in relation to not entered into a lease of the Sylvester proposal (prayers 1 and 2 and paragraph 53 of the ASC). 3. V&M's loss suffered by it for carrying out the work and incurring the expenses it did in relation to the Sylvester proposal (prayers 1 and 2 and paragraph 54(f) of the ASC). 4. Without limiting the above, loss or damage suffered by Vesuvius not proceeding on the Sylvester proposal and by not entering into the lease of the Sylvester land (prayers 1 and 2 of the ASC). 1. The defendant seeks to confine the appointment to the following matters. 1. V&M's lost profit on the rent it would have earned on the proposed lease of the Sylvester land, less the expenses V&M would have incurred in constructing the factory building, administration building and car park and all other associated costs in developing the Sylvester land to enable it to be leased to the Vesuvius (as claimed, pleaded and particularised at prayers 1 and 2 and paragraphs 45, 47(h) and 53 of the Amended Statement of Claim); and 2. V&M's costs and expenses incurred with respect to the proposed lease of the Sylvester land (as claimed, pleaded and particularised in prayer 3 and paragraphs 54(c) and 54(f) of the Amended Statement of Claim). 1. The plaintiff is seeking equitable compensation which he says flows from the defendant's failure to proceed with the Sylvester Proposal. At a conceptual level, equitable compensation is determined by equitable principles and these do not necessarily reflect the rules for assessment of damages in tort or contract: Pilmer v Duke Group Ltd (in liq) (2001) 75 ALJR 1067. Assessment will reflect what the justice of the case requires according to considerations of conscience, fairness and hardship and other equitable features such as laches and acquiescence: Day v Mead [1987] 2 NZLR 443 at 462 (CA). 2. As such, it is open to the plaintiff at a conceptual level to contend that such compensation may by calculated by reference to the sequence of events set out in the Amended Statement of Claim, being the abandonment of the Doyle land in favour of the Sylvester land and all that that entailed. Indeed, it would be open for the defendant to require the plaintiff to bring to account the financial ramifications of abandoning the Doyle land in calculating equitable compensation in respect of the Sylvester land if, for example, by abandoning the Doyle land, V&M avoided a loss. 3. At a pleading level, the plaintiff has pleaded the facts which would support the plaintiff examining the financial ramifications of abandoning the Doyle land in favour of the Sylvester land but has not squarely particularised this in the paragraphs of the Amended Statement of Claim which plead damage. However, in circumstances where the preparation of evidence is not complete and a hearing date has not been allocated, it is open to the plaintiff to provide further particulars of loss. I am not going to preclude the plaintiff from quantifying his claim as he sees it for equitable compensation. 4. This case has had an extremely difficult procedural history, but the plaintiff has now remedied the defaults of his predecessors in title to V&M's causes of action against the defendant. The time has come for both sides of this dispute to finalise preparations of the case for hearing as expeditiously as can be done so that this dispute, and all aspects of this dispute, can be finally determined by this Court. Orders 1. I make the following orders. 1. I make the orders in accordance with the plaintiff's Request for Expert Evidence Directions which are initialled by me and placed with the papers with the following amendments. (a) In Order 2 insert the details of the defendant's expert being Paul James Vincent, Chartered Accountant and founding director of Vincent's Chartered Accountants. (b) In Order 3, I amend 12 weeks to 8 weeks and add the date by "4 December 2018". (c) In Order 4, I amend ten weeks to eight weeks and insert the date "19th February 2019". 1. Direct the plaintiff to provide any further particulars of the claim for equitable compensation by 22 October 2018. 2. Stand the proceedings over to the Registrar's List on 25th February 2019. 3. Grant liberty to apply. ************ Amendments 12 October 2018 - Correction to citation 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: 12 October 2018