Supreme Court New South Wales Medium Neutral Citation: Macquarie International Health Clinic Pty Ltd v Sydney Local Health District; Sydney Local Health District v Macquarie Health Corporation Ltd (No 12) [2019] NSWSC 916 Hearing dates: 9 December 2016; 14 February 2017; 4, 20 October 2017; 13, 16, 17 November 2017; 18 December 2017; 9 May, 21 June 2019. Decision date: 17 July 2019 Jurisdiction: Equity Before: Kunc J Decision: Application to re-open refused; gross sum costs order made; parties to bring in short minutes to finalise damages enquiry Catchwords: COSTS - Party/Party - Bases of quantification - Factors relevant to the court's discretion when quantifying costs – Whether gross sum costs order should be made where successful plaintiff was liable to defendant under several interlocutory costs orders – Civil Procedure Act 2005 (NSW), s 98(4)(b) COSTS - Party/Party - Exceptions to general rule that costs follow the event - Offers of compromise/Calderbank offers – Plaintiff succeeds on basis not pleaded at the time defendant rejected Calderbank offer – Plaintiff's application for indemnity costs from date of Calderbank offer rejected COSTS - Party/Party - General rule that costs follow the event - Proceedings discontinued or dismissed – Plaintiff (in effect cross-claimant) to pay defendant's costs on the indemnity basis where claim not pressed after Court declines to deal with claim on the papers DAMAGES - Measure and remoteness of damages in actions for tort - Measure of damages - Assessment of mesne profits for trespass by landlord against tenant where rights included 103 year lease to build and operate car park and private hospital – Damages assessed as at date cause of action arose PROCEDURE - Judgments and orders - In general – Whether leave to reopen argument should be granted – Whether argument said to have been overlooked had been put TORTS - Trespass - Trespass to land and rights of real property – Measure of damages – Trespass by landlord against tenant - Assessment of mesne profits where rights included 103 year lease to build and operate car park and private hospital – Damages assessed as at date cause of action arose Legislation Cited: Civil Procedure Act 2005 (NSW) Evidence Act 1995 (NSW) Uniform Civil Procedure Rules 2005 (NSW) Cases Cited: Autodesk Inc v Dyason [No 2] [1993] HCA 6; (1993) 176 CLR 300 Bunnings Group Ltd v CHEP Australia Ltd (2011) 82 NSWLR 420; [2011] NSWCA 342 Calderbank v Calderbank [1975] 3 All ER 333 Colgate-Palmolive Company v Cussons Pty Ltd [1993] 46 FCA 536; (1993) 46 FCR 225 Coulton v Holcombe [1986] HCA 33; (1986) 162 CLR 1 Dasreef Pty Ltd v Hawchar [2011] HCA 21; (2011) 243 CLR 588 El Ali v Tritton [2019] NSWCA 111 Hamod v State of New South Wales [2011] NSWCA 375 Hancock v Rinehart (Lump Sum Costs) [2015] NSWSC 1640 Johnson v Perez [1988] HCA 64; (1988) 166 CLR 351 Macquarie International Health Clinic Pty Ltd v Sydney Local Health District; Sydney Local Health District v Macquarie Health Corporation Ltd (No 6) [2014] NSWSC 149 Macquarie International Health Clinic Pty Ltd v Sydney Local Health District; Sydney Local Health District v Macquarie Health Corporation Ltd (No 10) [2016] NSWSC 1587 Macquarie International Health Clinic Pty Ltd v Sydney Local Health District; Sydney Local Health District v Macquarie Health Corporation Ltd (No 11) [2017] NSWSC 1249 Makita (Australia) Pty Ltd v Sprowles [2001] NSWCA 305; (2001) 52 NSWLR 705 Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 South Eastern Sydney Area Health Service v King [2006] NSWCA 2 South West Helicopters Pty Ltd v Stephenson (No 2) [2018] NSWCA 99 Suttor v Gundowda Pty Ltd [1950] HCA 35; (1950) 81 CLR 418 Wentworth v Rogers [2002] NSWSC 921 Texts Cited: Fleming's The Law of Torts edited by C Sappideen and P Vines, 10th Ed, Law Book Co, 2011 Macquarie Online Dictionary Category: Principal judgment Parties: Proceedings 2000/34949 Macquarie International Health Clinic Pty Ltd (Plaintiff) Sydney Local Health District (Defendant) Proceedings 2010/90340 Sydney Local Health District (Plaintiff) Macquarie Health Corporation Ltd (Defendant) Representation: Counsel: 9 December 2016 S Kanagaratnam (Plaintiff) J Stoljar SC; M R Elliott (Defendant) 14 February 2017 R E Dubler SC; S Kanagaratnam (Plaintiff) I M Jackman SC; M R Elliott (Defendant) 4 & 20 October 2017 E A J Hyde; S Kanagaratnam (Plaintiff) D Williams SC; T Marskell (Defendant) 13 November 2017 S Kanagaratnam (Plaintiff) D Williams SC (Defendant) 16 & 17 November 2017 R E Dubler SC; E A J Hyde; S Kanagaratnam (Plaintiff) D Williams SC; B D Kaplan (Defendant) 18 December 2017 R E Dubler SC; S Phillips (Plaintiff) D Williams SC; B D Kaplan (Defendant) 9 May 2019 S Kanagaratnam (Plaintiff) D Williams SC; B D Kaplan (Defendant) 21 June 2019 N Hutley SC, S Phillips; S Kanagaratnam (Plaintiff) D L Williams SC; B D Kaplan; S Scott (Defendant) Solicitors: S Moran & Co (Plaintiff 2000/34949, Defendant 2010/90340) Clayton Utz (Defendant 2000/34949, Plaintiff 2010/90340) File Number(s): 2000/34949; 2010/90340 Publication restriction: No Judgment Summary 1. The Court delivered its principal judgment on damages on 10 November 2016: Macquarie International Health Clinic Pty Ltd v Sydney Local Health District; Sydney Local Health District v Macquarie Health Corporation Ltd (No 10) [2016] NSWSC 1587 (the "Principal Judgment"). Defined terms in the Principal Judgment have the same meaning in these reasons. These reasons must be read with the Principal Judgment. 2. In addition to giving reasons for some interlocutory decisions, this judgment is intended to resolve the remaining questions regarding the calculation for Macquarie's damages in relation to the Hospital Site, the parties having informed the Court that the calculations regarding the Car Park Site have been able to be done to give effect to earlier reasons of the Court. These reasons also resolve Macquarie's applications in relation to costs and a recent application to reopen by the Health District. 3. The Court's conclusions may be summarised as: 1. The Health District's recent application in relation to what is defined as the Threshold Issue (see paragraph [17] below) is rejected because it was never argued and the Court is not satisfied there is a proper basis to allow it to be argued at this final stage. In any event, had it been argued the Court would have decided the Threshold Issue adversely to the Health District. 2. In accordance with the usual rule that damages are calculated as at the date the cause of action arose, damages in the nature of mesne profits in relation to the Hospital Site are to be calculated from (and discounted back to) 17 March 2000, being the date of commencement of the Health District's trespass on the Hospital Site. The Court adopts Mr Stone's calculation of those damages as set out in Appendix C2 to his second report dated 13 October 2017 which calculated damages of $21.791 million and Supreme Court simple interest of $30.772 million up to 18 September 2017. The interest figure will have to be updated to whatever date final orders are made. 3. As to Macquarie's costs applications: 1. Given that the basis on which Macquarie ultimately succeeded was not pleaded at the time of its Calderbank Offer to the Health District, Macquarie's application for its costs on the indemnity basis from the date of that offer is refused; 2. The Health District is to pay Macquarie's costs of the proceedings (comprising for these purposes the Damages Enquiry, the L&E Proceedings and the Guarantee and Indemnity Proceedings) assessed in the gross sum of $4,643,000 (noting that in these reasons, all references to costs are exclusive of GST); 3. The Health District is to pay Macquarie's costs of the Guarantee and Indemnity Proceedings on the indemnity basis, such costs being included in the Court's gross sum costs order; and 4. The Court being satisfied that it is appropriate to make a gross sum costs order, it is unnecessary for the Court to determine Macquarie's application for interest on costs. Procedural history after delivery of the Principal Judgment 1. It is necessary to set out the procedural history of what followed after delivery of the Principal Judgment, if only to explain why the hope of the Court, and no doubt shared by the parties, that the remaining issues could be resolved promptly in one further hearing proved to be unfounded. Without intending to be critical of anyone, the subsequent history was consistent with what had gone before, namely that new issues seemed to arise at every turn. 2. On 9 December 2016 a directions hearing was held after the parties had an opportunity to review the Principal Judgment. Directions were made for the parties and their experts to produce reports and otherwise endeavour to identify what issues remained outstanding for the Court's determination. The matter was fixed for further hearing in early 2017. 3. On 14 February 2017 a hearing was conducted with the various experts in relation to the final calculation of damages. Five reports had been produced. The outstanding issues in relation to the Car Park Site, such as they were, were resolved with one exception. Similarly, considerable progress was able to be made by the Court making some determinations, there and then, of issues which the parties raised in relation to the Hospital Site. I indicated at the time that I did not propose to prepare separate judgments on those issues, but gave my reasons issue by issue on the transcript. It was also at this hearing that the Court was informed that the Health District would not be pressing further its Amended Statement of Claim in proceedings 2010/90340 (the "Guarantee and Indemnity Proceedings"), what was in effect its cross-claim against Macquarie and referred to as such in paragraph [646(4)] of the Principal Judgment. 4. While the Court was able to resolve a number of consequential issues raised by the parties, it became apparent that four additional issues would require further evidence and argument. 5. A further hearing was held on 9, 10 and 11 May 2017 in relation to the four additional issues. I delivered my reasons in relation to those four additional issues on 18 September 2017 (Macquarie International Health Clinic Pty Ltd v Sydney Local Health District; Sydney Local Health District v Macquarie Health Corporation Ltd (No 11) [2017] NSWSC 1249). Having answered those questions, it was certainly the Court's expectation that the parties would be able to make the final damages calculations, such that the only outstanding issue would be costs. I was informed at that time that the calculation in relation to damages for the Car Park Site had been done (presumably subject to the Court answering the additional issues to the extent they related to the Car Park Site) and that one of Macquarie's experts was standing by to complete the damages calculation in relation to the Hospital Site on the basis of the answers provided in the Court's latest judgment. I listed the proceedings for the hearing of any costs applications on 20 October 2017. 6. The proceedings were relisted on 4 October 2017 on the application of the Health District. Among other things, Macquarie had informed the Health District that it (Macquarie) wished to make an application in relation to costs incurred between the Court of Appeal's decision and the commencement of the damages hearing and that Macquarie also wished to make an application for a gross sum costs order. It also became apparent that the Court may be required to resolve some remaining issues between the experts in relation to the damages calculation for the Hospital Site. Finally, the parties accepted that at least identifying the final parameters of the damages calculation could impact upon the costs arguments. 7. Accordingly, the Court decided to split out any final damages hearing from the costs hearing. The date of 20 October 2017 that had already been fixed was converted into an occasion on which the Court would hear any arguments in relation to the final damages calculations for the Hospital Site. Directions were also made to prepare for a hearing of any costs applications on 16 and 17 November 2017. 8. On 20 October 2017 the Court received further evidence from the parties' experts in relation to the damages calculation for the Hospital Site. Issues concerning the bed day rate and grossing up for taxation were able to be clarified and resolved between the parties during the course of argument without the need for formal determination by the Court. This left a debate about the methodology for calculating the mesne profits in relation to the Hospital Site. In the course of that argument, the Court requested that an additional calculation be done. Directions were made for the parties to provide further calculations and any submissions by 1 November 2017. 9. The further submissions referred to in the preceding paragraph resulted in a further disagreement about the application of the methodology that had apparently been agreed by the parties. Directions were made to enable that aspect of the matter to be dealt with as part of the forthcoming costs hearing. 10. On 16 and 17 November 2017 the Court heard additional argument in relation to the damages calculation and the first part of the argument in relation to costs. Over the Health District's objection, the Court admitted the evidence of Macquarie's costs expert, Mr Dudman. Reasons for that are given at paragraph [142] to [154] below. As a result of the admission of Mr Dudman's evidence and the course of further argument, it became apparent that it was in the interests of the just, quick and cheap resolution of the costs dispute (to the extent that was going to be possible) that further work would need to be undertaken by the parties' costs experts. Directions were made in relation to that and arrangements were made for the Court to sit on the first day of the vacation, 18 December 2017. The parties' arguments in relation to Macquarie's costs application were concluded on that day. A final application - introduction 1. The proceedings were to take yet another, unexpected turn. 2. On 6 May 2019 (when, unbeknown to the parties, delivery of judgment in relation to the various outstanding issues was imminent) the solicitor for the Health District sought to have the proceedings relisted. In a subsequent letter that was provided to my associate, the reasons for that relisting were explained by the Health District's solicitors: "1. The Trial Judge does not appear to have given any consideration to the Threshold Issue raised by the defendant as to the applicability of the user principle to vacant land. 2. It was, and remains, the defendant's case that the user principle applied to the Hospital Site involved an amount of the market rental of the land in its existing state or use (i.e. in vacant condition without the existence of a hypothetical hospital): see, e.g., defendant's conspectus dated 30 June 2015 at [5]-[6], [8], [21.1]-[21.2], [22], [36], [43]-[44]; defendant's submissions on issue 2 dated 30 June 2015 at pp 44-45 [30]-[36]; defendant's submissions dated 22 July 2015 at p 57 [5]; and defendant's submissions on issue 2 dated 14 August 2015 at [4]. 3. It may be that the Court took the view that the Threshold Issue had been abandoned. The defendant did not, and does not, abandon its position on that Threshold Issue. The defendant will seek that his Honour clarify his intentions in relation to that matter and, to the extent that his Honour thinks appropriate, to address that Threshold Issue." 1. The proceedings were relisted on 9 May 2019. On that occasion, Senior Counsel for the Health District handed up a document dated 9 May 2019 entitled "Outline of Submissions of the Defendant", which included (emphasis added): "1. These submissions are made in support of the application of the defendant, the Sydney Local Health District (SLHD), to re-list these proceedings before Kunc J for consideration of an argument that it perceives has not been addressed in the principal reasons for judgment (Principal Judgment). 2. The purpose of the re-listing of the proceedings is to enable SLHD to advance submissions as to the following propositions: a) The Court has not, as yet, determined the issue raised by SLHD's written and oral submissions that, to the extent that the user principle is applicable to the assessment of the damages to be awarded to the plaintiff, Macquarie International Health Clinic Pty Ltd (Macquarie), in respect of the Hospital Site, it required the Court to treat the land upon which SLHD trespassed on the basis of its existing state and/or use during the period of the trespass. b) SLHD's argument to that effect was not, and has not been, abandoned." 1. The emphasised proposition advanced in paragraph 2(a) of that outline was referred to by the parties, and now by me, as the "Threshold Issue". I made directions for the filing of a notice of motion, evidence and submissions and fixed that motion for hearing on 21 June 2019. A final application – the motion and arguments 1. In accordance with the directions I had made, the Health District filed a notice of motion on 13 May 2019 which included these prayers for relief: "1. Leave be granted to the defendant in Proceedings 2000/34949 and 2010/90340 to advance submissions: (a) the subject of its written submissions dated 9 May 2019; (b) (in particular) that the Court has not, as yet, determined the issue raised by the defendant's written and oral submissions that, to the extent that the user principle is applicable to the assessment of the damages to be awarded to the plaintiff in respect of the Hospital Site, it required the Court to treat the land upon which the defendant trespassed on the basis of its existing state and/or use during the period of the trespass; (c) (in particular) that the defendant's argument to that effect was not, and has not been, abandoned. 2. Irrespective of the answer to paragraph 1(c) above, the Court rule as to the Threshold Issue as described in the defendant's submissions dated 9 May 2019. 3. The Court determine the plaintiffs entitlement to damages on the Threshold Issue. 4. To the extent necessary, leave be granted to the defendant to re-open Proceedings 2000/34949 and 2010/90340 to argue the issues the subject of paragraphs 1-3 above. 5. The Court review, revise, recall or supplement its reasons for judgment dated 10 November 2016 for the purposes of determining the issues the subject of paragraphs 1-3 above." 1. On the hearing of the motion, Mr N Hutley of Senior Counsel appeared for Macquarie with Mr S Phillips and Mr S Kanagaratnam of Counsel. Mr D L Williams of Senior Counsel appeared with Mr B Kaplan of Counsel for the Health District. A final application – what the Principal Judgment said 1. Before turning to the parties' arguments in relation to this application, it is helpful to recall what the Court decided in the Principal Judgment. "173. What emerges clearly from the foregoing statements of principle is that in Australia mesne profits are the means by which damages for trespass are awarded. Furthermore, the calculation of those mesne profits is done by reference to the user principle. The user principle means that the Court is not concerned with whether or not the innocent party could or would have used the land in question or whether the wrongdoer can demonstrate that it may have been able to gain some advantage if it had, in fact, negotiated with the innocent party for the use in question. In my view, the user principle requires a robust and straightforward inquiry firmly based upon what in fact occurred: what was the wrongful use and what is a market or going rate for that use? 174. This conclusion has the consequence that the Court must disregard the way in which the Health District put much of its case. Without intending any criticism, a great deal (but by no means all) of the complexity in, and length of, these proceedings flowed from the Health District postulating and seeking to prove a number of hypothetical counterfactuals. The most striking of these were the Health District's contentions that Macquarie would never have been able to build the hospital, or if it had, that the hospital would have been an economic disaster for Macquarie. These submissions (supported by a large amount of factual and expert evidence) were advanced in support of the ultimate proposition that Macquarie had, in fact and law, suffered no loss by reason of the Health District's trespass and had been saved from economic ruin. … 179. The Health District's case acknowledged the application of the user principle but sought to avoid its consequences by describing what Macquarie had lost as being an enforceable right that gave Macquarie "a contractual entitlement to exploit an opportunity" to do certain things (see paragraphs [154] to [157] above). That characterisation of an "opportunity" was the Health District's conceptual gateway through which it sought to introduce hypothetical counterfactuals and analyses of the kind used in loss of chance cases. The Court accepts Macquarie's submission that this is not a loss of a chance case and that it would be wrong to assess damages by reference to the principles used in cases of that kind. 180. The Health District's characterisation is wrong because what Macquarie was deprived of was its contractual right to the possession of and, consequently, operation and development of the sites. Introduction of the gloss of "opportunity" adds nothing because most, if not all, contracts could be described as giving a contractual entitlement to exploit an opportunity of some kind. The user principle keeps the Health District's conceptual gateway firmly closed because it ignores whether the innocent party could have, would have or even wanted to exercise its right to use its land in the way that the trespasser used the land. 181. All of that having been said, it must be accepted that Macquarie's case in relation to the Hospital Site in particular presents some novel features insofar as no similar case has been able to be found, despite the extraordinary legal resources the parties devoted to these proceedings. In a case presenting novel features I take as my touchstone Allsop P's invocation in Bunnings (at [174]) of the "rules of compensatory damages sensibly and flexibly applied". That approach does not exclude a sensitivity on the part of the Court to the need to avoid undercompensation or overcompensation within the context of the principled application of the user principle." 1. The effect of the Health District's submission in the present application is that the description of the Health District's case in paragraph [179] of the Principal Judgment reproduced above was at least incomplete because it failed to acknowledge or deal with the Threshold Issue as a logically anterior question. The Health District's application requires the Court to answer two questions: 1. Had the Threshold Issue been presented at the hearing as an issue for resolution? Macquarie submitted that it had not been argued by the Health District, nor had any such argument been abandoned by the Health District because no such argument had been advanced in the first place. However, Macquarie also accepted that if the Court decided that the Threshold Issue had been raised, then the Court should now go on to determine it. 2. Even if the Court decided that the Threshold Issue had not been raised at the hearing, should the Health District be permitted to raise it now? The Health District submitted that it was only a question of law which required no further evidence and was exactly the kind of issue which, if raised for the first time on appeal, would be allowed to be argued in accordance with cases such as Suttor v Gundowda Pty Ltd [1950] HCA 35; (1950) 81 CLR 418 and Coulton v Holcombe [1986] HCA 33; (1986) 162 CLR 1. A final application – the facts 1. The Health District relied on an affidavit from its current solicitor on the record, Ms Karen Ingram of Clayton Utz. What follows was not in dispute. 2. Clayton Utz had been instructed in mid-2015 by the Health District in relation to issues concerning the private hospital that was to be built by Macquarie. However, Clayton Utz was not retained in relation to the Damages Enquiry before me. During the Damages Enquiry, up to and including a short time after delivery of the Principal Judgment, the Health District was represented by Bolzan & Dimitri Lawyers and Mr G Burton of Senior Counsel with Mr P Bruckner of Counsel. 3. Shortly after delivery of the Principal Judgment on 10 November 2016, Clayton Utz received instructions from the Health District to take over the conduct of the Damages Enquiry from Bolzan & Dimitri Lawyers. New counsel were also briefed, including Mr I Jackman of Senior Counsel. 4. At the time of delivering the Principal Judgment, a further directions hearing was fixed for 9 December 2016. On that occasion Mr Jackman SC was unavailable and Mr J Stoljar of Senior Counsel was briefed on short notice to appear for the Health District at that directions hearing. Mr Stoljar SC has had no further involvement with the matter. 5. Further changes occurred to the Health District's team of counsel in connection with the various hearings that then took place during 2017. 6. Ms Ingram's evidence about the events which led to the present application was: "27. In mid to late 2018, Clayton Utz received instructions to carry out work which was preliminary and preparatory to any appeal from any orders that would be made in the future by Kunc J and it instructed Mr Williams SC and Mr Kaplan of Counsel to assist with that preparatory work. These instructions were received in circumstances where judgment had been reserved by Kunc J on the remaining issues to be resolved in the damages inquiry (including costs) since 18 December 2017. 28. The preparatory work carried out comprised the following steps. 29. First, consideration was given to potential grounds of appeal from any orders that would be made by his Honour at the conclusion of these proceedings. This preliminary work was carried out in about November 2018. 30. Second, consideration was given to the proper application of the user principle and whether it was potentially misapplied in the Primary Judgment. This work was carried out from about November 2018 to February 2019. 31. Third, in early February 2019, further work was carried out by SLHD's current legal representatives as to the question whether arguments concerning the potential misapplication of the user principle had been raised sufficiently by SLHD before Kunc J in the damages inquiry. 32. In the course of performing this step, Clayton Utz and SLHD's counsel were required to review a significantly large volume of material, including relevant parts of the court transcript, relevant exhibits and the parties' written submissions in the damages inquiry. The court transcript consisted of over 5,000 pages and the written submissions over 2,600 pages. 33. Further review of the parties' written and oral submissions led to the conclusion, in about March 2019, that the Threshold Issue had been raised by SLHD during the damages inquiry. I note that those parts of SLHD's written and oral submissions in the damages inquiry that deal with this argument are identified in SLHD's written submissions dated 9 May 2019. 34. Fourth, from about March to April 2019, work was carried out by SLHD's counsel seeking to ascertain why the Threshold Issue, which was advanced in SLHD's written and oral submissions in the damages inquiry, had not been dealt with in the Principal Judgment. This process involved further review of SLHD's written and oral submissions, parts of the expert evidence and the Principal Judgment to ascertain whether it had been overlooked or whether there was another potential explanation. 35. In about April 2019, there was identification of possible confusion as to SLHD's concession in the damages inquiry as to the residual land value method being the appropriate methodology for the calculation of damages in respect of the Hospital Site (on the assumption that there existed on that site a hypothetical private hospital) as a possible explanation for why the argument was not dealt with by Kunc J in the Principal Judgment. 36. At no time prior to April 2019 had it been identified that there was potential confusion about SLHD's concession (to the extent that it could be capable of being understood as an abandonment of the Threshold Issue). 37. On 11 April 2019, Clayton Utz attended a conference with SLHD's counsel regarding the preparatory work being undertaken. Certain advice was received. 38. As stated below, the Threshold Issue was not intended to be, and is not, abandoned by SLHD. In circumstances where the argument is not dealt with in the Primary Judgment, and was not, and is not, abandoned by SLHD, I convened a meeting with Counsel and SLHD to seek instructions about relisting the damages inquiry proceedings before his Honour." 1. Macquarie did not rely on any affidavit evidence in opposition to the Health District's application. However, Macquarie did submit that it was highly relevant to the determination of the application that the Health District had not obtained evidence from any of its legal representatives who had had the actual carriage of the Damages Enquiry hearing on the question of whether the Threshold Issue had been advanced or what consideration, if any, had even been given to the Threshold Issue by those acting for the Health District at the time. 2. Each party provided to the Court a lever arch folder of extracts from the pleadings, submissions and transcript of the Damages Enquiry to which they made reference in support of their respective contentions. A final application – the parties' submissions 1. The Health District's submissions may be summarised as: 1. No final orders have yet been made in relation to the Damages Enquiry, therefore no application is required to set aside any orders or judgment. The Court has not yet completed its consideration of the proceedings. However, to the extent that an application to reopen is required, the Health District relied on the inherent power of the Court to reopen a hearing for the purpose of, relevantly, reviewing and varying reasons for judgment before any judgment or order has been entered. The Health District urged application of the conclusion of Barrett J (as his Honour then was) in Wentworth v Rogers [2002] NSWSC 921 at [9] that a single judge whose decision can be appealed "should allow reopening after judgment where it is obvious to that judge that the decision has miscarried and that the miscarriage may be rectified and the situation retrieved by attention to the matter by that judge rather than by an appeal court". The Health District drew attention to statements which I made at the directions hearings, including on 9 December 2016 and 13 November 2017, that parties should not consider them as shut out from addressing matters arising from the Principal Judgment. 2. The Health District's argument on the Damages Enquiry had proceeded in two basic steps: 1. The Threshold Issue, namely that the user principle required damages to be assessed in respect of the Hospital Site in its existing state and/or use; 2. If the Threshold Issue were decided adversely to the Health District, then in assessing damages on the basis of land containing the hypothetical private hospital, it was necessary to take into account the possibilities and probabilities involved in the building and operating of such a hypothetical private hospital (the "Hospital Damages Case"). 1. While the Hospital Damages Case had been considered at length in the Principal Judgment and determined adversely to the Health District, the Threshold Issue did not appear to have been determined, at least in any express way. 2. "At various points in its written submissions" the Health District had pointed out that what Macquarie was claiming were damages that were beyond the scope of the user principle because they did not focus on the "actual" use of the Hospital Site during the period of the trespass. Attention was drawn to references in other documents which were to the same effect. Various highlighted passages made it clear that the Health District contended that the land upon which the Health District was found to have trespassed was the "vacant" Hospital Site and not the Hospital Lease or the Hospital Site on which the hypothetical private hospital had been built. 3. Macquarie had understood that the Threshold Issue was part of the Health District's case. This was particularly apparent in Macquarie's "Outline of Closing Submissions in Reply" dated 17 July 2015, in which Macquarie had said (emphasis added): "3. In an attempt to circumvent the user principle, the defendant's conspectus raises four principal themes which then pervade its submission at every level: (1) what the defendant should pay should be related to its actual use of the property and the returns which it has derived from the property: DS Consp. [5], [8], [21.3(8)], [43]; (2) market rent should be assessed by reference to a hypothetical sale of the plaintiff's interests at the date of dispossession, based only upon information known at that date: DS Consp. [16], [17], [24]-[33]; (3) what should be valued as at 17 March 2000 is the "plaintiff's intention and capacity to fulfil its contractual obligations" to exploit the benefit of the leases: DS Consp. [16], [22], [34]; see also [5]. [6.5], [6.6], [21.3(9)], [21.7]; (4) when assessing market rent, only the "existing state and usage" of the sites should be brought to account: DS Consp. [5], [8], [22], [36], [43]; DS Issue 2 p. 45[35]. 4. These four themes are the building blocks for the defendant's contention that a zero or low award is a "just outcome" (DS Consp. [1]-[3], [7], [9]). 5. Each is fundamentally flawed." 1. Insofar as the Health District advanced evidence and submissions in relation to the Hospital Damages Case, it did so to meet the case that was brought by Macquarie. In doing so, the Health District did not abandon, expressly or impliedly, its submission that the user principle, properly understood, required mesne profits to be based on the existing use or state of the Hospital Site during the period of the trespass. 2. As Ms Ingram's evidence demonstrated, there has been no delay on the part of the Health District in bringing its concerns about the Threshold Issue to the attention of the Court. Furthermore, for the Court now to entertain the Threshold Issue would not cause any relevant prejudice to Macquarie because the Health District was relying upon arguments made in the existing submissions and was not seeking to adduce further or fresh evidence. 1. Macquarie's submissions may be summarised as: 1. Macquarie cited a number of authorities in support of the proposition that the jurisdiction to reopen or otherwise allow further argument, even where final orders had not been made, was an exceptional one. Particular emphasis was placed on this passage in the judgment of Mason CJ in Autodesk Inc v Dyason [No 2] [1993] HCA 6; (1993) 176 CLR 300 at 302-303: "4. These examples indicate that the public interest in the finality of litigation will not preclude the exceptional step of reviewing or rehearing an issue when a court has good reason to consider that, in its earlier judgment, it has proceeded on a misapprehension as to the facts or the law. As this Court is a final court of appeal, there is no reason for it to confine the exercise of its jurisdiction in a way that would inhibit its capacity to rectify what it perceives to be an apparent error arising from some miscarriage in its judgment. However, it must be emphasized that the jurisdiction is not to be exercised for the purpose of re-agitating arguments already considered by the Court; nor is it to be exercised simply because the party seeking a rehearing has failed to present the argument in all its aspects or as well as it might have been put. What must emerge, in order to enliven the exercise of the jurisdiction, is that the Court has apparently proceeded according to some misapprehension of the facts or the relevant law and that this misapprehension cannot be attributed solely to the neglect or default of the party seeking the rehearing. The purpose of the jurisdiction is not to provide a backdoor method by which unsuccessful litigants can seek to re-argue their cases." 1. In reliance on that passage, Macquarie submitted that what the Health District was seeking to do was an attempt to bring about a rehearing where Macquarie had failed to present its arguments in all its aspects; that in the present case there was no misapprehension about Macquarie's case and to the extent there was, it was entirely because of the way in which Macquarie presented its case and, to allow the application would in fact be to permit a backdoor method of the Health District rearguing its case after a completely different legal team had spent many months poring over the evidence, submissions and transcript looking for appeal points. 2. Nowhere had the Health District articulated the Threshold Issue as being an issue anterior to and distinct from the Hospital Damages Case. To paraphrase Mr Hutley SC's somewhat colourful description, if the Health District had a "killer" point that was a true "threshold issue", and therefore capable of being dispositive of the whole case with a zero damage result for the Health District, then one would expect it to have been raised with pellucid clarity. But it was nowhere to be found in the pleadings, or in any of the written or the oral submissions, some of which were inconsistent with the Threshold Issue. 3. The Threshold Issue had never been abandoned because it had never been raised. The Health District's entire case in relation to the Hospital Site had been predicated upon an acceptance that, in this case, the determination of mesne profits was to be done by, in effect, valuing the opportunity represented by the Hospital Lease. The Health District's argument was that the value was zero for a number of reasons, essentially that Macquarie neither could nor would have ever built the Hospital. The Court rejected this argument. 4. Insofar as Macquarie had responded to the Health District's reliance on the "existing state or user" argument (see paragraph [30(5)] above), it had correctly recognised that this was not a threshold or dispositive issue. Rather, it recognised that the Health District had contended, at the end rather than at the beginning of its argument, that if it was accepted that the contractual opportunity had no value, and in the absence of any other evidence from Macquarie, one had to fall back on the market rental value of the Hospital Site as it was. This value was simply the rent which the parties had determined Macquarie should pay to the Health District, such that in this ultimate scenario Macquarie's damages would again be zero. 5. Insofar as the Health District relied upon selected passages in various materials to which the Health District had drawn to the Court's attention, context was all important. When that context was taken into account, the Court would be satisfied that the passages identified by the Health District did not evidence a separate and anterior Threshold Issue. 6. As a discretionary matter, the Health District's delay in bringing the present application and the delay it would cause in the delivery of the final judgment if the application were granted, both militated against granting the application. The Health District had the benefit of extremely competent representation by senior and junior counsel and solicitors after the retainer of Clayton Utz in relation to the Damages Enquiry not long after the Principal Judgment was delivered. No suggestion that the Court had failed to deal with the Threshold Issue was made at either the directions hearing immediately after the Principal Judgment was delivered or at any of the further substantive hearings concluding on 18 December 2017. Furthermore, if the Health District's application were granted, there would be further delay because Macquarie would want the opportunity of a further hearing so that the Threshold Issue could be addressed properly, which would of itself then result in a further delay in the final resolution of the proceedings. A final application – resolution 1. For the following reasons, the Court concludes that the Threshold Issue was never raised. Moreover, in the exercise of the Court's discretion, I decline to grant the Health District leave to reopen the hearing of the Damages Enquiry to enable the Threshold Issue to be argued. It is no less a reopening of the hearing even if the Health District does not propose to adduce additional evidence and says all its arguments can be found in the various submissions already before the Court. 2. Before turning to an objective consideration of the Court record in these proceedings, it is necessary to make some subjective observations to dispose of the Health District's submission or concern that the Court may have thought that the Threshold Issue had been abandoned. Insofar as the subjective awareness of the trial judge may be relevant, I record in the interests of candour that I never regarded the Threshold Issue as having been abandoned because, subjectively speaking, I never understood it to be an argument that was raised by the Health District. 3. That conclusion, of course, does not end the matter because it is necessary for me to consider the objective record of the hearing against the possibility that I had failed to appreciate, or had overlooked, the Threshold Issue notwithstanding that as a matter of objective fact it had been raised for determination before me. I will now set out the eight reasons why, as an objective matter, I conclude that the Threshold Issue was never raised. 4. First, Mr Williams SC properly conceded that nowhere in any of the written materials or transcript had the Threshold Issue ever been put to the Court in the terms, or with the potentially dispositive significance, for which the Health District now contended. He accepted that the words "threshold issue" had never been put to the Court, nor had the submission which is now described as the Threshold Issue ever been put as something that had to be decided separately and before the Court moved on to some other question. 5. Second, the Principal Judgment concluded: 645. The Court will appoint a further directions hearing in these proceedings at a mutually convenient time after the parties have had an opportunity to consider these reasons. Without limiting the matters which the Court expects the parties to have considered for the purposes of that directions hearing, those matters include: (1) Without inviting re-argument, the identification of any obvious factual errors or omissions in these reasons; (2) Whether any issue which the Court has considered it unnecessary to determine needs to be answered to enable the final damages calculations to be made; (3) Whether there are any additional matters which, because of these reasons, the experts say they require the Court to answer to enable the final damages calculations to be made; (4) What aspects (if any) of the Health District's cross-claim are still to be pressed and further steps required to facilitate the efficient hearing of those matters; and (5) The most timely and cost effective way in which arguments as to the costs of the enquiry can be determined. 646. Consistently with the parties' obligations under s 56 of the CPA, to the extent issues emerge from these reasons which require resolution to enable the final damages calculations to be made, the Court urges the parties to exhaust all avenues of compromise before matters are presented to the Court on a contested basis. So far as possible, the Court expects the parties to work towards all outstanding matters being dealt with at one further substantive hearing." 1. In delivering the judgment on 10 November 2016, on which occasion Mr Burton SC appeared for the Health District and Mr Phillips of Counsel appeared for Macquarie, the following exchange occurred (emphasis added): "HIS HONOUR: That brings me to the fifth and final point, which is what do we do next? Page 207 of the reasons I set out a list of matters that I invite the parties to think about. I am not suggesting that that is an exhaustive list. No doubt there will be other matters that arise, but my intention is that we will meet again in about four weeks' time when the parties have had an opportunity to digest the reasons and think about these issues, for a directions hearing where we discuss the best way forward. BURTON: I think there is an agreed date of Thursday, 8 December. That was the date that seemed to be common between the parties. PHILIPS: I think that had been agreed, Thursday, 8 December. HIS HONOUR: Very well, we will fix it for directions on that occasion. What I have said, and I would like the parties to try and work towards, and I accept it may not be possible, is that we only have one more substantive hearing, and we would appoint a date sometime in the first half of next year, for argument on the cross-claim, for argument, which I hope there will not be, but I accept there may be, as to areas of dispute that arise from the working out of these reasons. One thing I would like early notice of at the directions hearing is if the experts come and look at what I have done and say there is something else I need to determine, then I would like to do that as quickly as possible. So that is a matter that I would expect the parties to have discussed and come back to me with a position on in four weeks' time because I would not let that wait, unless it had to, for a further hearing next year. I would rather be told what I need to go away and work out, and try and work it out as quickly as possible. But the ultimate result is to get to a point where I can actually make orders for sums certain, whatever they happen to be. Is there any other matter that the parties want to raise at this stage? PHILIPS: No, your Honour. BURTON: No, your Honour, thank you." 1. Both the conclusion of the Principal Judgment and what occurred at the time of its delivery support Macquarie's submission that the Court made it clear that if any party thought something had not been properly dealt with in the Principal Judgment, they would be heard in relation to that question. 2. Neither at the directions hearing which next followed the delivery of the Judgment, nor at any of the subsequent hearings during 2017, did the Health District suggest that the Threshold Issue had been raised and not dealt with. If the Threshold Issue was as important and as obvious as the Health District now contends, I have absolutely no doubt that in litigation as hard fought as this, such a fundamental omission would have been raised. Quite properly, the Health District has not expressly raised as an explanation its change of legal personnel after the delivery of the Principal Judgment to explain its failure to raise the concerns which it now has in relation to the Threshold Issue. Even if it had, given the skill and experience of its new legal team, I would have given no weight to any such attempted explanation. 3. Third, nowhere in any of the written materials or parties' submission is the Threshold Issue expressed as a threshold or preliminary point that was capable of disposing of the case. I accept Mr Hutley SC's submission which I have set out in paragraph [31] above. I also accept the submission he made that if the Threshold Issue was being put in the way for which the Health District now contends, it is inconceivable that someone (including the Court itself) would not have given some attention to the possibility of a preliminary issue being posed, even if only to be disregarded. 4. Fourth, the Health District has not offered any explanation why it has not called any of its former legal advisers who actually had the conduct of the matter up to and including the time of the Principal Judgment to give evidence in support of its contention that the Threshold Issue was raised. While not in and of itself determinative, the fact that the Health District has not filed any such evidence or offered any explanation fortifies me in the overall conclusion which I have reached. 5. Fifth, during the course of final submissions, the Court sought clarification from the parties in relation to the methodology for calculating mesne profits. In order to provide context, I set out more than the critical passages (which are emphasised): "(T5029:34-48) DUBLER: Your Honour, we are up to the Hospital Lease and the mechanism for judging mesne profits for the Hospital Lease, the Hospital Site. We say it's a question of deriving the market rental or the letting value. Can I firstly take you to the evidence and the defendant's submissions to suggest that firstly there's a lot of common ground between the parties. Then if I could respectfully request that your Honour just see that and then we can debate how that fits in with your Honour's thinkings and musings and where we are on the state of authorities. We say, as I submitted previously, that there's a lot of common ground in the evidence. There's a deal of common ground on the submissions and there's one big point of difference, and that's about the correct term or hypothetical term that should be assumed for valuing market rent. … (T5030:28-5031:43) HIS HONOUR: I think you're taking me to this as the first of your examples of what I think you said were matters of agreement between the parties. DUBLER: Yes. HIS HONOUR: Are you telling me that, as you understand it, the parties agree that the correct method of determining your loss in relation to the hospital is this methodology-- DUBLER: Yes. HIS HONOUR: --as opposed to your contention which Mr Palassis has also done some calculations in relation to? What I'm trying to work out is, have the parties, by agreement, taken from me the task of determining what the correct way of working out the measure of loss is? DUBLER: Yes. HIS HONOUR: Is that right, Mr Burton? BURTON: Yes, in broad terms I think that's right. Both sides use the DCF residual land value but they differ, and my friend has fairly said the areas of major difference. I think this is encompassed in what he said that they differ on integers such as discount rate, on the inputs, of course, on the method to avoid double counting. The plaintiff says effectively you use the whole of lease cash flows and don't take account of any double count in that. We say that needs to be adjusted. Even if you use the whole of lease cash flows you need to do something to avoid the fact that they are whole of lease cash flows. And we also say the residual, the way the residual is treated, we are at issue about because my friend uses Mr Palassis to say simply then that just goes to the lessor. We don't say that. Mr Gower very strongly doesn't. Mr Palassis, we say, agrees because Mr Palassis said that you need a deep market to do that. A deep market is, I think he said, two or more people, and on the evidence we would say there isn't the deep market of the players at the time and, in any event, Mr Palassis also said that in the discount rate he hasn't taken into account the sort of special factors. It's not special value but the factors that Mr Gower has taken into account around the formula of beta times market risk plus risk free rate for the cost of equity, and if you don't take it into account there you need to take it into account in the negotiation, and Mr Gower makes that point and also makes the point that if the discount rate, as Mr Palassis seems to have done, is applied across the portfolio by the entity that is acquiring, they've got other hospitals, then they're not going to give the whole of that value to the lessee in this one, HIS HONOUR: Thank you, that's helpful, but what I wanted to make perfectly clear, because it's a very important point as far as I'm concerned, is it common ground between the parties that the method of calculating what are called mesne profits in this case in relation to the Hospital Lease is what Mr Palassis describes as a methodology akin to a residual land value assessment? Is that common ground? BURTON: Subject to the matters I've mentioned, which include that negotiation on the actual amount paid, I think the actual method of doing it - you discount the cash flows back and end up with an NPV and it's either negative or positive, and then what you do with that is at issue, but the method of doing that is not at issue as we understand it, yes. DUBLER: Could I take you to the defendant's submissions in reply, which is what I was relying upon? And my friend confirms there's a lot of difference between us but the methodology isn't the main area. BURTON: Sorry, yes, the minor point was we say it's negative so therefore your Honour won't get to the point about the negotiation or what you do with the residue because there isn't any residue; it's a negative NPV." 1. By the time of final submissions, both Mr Dubler SC and Mr Burton SC had been in this case for many years, including the original liability proceedings heard by Nicholas J. To my observation, and with great respect, their knowledge of the history of these proceedings and their clients' cases was intimate and encyclopaedic. I accept Macquarie's submission that, for present purposes, it is highly significant that the qualifications expressed by Mr Burton SC to my question made no reference to the Threshold Issue. I have no doubt that if the Threshold Issue was being relied upon in the way that the Health District now says it was, Mr Burton SC would either himself or after reminder from one of his team, have included in the qualifications which he gave to my answer a reminder that there was an anterior and potentially dispositive issue about which the parties were in fierce disagreement. 2. Sixth, Schedule A of the Principal Judgment sets out the issues identified by the parties for determination, a framework which they prepared at my request to enable the orderly disposition of the Court's reasons. The preliminary legal issues identified were: "A. PRELIMINARY LEGAL ISSUES 1. Period of trespass What is the period over which damages are to be assessed? 2. Mesne Profits What is the nature of trespass damages and mesne profits, including compensatory and restitutionary aspects? 3. Methods for assessing trespass damages What are the relevant methodologies for assessing the plaintiff's claim for trespass damages? 4. Application to plaintiff's claim What are the relevant assumptions to make in assessing the plaintiff's claim? 5. Position of plaintiff and position of the defendant In the assessment of mesne profits or market rent, to what extent should the Court have regard to the actual position of the plaintiff and the defendant and the way in which each party says it would have behaved after 17 March 2000?" 1. Had the Threshold Issue been one that was being raised in the way for which now the Health District contends, it would have been an obvious question to include in the preliminary legal issues. It was not included. 2. Seventh, I accept Macquarie's submission that Macquarie's outline of the Health District's case (reproduced in paragraph [30(5)] above) correctly identifies that the Health District's reliance on existing state and usage was an ultimate fallback position which became relevant only if the Court accepted that the contractual rights represented by the Hospital Lease had no value because of Macquarie's unwillingness or inability to build the private hospital. Macquarie's outline not only does not support, but also contradicts, the submission that the Health District had raised the Threshold Issue. 3. Finally, I accept Macquarie's submission that the various pleadings, submissions and transcript passages upon which the Health District relies do not, in context, support the proposition that the Threshold Issue was raised during the hearing of the Damages Enquiry that gave rise to the Principal Judgment. The context demonstrates the opposite. I will give some examples. 4. The Health District submitted that it had pleaded the Threshold Issue in paragraph 7(a) of its points of response. 5. In Macquarie's Fourth Further Amended Points of Claim re Damages Inquiry, Macquarie said: "12. The plaintiff claims damages for trespass, being a claim for mesne profits measured by applying a reasonable rate of return per annum on the market value of the Hospital Site over the period 17 March 2000 to the date possession is restored, or alternatively, measured by the market rent for the Hospital Site over the same period or alternatively, measured in the manner pleaded at paragraph 2(d)(i) of the Reply." 1. By its Points of Response to Fourth Further Amended Points of Claim re Damages Inquiry, the Health District responded (emphasis added): "7(a) admits that mesne profits is a form of damages for trespass known to law but does not admit that any of the plaintiffs alternative claimed bases of measurement or calculation is a claim for or measure or calculation of mesne profits as known to law or otherwise is a form of claim for or measure or calculation of damages for trespass known to law; (b) says that any of the plaintiff's bases of claim or bases of measurement are too speculative, undefined and uncertain as to be capable of recognition, determination and assessment; (c) says that the bases of or calculation of mesne profits known to law should take into account the following matters (in addition to other matters taken into account in such bases or calculation); (i) the Interdependence of the construction deed, the Hospital Lease, the carpark lease, the carpark sub-lease, the co-ownership agreement and the car parking management agreement ("the Transaction Documents"), which Interdependence was found by Hon Justice Nicholas at [645]-[650] of his Honour's reasons and was not challenged on appeal; (ii) the rent payable by the plaintiff under the terms of the Hospital Lease and the carpark sub-lease; (iii) the chance that the defendant would have terminated the construction deed, the Hospital Lease, the carpark lease and the carpark sub-lease, had the trespass not occurred (under the respective default provisions of those Transaction Documents, by reason of default under those Transaction Documents); (iv) the revenue received by the defendant, and the loss suffered by the plaintiff, by reason of the trespass; (v) the breaches (prior to 17 March 2000) by the Plaintiff of the construction deed (as found and declared by the Court of Appeal, and also comprising the failure by the plaintiff to complete the construction of and open the private hospital and the carpark in accordance with the plaintiff's obligations in the Transaction Documents); (vi) the capacity and willingness of the plaintiff to construct the private hospital; (vii) the commercial feasibility of constructing the private hospital; (vili) the willingness of any putative tenant to lease the carpark and the private Hospital Leasehold sites (either separately or together); (ix) the terms upon which the plaintiff (as at 17 March 2000) was willing to part with possession of the carpark and the private Hospital Leasehold sites and the terms on which the defendant was willing to permit such parting with possession; (x) the absence of material use by the defendant of the private Hospital Leasehold sites during the period of trespass; (xl) the building and operation by or on behalf of the defendant of a multi-storey covered carpark, including in the structure or preserving beneath the structure the existing grade spaces, behind King George V Building ("the Susan Street carpark") for public and/or staff use." 1. Even taken in isolation, I do not agree that, read fairly, paragraph 7(a) of the Health District's response raises the Threshold Issue. In my respectful view, it also does not do so when read in context, particularly when read with paragraph 7(c) I understand from those pleadings, and I am satisfied that it was the case the Health District ran, that for Macquarie's claim to be mesne profits known to law, it would have to take into account the various matters set out in paragraph 7(c). This was the notification of the Health District's case that when all the relevant contingencies were taken into account, there was no loss because Macquarie would not or could not have built the private hospital. 2. Next, there is a certain irony that the only point at which an argument along the lines of the Threshold Issue was raised with the plaintiff appears to have been by the Court arguendo in relation to the valuation of the Hospital Lease (T5015:4-T5016:38): "HIS HONOUR: That may be right if the analogy is the right analogy at the end of the day, because this is now trespassing in the Hospital Lease area, and I understand it relates also to the car park, but in relation to the Hospital Lease, if you knew nothing about this case and just looked at what the book says as to how mesne profits should be calculated, one might say, well, what you get is the rental value of that piece of dirt on which the hospital was meant to be constructed, with whatever zoning or anything that attaches to it. The valuer just goes in and says, "Here's a piece of land. What's the rental value of that piece of land?" That is a different thing to the value of the lease, because what mesne profits looks to is the land. So simpliciter what's the rental value of that piece of land. DUBLER: Yes, well, it's more or less how we put our Hospital Lease point. HIS HONOUR: Yes, but my point is: Is there a distinction between the Hospital Lease it's not the property lease, it's the not the lease, it's not your exclusion from the lease that's being valued. It's your exclusion from the land. DUBLER: Yes. HIS HONOUR: What's the value of the land? DUBLER: Yes. HIS HONOUR: Well, that's not affected by the lease on this theory. DUBLER: No, I see. HIS HONOUR: It's just you've got a right to occupy some land. They've been occupying it. What's the rental value of that piece of land? DUBLER: But the trouble with that is that one has to be if focussed on what's the interference in the right and the right is the property rights under the lease and so what is then valued is the value of the remaining period of the lease on a deferred annual basis which we say is the result of that line of authority. In some ways it could mean over compensation if you focus on the land rather than the lease. HIS HONOUR: No, the other way. I would have thought there's a much greater risk of over compensation if we focus on the lease. DUBLER: Well, we say that that is the correct debt. So what is the value of the rights that are interfered with, at least that is how it was put in Bunnings. HIS HONOUR: The right that was interfered with in Bunnings was an asset, this is the problem that we are dealing with quite a different thing. The rights in Bunnings and all these other things were things that by their nature, as I said to you earlier, were capable of being exploited by letting or hiring. DUBLER: Being used lawfully. HIS HONOUR: Being used lawfully doesn't matter. A piece of land, an apartment, a pallet, but that's not what we're dealing with in relation to the Hospital Lease, if you look at it as the Hospital Lease. If you look at it as the land, well, it's a piece of land. DUBLER: Yes. I'll come back to that when we deal with the Hospital Lease. HIS HONOUR: I just thought I should flag it because you're looking at a proposition here that fairly and squarely I understand perfectly the point you make in 34 but that is a point that can only work if what we're looking at is the lease rather than the land. DUBLER: Yes. If one is looking at the land and not the lease, then how do we get into the area of default anyway? HIS HONOUR: Precisely. DUBLER: So that's the first proposition. HIS HONOUR: Precisely on that basis. DUBLER: Your Honour says to me, "Well if we get rid of the default you're valuing the land not the lease", and I said, "Well it's close to that anyway", but what we are looking at is the value of the land with its potentiality, and you can't value land with ignoring the fact that it's well down the track of getting a hospital on it and that's how you make money out of it. HIS HONOUR: But then I get down to the problem that as we know, I think we discussed during the course of some of the expert evidence, there's no market for a ten or 15 year lease, an opportunity to build a hospital for just ten or 15 years." 1. Nowhere does the transcript record that line of argument was taken up by Mr Burton SC for the Health District to the effect that the Court had there put what was a fundamental and anterior argument being raised by the Health District. 2. The Health District also relied upon the fact that in paragraph 21.1 of its closing submissions conspectus it said: "21.1 The plaintiff's claimed methods of measurement or calculation are not forms of mesne profits or otherwise forms of trespass known to law". 1. The Health District submitted that, thereby, the Threshold Issue was "squarely put". This part of the Health District's closing submissions conspectus repeats or paraphrases the pleadings set out in paragraph [50] above. For the same reasons given above, I am not satisfied that the formalistic recitation of the pleading raises the Threshold Issue "squarely" or otherwise. Taken as a whole, the closing submissions conspectus provides quite a different picture. It commences with what are described as "fundamental considerations" which include (emphasis added): "1. This conspectus addresses the plaintiff's new case from the amendments for which leave was granted, on conditions, by orders dated 26 September 2014. However, it also draws on the plaintiff's changes of case to illustrate what, in the defendant's submission, is a just outcome. 2. Underlying any structure of issues or particulars, the plaintiff seeks to focus on the fact that it was out of possession for 14 years because of a non-compliant section 129 notice as the CA found (overturning Nicholas J on that point), and that it is entitled to monetary recompense as a just outcome. 3. The defendant submits such an outcome is not meritorious per se, does not automatically follow and in the overall circumstances of this case would not be just. 4. This case differs from the norm in trespass. Usually what has been interfered with is actual possession of land or other property, or possessory rights to either, which has an existing state or usage, and which has been actually used by the trespasser in that existing state or which could have been used by the trespasser in a manner capable of reasonably certain definition in that existing state: "use of property that earns or is capable of earning a profit": Bunnings Group Ltd v CHEP Australia Ltd (2011) 82 NSWLR 420 at [173] per Allsop P for the plurality. For instance, an apartment building has been or could have been used for rental as apartments, vacant land was used or could have been used for storage or pasturage (saving the trespasser the costs of finding the alternative and re-locating there); equipment was used or could have been used in the business or for its purposes. 5. In contrast, the plaintiff is not content with the net revenue (if any when rental due to the defendant as head lessor is taken into account) from the defendant's actual use of the private hospital and carpark leasehold and sub-leasehold sites in their existing state and usage, which has been the subject of an open offer in the defendant's points of response from the outset of the inquiry: see para 9(4) in the original points of response filed 17 October 2012 and repeated in each subsequent response to a change in the plaintiff's case. On the plaintiff's case, it was dispossessed of two leasehold sites, for the first 14 years out of leases which still have 85 years of tenure to run as at 30 November 2014 and which had approximately 89 years of tenure as at the date of the CA reasons and orders in late 2010. The plaintiff's claim is for a value for the temporary loss of those possessory rights beyond the sites in their existing state or usage. The value claimed lies in the contractual right by way of opportunity to use both sites beyond their existing state or usage and that opportunity is contingent upon the plaintiff fulfilling its contractual obligations to realise the opportunity; the sites are not "earning or capable of earning a profit" in the manner and value claimed until that occurs. … … 8. The Court does not, on the authorities and as a matter of principle and justice, have to give the plaintiff money just because it was dispossessed. The damages sought in trespass, beyond nominal damages to vindicate possessory rights, are compensatory, not penal. Definition of what the plaintiff has "lost" in terms of value of temporary interference with its property rights (in this case, possessory rights) must take into account the nature of those rights as outlined above - an opportunity whose realisation was contingent on fulfilment of contractual obligations, beyond the defendant's actual usage of the site in its existing state, on performance of which obligations the plaintiff was in essential default. To the extent that damages for trespass contain a restitutionary element or overtone within compensation (which is controversial, particularly where the plaintiff has from the outset, as required by the Court of Appeal, made an election and that election has been for compensation not an account of gain or benefit to the landlord4), the usual focus in restitution is on actual gain or benefit to the defendant. As already stated, actual gain or benefit to the defendant has been the subject of an open offer in the defendant's points of response from the outset of the inquiry: see para 9(4) in the original points of response filed 17 October 2012 and repeated in each subsequent response to a change in the plaintiff's case. 9. The primary touchstone of the authorities on damage for trespass appears to be to find a mechanism that achieves a just and principled outcome in the circumstances of the case that recognises the nature and use of the property or possessory right interfered with. 10. A market rental, or reasonable rate of return, or investment return on assignment or compensation value, at the unadjusted levels for which the plaintiff contends and on the plaintiff's methodology of assessment, would be grossly dysfunctional, not just disproportionate, and not a just or principled outcome in the circumstances of this case given the nature and consequent effect on value of "loss" of the possessory rights in question in this case as outlined above." 1. After summarising the parties' positions, the document concludes: "22. In essence, the plaintiff was and is in no position to derive more value from the leasehold sites than the defendant actually derived, because the plaintiff could not and would not have exploited the contractual opportunity beyond the existing state of the land at the start of the trespass and was thereby in default of its contractual obligations, on which the value of the opportunity afforded by the plaintiff's possessory rights depended. To the extent that is not already taken into account in the risk and value assessment as part of the exercise of expertise, it is taken into account to adjust the plaintiff's recovery." 1. It then goes on to a section headed "Legal Principles" which commences by referring back to the fundamental considerations: "23. The fundamental considerations, as reflected in authority, to achieve a just and principled outcome in the circumstances of this case have been outlined in 1-11 above and are explored further below. The stages by which that outcome is reached are first dealt with. 24. As a top-line benchmark, one engages in an exercise of expertise through valuation to establish the hypothetical value (if any) of the possessory rights interfered with apart from the particular circumstances of the case. In other words, the exercise of expertise is directed to the value to a hypothetical acquirer apart from the plaintiff of the possessory right with its contractual entitlements and obligations and the associated risks of realising the opportunity which was the character of those rights." 1. The subsequent analysis of the authorities includes (emphasis added): "36. What is "reasonable", "appropriate in all the circumstances" and will recognise the special nature of the claimed right interfered with in this particular case requires an analysis of and adjustment for nature and state of the possessory right in question and the nature of its use. The focus of the existing authority has been on property rights in their existing state and use. Any contractual obligations are related to the existing state and use; opportunities for use derive from the existing form and use. Thus, in Inverugie, the trespass was to leased apartments operating as part of an existing hotel business with the usual opportunities and risks of that existing business and, it appears, the usual lease covenants appurtenant to an existing building used for such existing business. In Bunnings Group Ltd v CHEP Australia Ltd (2011) 82 NSWLR 420, [2011] NSWCA 342, there was no contractual relationship between the dispossessed and the converter but the property (pallets) were existing and had a defined existing use arising directly out of and defined by their existing state. Anything beyond the existing state and use would introduce something "special in the particular case": Megaw LJ in Swordheath Properties Ltd v Tabet [1979] 1 WLR 285 at 288, cited with approval by the PC in Inverugie [1995] 1 WLR at 717H. 37. By contrast, and perhaps uniquely, in the present case the possessory right of which use was lost, and for which loss is to be measured by a reasonable rental appropriate in all the circumstances, was the plaintiff's contractual entitlement (with interdependent obligations) to exploit an opportunity to change the existing state and use. While the sites were interdependent in development, the focus of opportunity on the carpark site was to change the existing permitted limited interim occupancy use to achieve more than limited RPA staff patronage by completing the carpark consent conditions and substantially commencing stage 1 of the private hospital and to add a further 199 car spaces by substantially commencing stage 2 of the private hospital. The focus of opportunity on the Hospital Site was to substantially commence, build and open the private hospital. The contractual entitlement to realise the opportunity was contingent on contractual obligations to achieve the changes to existing state and use, as to which the plaintiff was in essential default at the commencement of the period of trespass." 1. Only at the conclusion of its legal analysis (conformably with the approach to the argument as summarised by Macquarie set out in paragraph [30(5)] above) does the conspectus record reliance on the Health District's actual usage of the Hospital Site (emphasis added): "43. The defendant's actual usage of the plaintiff's possessory rights has been in their existing form and use and has fully utilised that existing form and use. Absent evidence of a reasonable rental for the possessory rights in their existing form and use being higher than what the defendant has actually derived by net positive outcome (if any) from that actual usage, the defendant accepts, and as stated above has accepted from the outset, that an appropriate proxy is the actual outcome from actual usage. In Bunnings Group Ltd v CHEP Australia Ltd (2011) 82 NSWLR 420, [2011] NSWCA 342, which did not involve any contractual relationship between the dispossessed and the converter, the plurality in the CA at [179]-[181] placed emphasis on demonstrating matters that are based in compensation and actual usage; in Hampton v BHP Billiton Minerals Pty Ltd [No 2] [2012] WASC 285 at [338]-[339], Edelman J pointed to the authoritative allowance for deductions "to reflect expenses which the plaintiff would have incurred if the plaintiff had been in occupation". 1. Nowhere in the closing submissions conspectus is there anything expressly or implicitly to the effect of the Threshold Issue. The value of the existing form and use of the Hospital Site is relied on at the end of the Health District's chain of reasoning and not at the forefront as an anterior and potentially dispositive question. 2. The Health District also drew attention to paragraphs [35] and [36] of its written submissions dated 30 June 2015 concerning the calculation of mesne profits. However, again, I accept Macquarie's submission that those paragraphs need to be read in context. They are part of a document which includes (emphasis added): "8 A number of basal propositions should be kept firmly in mind. These include: (a) Trespass is a tort. (b) The general and formative rule regarding compensatory damages (in both tort and contract) is that they are to be assessed on the basis of putting the injured party, so far as it is financially possible to so do, in the same position as the party would have been had the wrong not occurred - no more and no less". (c) Nevertheless, the common law "pragmatic as ever" has long recognised that there are "many commonplace situations" where the strict application of this principle in relation to the recompense for interference with rights of property would not do justice to the parties and have developed exceptions to the general rule. These have been looked upon as being exceptions to the general rule. (d) In these "exceptions", the compensation for the wrong done is measured by another yardstick. The 'first and best established' exception is the claim for mesne profits for trespass to land: other exceptions or situations (which by analogy applied the principles of assessment of mesne profits) include claims for detinue and conversion, for patent infringement and for the assessment of damages awarded in lieu of a final injunction. (e) The yardstick for mesne profits is that they are ordinarily calculated by reference to the "reasonable letting value" or "reasonable rent" or "market rental" of the land or chattel the subject of the trespass and use. This is referred to as the "user" principle. (f) There is a tension within both English and Australian authority as to whether the user principle is, in fact, a compensatory or restitutionary remedy or a combination both. (g) The primary touchstone of the authorities on damage for trespass appears to be to find a mechanism that achieves a just and principled outcome in the circumstances of the case that recognises the nature and use of the property or possessory right with which the defendant has interfered. (h) The Court must be wary that whatever the measure utilised, it does not lead to over-compensation. The Court must not give "greater measure of relief than would be justified by the nature of [the claimant's] right". 1. Then paragraphs [35] and [36] need to be read in their specific context: "Need for an "existing" use 30 A significant qualification on the availability of mesne profits is that the possessory right of use that has been interfered with must be a "use" that has existence. If it does not have an existence, it necessarily follows it cannot be wrongfully used. 31 An analysis of the authorities demonstrates without exception that each claim for damages was for the wrongful interference or invasion of land or chattels in an existing and identifiable state and use. They demonstrate that the land or chattel has been or could have been used in their existing states or could have been used in a manner capable of reasonably certain definition in that existing state. 32 In the limited number of cases where contractual obligations are attached to the claimant's land or chattels, those contractual obligations (and entitlements) were related in a readily realisable manner to the existing state and use of the land or chattel. That is to be contrasted with plaintiff's claim here. 33 The plaintiffs claim here is that its contractual entitlements should be front and centre when determining the possessory right it lost by the defendant's trespass, namely, its contractual entitlements with attendant obligations to realise and exploit the opportunity to change the existing states and use of the car park and Hospital Leasehold sites. But that is not the possessory right use of which was lost by the defendant's trespass. It was not lost because the opportunity to exploit it was illusory. It was illusory and had no real existence because it was incapable of fulfilment by the plaintiff (Conspectus [36]-[37]). 34 It follows if the possessory right claimed to be interfered with does not have existence (in a commercial or practical sense), there can no loss to compensate. 35 Consistent with authority, the court should have regard to the existing state and use of the plaintiff's possessory right when assessing the defendant's liability, if any, to mesne profits and their value. 36 In this regard (Conspectus [43]) SLHD's actual usage of the plaintiff's possessory rights has been in their existing form and use. it is uncontroversial that the defendant's actual gain has been the subject of an open offer to the plaintiff since the defendant's first response to the plaintiff original points of claim." 1. I make four observations about the passage just quoted: 1. Neither in their terms nor their context do paragraphs [35] and [36] articulate the Threshold Issue. 2. Paragraphs [30] to [36] read as a whole again demonstrates that insofar as the Health District raised the question of existing state and use, it was at the end of the Health District's reasoning as the ultimate fall-back position on the assumption that the Court accepted its argument that Macquarie could never have fulfilled its contractual rights and obligations so that those rights were "illusory" and therefore valueless. 3. Paragraph [32] acknowledges that there is a class of cases where contractual obligations attached to land were given value for the purposes of calculating mesne profits. That plainly correct assessment of the state of the authorities is inconsistent with the Threshold Issue as now sought to be articulated by Macquarie because it contends that, as a matter of law, the calculation of mesne profits cannot take into account any contractual obligations attaching to the subject land. The Court record demonstrates that the case which the Health District presented at the hearing of the Damages Enquiry acknowledged that contractual rights and obligations attached to the land had to be taken into account but that, in the circumstances of this case, and for the various reasons advanced by the Health District, those contractual rights and obligations were valueless or illusory. 4. In response to the Health District's submission that all it would wish to say about the Threshold Issue was in the existing submissions, I asked the Health District for a note identifying those submissions with precision. That note became Exhibit A158D. It included reference to paragraphs [30]-[32] and [35]-[36]. The omission of paragraphs [33] and [34] is instructive because those paragraphs are essential to a fair reading of the submission headed "need for an existing use". That the Health District should pass over those paragraphs exemplifies that its argument that the Threshold Issue was before the Court depends on what might be described, with no disrespect intended, as "cherry picking" selective passages and taking them out of context. 1. Finally, by way of example, the Health District submitted that the Threshold Issue had not only not been abandoned, but had been repeated in oral argument on day 96, referring to T5320 at lines 45-50. As with the previous examples, the context does not support that submission. The reference to "existing state or use" again comes up only at the end of the reasoning and predicated an acceptance of the proposition that Macquarie's contractual rights and obligations were valueless or illusory. 2. To demonstrate this conclusion, I will set out Mr Burton SC's submissions at T5320:16-T5321:4. In doing so, I note that the transcript has incorrectly and ungrammatically divided what was, to my understanding, one sentence commencing at T5320:40, being "You can't take a lesser value for the plaintiff than the market rental if there is some value, can't take the actual gain to the defendant if it's less than the market rental, but if there's just nothing in terms of the value one looks at the asset in its existing state in usage, which as we make the point it has been offered at that." The total passage to which I refer is (emphasis added): "That brings us back to the way that I put the matter this morning in propositional form. Either one reaches that point by appropriately characterising the asset and looking at the characteristics for valuation purposes but even if that is positive, one then says is the right that the plaintiff is seeking to have valued in the plaintiff's hands, as the plaintiff would have developed it or sought to develop it, does it have any value at all? Is it illusory in effect because the plaintiff had neither the intent nor the financial capacity to deal with this right that's been interfered with? So therefore effectively the Court should not give the plaintiff something where the plaintiff has suffered no loss whatsoever. Now, that's a distinct proposition from what the cases say which is you cannot look at the actual gain to the defendant or the actual loss to the plaintiff if it's less than the market rental in terms of if there is a figure at all. The proposition we are putting to your Honour is that if the cases are correct to say one looks at whether there are special circumstances, whether the asset is capable of earning a profit or that what is the appropriate rate in all the circumstances for the ordinary letting value of the property. If one has that element of appropriateness, that element of assessing that one is really ultimately looking to compensate the plaintiff by this mechanism, one effectively gets back to asking the question, what has the plaintiff lost? There is this overriding, we would respectfully submit, position in the cases which allows the Court to effectively achieve what appears to be the intuitive position, if there is in fact no value to this right at all. You can't take a lesser value for the plaintiff than the market rental if there is some value, can't take the actual gain to the defendant if it's less than the market rental, but if there's just nothing in terms of the value. One looks at the asset in its existing state in usage, which as we make the point it has been offered at that. It's been the open offer. That that's we say what the market rental of this property would be but that's not what the plaintiff wants. The plaintiff wants the market rental for the development opportunity that it could never at this point in time, when it was dispossessed, have developed because it didn't have the financial capacity and it didn't have the intent. That's the essence of what I wish your Honour to get from the conspectus that is focused on here and is also focused on in issue 2 but that's the development of our existing submissions beyond the objective process that we have set out here in some more detail." 1. By reason of the matters referred to in paragraphs [35] to [65] above, the Court concludes that the Threshold Issue was not argued or put into controversy by the Health District at the hearing which gave rise to the Principal Judgment. At that hearing, and for years before as I have already observed, the Health District had been represented by a highly competent legal team with a deep knowledge of the matter and the issues in dispute. I am satisfied that what has occurred is that the original team has now been replaced by another highly competent and dedicated team of lawyers who have spent many months going through the vast record of these proceedings with a fine tooth comb. In making that observation, I intend absolutely no criticism of the Health District or its new team of lawyers. It is understandable that they should do so in anticipation of the dispute returning again to the Court of Appeal. 2. The question then becomes whether, against that background, the Court should now allow the Threshold Issue to be argued. I do not propose to grant that leave. The evidence does not permit me to draw any inference as to why the Threshold Issue was not run or whether it was even thought about before or at the time of the hearing which gave rise to the Principal Judgment. However, the fact remains that the Court has concluded that the Threshold Issue was not presented to the Court for determination. To adopt the language of Mason CJ in Autodesk Inc (that passage being equally applicable to this case notwithstanding it concerned the powers of the High Court as a final court of appeal) (see paragraph [31(1)] above), the Health District has failed to demonstrate that the Court "proceeded according to some misapprehension of the facts or the relevant law and that this misapprehension cannot be attributed solely to the neglect or default of the party seeking the rehearing". I am satisfied by reference to the objective Court record that there was no relevant misapprehension and to the extent that the Threshold Issue was not argued at the hearing, that was solely attributable to the Health District and its former legal representatives, whether it be through neglect, default or forensic decision (which of these logical possibilities it might be the Court is not in a position to determine). 3. I accept Macquarie's submission that to permit reopening of the Damages Enquiry hearing to allow the Threshold Issue to be ventilated would be an archetypal example of allowing an unsuccessful litigant an opportunity to reargue their case by a back door method. Issues arising from the Principal Judgment took a further year to argue and the complexities of those arguments were to be resolved in a judgment that was imminent at the time the Health District brought this further application. 4. Even if the Health District were to adhere to its position that all of its arguments in support of the Threshold Issue are to be found in existing material, Macquarie would be entitled to prepare and present submissions tailored to meet an argument which the Court has found it had no reason to address during the earlier hearing. The Court would also require the assistance of oral argument in addition to written submissions. As matters stand, I have very few available dates left for a hearing this year. While arrangements could undoubtedly be made for a hearing to be held towards the end of this year, final judgement would be further delayed into next year. All of those considerations amount to prejudice to Macquarie which, in my respectful opinion, far outweighs the prejudice to the Health District of not being permitted to raise the Threshold Issue. 5. In any event, I have reviewed those parts of the submissions and transcripts which the Health District submits represent the totality of what it wished the Court to take into account were it to consider the Threshold Issue. Because it appears inevitable that this matter will go further, I therefore briefly record my conclusion that, if it had been necessary for me to decide the question, I would have decided the Threshold Issue against the Health District. That result is at least implicit in the conclusion I reached in relation to the application of the user principle as set out in the Principal Judgement. As I have observed in paragraph [63(3)] above, the Health District's own submission acknowledged the fact that there were examples in the authorities of mesne profits being calculated by reference to contractual entitlements attached to the land or chattels that had been subject to trespass or detinue. 6. I respectfully adhere to what I said in paragraph [181] of the Principal Judgment, quoting Allsop P in Bunnings, that the law of mesne profits was to be applied in a case such as the present by reference to the "rules of compensatory damages sensibly and flexibly applied". The cases to which I refer in the Principal Judgment deal with assets as diverse as portable theatrical switchboards, hotel rooms and storage pallets. At the level of fundamental principle, those cases demonstrate that the user principle will be applied to determine a price or hiring charge to compensate a plaintiff who has been wrongly deprived of an asset which has as one of its existing qualities a value referable to the asset's ability to generate economic gain for that plaintiff. 7. As Allsop P said in Bunnings (at [177]), "if a property right has been invaded by wrongful user, the law should and does provide a remedy for the wrong, compensatory in character in the broad sense, focussing on the interference with the right in question" (emphasis added). Macquarie's rights in this case included not only a right to occupy the Hospital Site, but also a right and obligation to build the private hospital that was inextricably bound up in Macquarie's rights as a tenant because it was the raison d'être for Macquarie's occupation. In my respectful opinion, it would not be sensible, flexible or realistic to ignore that in the present case the Health District's trespass did not just exclude Macquarie from a piece of land that was going to sit there doing nothing, but in fact excluded Macquarie for 15 years from a right to occupy land which carried with it contractual rights and obligations to exploit that land for Macquarie's economic benefit for 103 years. Just as CHEP was "entitled to be compensated according to law for the wrongful use and detention of its pallets, as potentially profit earning chattels owned by it and to which it had the immediate right to possession" (Bunnings at [169]), so too was the Hospital Site a "potentially profit earning" asset leased by Macquarie and to which it had the immediate right to possession that was negated by the Health District's 15 year trespass. 8. Among the orders which I will invite the parties to bring in to give effect to the various matters dealt with in these reasons, there will be orders dismissing the Health District's motion dated 13 May 2019 and ordering the Health District to pay Macquarie's costs of and incidental to that motion and of the relisting of the proceedings on 9 May 2019. Those costs orders are separate from and unrelated to any other costs orders that will be made to give effect to other parts of these reasons. Damages for the Hospital Site – the process 1. By the end of the further hearings regarding the calculation of Macquarie's damages in relation to the Hospital Site, the Court was left with three possible outcomes (inclusive of interest up to October 2017 and which I will round for convenience): $52.6 million, $59.8 million or $70.0 million. Before giving reasons in relation to which of those outcomes the Court considers is the correct assessment, I will set out the process of hearings which gave rise to those figures and give reasons for some decisions which had to be made as a part of that process. During submissions at the end of the main hearing of the enquiry 1. The starting point must be when the Court was informed that it was common ground that the method of calculating mesne profits in relation to the Hospital Lease was what Mr Palassis described as a methodology akin to a Residual Land Value assessment. That exchange is set out in paragraph [42] above. As will be apparent from the first part of these reasons in relation to the Health District's most recent application, the matter was proceeding on the basis that the value of Macquarie's exclusion from the Hospital Site was to be determined by reference to its rights under the Hospital Lease. 2. Having established what was said to be the methodology as common ground, at that stage there was still dispute between the parties as to a number of the inputs to be applied to that methodology and the period of the lease to be valued. The application of the methodology was the subject of further submissions (T5035:11 – T5036.24) (emphasis added): "HIS HONOUR: How do these approaches that you have just opened on value the loss of 10 years of that right? DUBLER: Yes. Well, let's take each in turn. So that the worst case scenario, a 10 year hypothetical term, it builds into it the NPV calculation. Firstly and obviously the cash outflow of the building, the balance of the development. It assumes an opening of the hospital at 1 July 2004 and receipt of income until the end of that term. It may be that there is actually no positive cash but the methodology would be that that derives a cash flow. Even if it is positive that is then discounted and Mr Palassis informs your Honour that it is a negative of a large order. The alternative term with the same methodology is that you assume the letting is for 103 years. You assume the hospital is opened - and can I take Mr Coleman as the example here that is Mr Palassis still gets negative and so your Honour doesn't see a difference - Mr Coleman takes that approach and so assumes a letting of 99 years. He plugs in the cash outflow for the building; he plugs in the revenue received over 99 years; he does it by a terminal value after 20 but it is to the same effect, and he derives a positive number and both would agree on the methodology if that is the result, so Mr Palassis if he got a positive, and Mr Coleman who does get a positive. You then apply that positive figure out over 99 years. So we've tried to make the point in our written submissions, and this is I take what your Honour is inquiring me about. He takes that positive value over the life of the whole 100 years and discounts it again by the discount factor to derive the annuity figure or an annual payment. So the proposition is it's hypothetical but if we could perhaps assume it to be a bit more concrete, so that if Ramsay comes in and says "I'll let the site from you", I will pay the reasonable letting value derived at say $100,000 per year over the life of 100 years. That if you do a net present value calculation of that, you may arrive at a figure of $10 million. So one is the equivalent of the other using the same discount factor. So that the methodology gets you a capital value, you then strain it out, as it were, as an annuity per year and so obviously it is spread out over a longer period of time, the positive figure, so that would drive it down, and it is that portion of the hypothetical 100 year lease, the 10 years or 15 years annuity or annual rental under an assumed letting for the balance of the term. Now we say that that fairly captures the matter. It doesn't lead to over or under compensation. HIS HONOUR: What figures does it yield? DUBLER: In the case of Mr Coleman, I think the high scenario is of the order of $2 million per year and the low scenario of the order of $1 million a year. HIS HONOUR: What are the differences between the high and low scenarios? DUBLER: The margin and I think - yes, I think the margin. Whether your Honour adopts Mr Caddell or Mr Anderson on our views. So I will come to that in due course, that is issue 27. I need to address your Honour as to whether the balance of the term is the correct approach or not, and it is very hard to find authority directly on point. We say you have to deal with it as a matter of first principle. But there is in the field of rent review law, so we have had to try and do a bit of cross-pollinisation. HIS HONOUR: But when you say the balance of the term, you mean a date that commences on the date of dispossession and concludes at the end of what would otherwise have been the lease? DUBLER: Correct. But your Honour needs to understand everyone agrees that the methodology is that whatever is the annual rent times the period of possession is obviously right. But then how do you derive the market rent, and my friend says that the letting shouldn't go beyond the period of trespass. …" 1. Insofar as Mr Palassis' methodology is concerned, the Court was referred to Mr Palassis' report of 9 April 2015, which included (at INQ-BD-17174): "4.4.2 Methodology The approach that would be applied to derive the market rent in accordance with the Residual Land Value approach outlined above can be summarised as: 1. The net cash flow for the Hospital including the development and operating phase but excluding any market rent would be derived (Item A); 2. The net present value of the net cash flow of Item A at the appropriate cost of capital for the hospital market would be calculated (Item B); 3. To the extent that Item B is greater than zero, the likely market rent payable would be the value to which the net present value calculated in Item B is greater than zero. The market rent would be set as either: a. Paid as a single upfront payment, by which the value of the market rent would be the differential between the value calculated in Item B and zero; or b. Paid as an annual value derived or solved such that the net present value of Item B plus the market rent equals zero. In deriving Item A, the net cash flow would include the following items: • Operating cash inflow for the Hospital derived over the term on the basis of the projected casemix and appropriate revenue rate assumptions. In lieu of a casemix, an estimate of the revenue rate per bed day and number of bed days would be required; • Operating cash inflow for the tenancies, derived on the basis of the size and nature of the tenancies, and likely market rents at that point in time; • Capital cash outflows for the development phase would be derived from the Construction Deed and other sources; • Commission outflows necessary to support the development phase and the commissioning of the Hospital prior to the operating phase commencing; • Operating cash outflows would be calculated on the basis of the casemix, historic operating costs for the operator and the hospital design. In lieu of a casemix or a specific operator, market EBITDAR rates would be used as a proxy to determine free cash flow from operations; • Corporate costs required to the operate the facility would be included; and • Lifecycle costs associated with the lifecycle replacement of infrastructure and assets as they fell due over the term would be included as a cash outflow." 1. I should also note that during the course of submissions, Macquarie disavowed reliance on option 3(a) in Mr Palassis' methodology. 2. In the Principal Judgement, the Court recorded its understanding of the position between the parties: "Issue 31 — Valuation of market rental of the Hospital Site 543 It is common ground that the Residual Land Value Approach is the correct approach for calculating market rental in respect of the Hospital Site. In earlier sections of this judgment the Court has determined the appropriate inputs or assumptions where they have not been able to be agreed between the parties. As I understand it, the issues raised by this question and Issue 32 have largely fallen away by reason of the parties' agreement. 544 The mechanics of the methodology which the Court considers should be applied may be taken from the summary of Mr Palassis: (1) Input the necessary expenditure to complete the balance of the development and the cash outflow (including ground rent) for the duration of the hypothetical term; (2) Assuming an opening of the private hospital on 1 July 2004, input the revenue assumed to be received through the operation of PAPH for the duration of the hypothetical term; (3) Derive a figure being the difference between (1) and (2); (4) Discount that figure by an assumed discount factor to arrive at an annuity or annual rental payment; (5) Denote that annual payment the "reasonable letting value" of the hospital site per annum; and (6) Derive an aggregate figure for market rental by calculating the net present value of the reasonable letting value for the duration of the trespass. 545 As I understand it — and the parties will be entitled to raise this matter as an outcome of these reasons if I have misunderstood it — there are really only two issues that were debated under this question that remain live for determination by the Court: the period of the lease to be assumed for the purposes of the valuation, and the relevance of North Shore Private Hospital as a comparator. 546 As to the first of these questions, Macquarie submitted that an analysis based on a term less than the life of the Hospital Lease — a hypothetical sublease for the period of dispossession — "distorts things" because of the high amount of cash outflow in early years of the lease to be enjoyed over the life of the lease. It submitted that what is being valued is the period of the trespass (approximately 15 years) out of a 103 year lease, not a lease of 15 years. 547 The Health District submitted that the correct hypothetical term is a letting term representing the period of trespass. It submitted that no market rent would be able to be paid as the feasibility result prior to the assessment of market rent provided a "negative investment decision". 548 In my view, the assessment of mesne profits must be done by reference to the 103 year life of the Hospital Lease. The Court accepts as legally and commercially correct Macquarie's submission that it is to be compensated for 15 years of a 103 year lease and not 15 years of a 15 year lease (or sub-lease). It is unsurprising that the Health District's valuation based on a lease for the term of the trespass produced a negative outcome, given that such a lease took in the entire burden of the construction and set up costs of PAPH in the first few years without being able to take into account the amortisation of those costs and the benefit to be derived over a much longer period from that initial investment. 549 In relation to the second question, the Court received a large amount of confidential evidence about North Shore Private Hospital. The parties were at loggerheads as to how comparable North Shore Private Hospital was with PAPH, what (if any) adjustments could be made to achieve such comparability, and whether or not any comparison was legally relevant at all. Confidential economic information about the operation of North Shore Private Hospital was also used by some of the experts to undertake "check" calculations. The evidence about North Shore Private Hospital was also deployed as part of the Health District's larger argument that PAPH was not economically feasible and would never have been built or opened. 550 It is unnecessary for the Court to resolve any questions about the utility of the evidence about North Shore Private Hospital. The Court is determining the inputs for the calculation in relation to PAPH. I do not regard myself as having been assisted in any of that task by the information from North Shore Private Hospital. I am not satisfied (whether before or after the various contested adjustments) that the information from that hospital is relevantly comparable or of any assistance in determining those integers which the parties have left to the Court for determination in relation to PAPH." 1. As will be apparent from what follows, paragraph [544] became a considerable source of contention. Having had the benefit of the parties' various submissions and a close review of the evidence, it is clear that the chapeau to the summary in paragraph [544] was not as well expressed as it should have been. Mr Palassis was not the author of the summary, which reflected the Court's understanding of his methodology based primarily on his report and the method as explicated by Macquarie's Senior Counsel. 2. Curiously, in the debates which followed about methodology, neither party sought to explain the particulars of the methodology that had apparently been agreed as common ground. Nor, in relation to this issue, did either party take up the Court's offer, made more than once and including in paragraph [545], to make submissions if it were thought that the Court had misunderstood something amid the large number of issues that were argued. It was not until the hearing on 13 November 2017 that Mr Williams of Senior Counsel submitted in terms that paragraph [544] was not Mr Palassis' summary. At the end of the day, the attribution of the summary is not relevant to the outcome. The experts ultimately agreed on the appropriateness of the steps in paragraph [544(1)-(5)]. The question became whether it was necessary to take the step in paragraph [544(6)] to achieve a just assessment and, as the further hearings took place, the Court's concern was to ensure procedural fairness to the parties to ensure their respective positions on that question were able to be properly argued. 9 December 2016 1. Directions were made on 9 December 2016 for the damages calculations to be done in relation to the Car Park Site and the Hospital Site and for areas of disagreement to be identified. On that occasion Mr Stoljar of Senior Counsel appeared with Mr Elliott of Counsel as part of the new legal team for the Health District. Among the issues raised was paragraph [544] of the Principal Judgment and I made clear (at T9:9-13) that the Health District was not shut out from making further submissions in relation to it. 14 February 2017 1. When the matter returned to Court on 14 February 2017, the experts had performed their calculations of the damages, said to be in accordance with the Principal Judgment but still with some differences of interpretation in relation to input and methods. Mr Coleman, in his report for Macquarie dated 20 December 2016, calculated the value of lost mesne profits of $79.5 million with Court interest of $53.5 million totalling $133 million. Mr Gower, for the Health District, had on instructions prepared two alternative calculations, being "Alternative A" and "Alternative B". Mr Gower's Alternative A included using three different discount rates to give damages (including interest) in relation to the Hospital Site of between $3.8 million to $11.4 million (as at 31 December 2016 and inclusive of interest). His other figure under Alternative B gave a result of $15.2 million. 2. In their joint accounting expert report of 8 February 2017, Messrs Coleman and Gower explained the differences in their position: "6. Mr Gower's calculation of loss includes calculations under two instructed alternatives: (a) Alternative A: Paragraph 544(4) of the Judgment is interpreted as requiring a discount factor to be applied to hospital cash flows prior to undertaking the steps in Alternative B. Mr Gower has been instructed to model discount factors under this alternative of 25%, 50% and 75%. (b) Alternative B: Paragraph 544(4) of the Judgment is interpreted as referring to the discounting of hospital cash flows to determine the NPV applying a discount rate of 8.94% as at 17 March 2000 and then using a discount rate of 8.94% to determine an annuity rental stream from the hospital NPV; and 7. Mr Coleman does not consider Mr Gower's Alternative A to be a reasonable interpretation of the Judgment (particularly paragraph 20(5) of the Judgment) and has not considered Mr Gower's Alternative A any further. 8. Mr Coleman has set out in Annexure A to this report his views as to why there is a large difference between the loss between the loss calculated by Mr Gower and Mr Coleman's own calculation of the loss. Mr Gower did not agree that Mr Coleman's statement fairly reflects Mr Gower's position and therefore did not agree that this material should be included in this summary of the experts' positions, contrary to Mr Coleman's view that it should be included." 1. Mr Coleman's Annexure A statement to the joint expert report set out four major areas of disagreement, one of which was: "Whether Paragraph 544(6) of the Judgement should be applied (c) Mr Gower has asserted that Mr Coleman has not applied paragraph 544(6) of the Judgment in Mr Coleman's report dated 20 December 2016. Mr Coleman agrees that this is correct if taken literally but considers that his interpretation of the Judgment in this regard could be preferred by the Court. However, Mr Coleman agrees that the Court may decide to apply that paragraph in a literal sense and so, for the benefit of transparency, has calculated the loss on both bases - that is - both using paragraph 544(6) and not using that paragraph. Mr Coleman's reasons for holding his view that paragraph 544(6) may not be applicable are as follows: (i) Using paragraph 544(6) implies that the breach of the lease was a "once-off' event that occurred on 17 March 2000, so that it is appropriate to discount back to 17 March 2000 the value of all the lost lease rentals over the period the lessee was denied access to the lease up to November 2015 because all those lost rentals were still subject to future risks, uncertainties and vicissitudes that could occur after 17 March 2000. (ii) In contrast, not using paragraph 544(6) implies that the breach of the lease was ongoing and continuous over the whole period that the lessee was denied access to the subject property, so that there is no single event of default on 17 March 2000 and that each lost rental does not need to be discounted back to 17 March 2000 to allow for the risks, uncertainties and vicissitudes which may have occurred between 17 March 2000 and the occurrence of lost rental in each succeeding year because such risks have already been taken into account in the discounting in the calculation of the lost rental values in accordance with paragraphs 544(4) and 544(5) of the Judgement and should not be taken into account again if the loss did not occur wholly and solely at 17 March 2000. Applying paragraph 544(6) of the Judgment implies that the loss was not ongoing over the period the lessee was denied access to the subject property and effectively requires "double discounting" for risks, uncertainties and vicissitudes that would have been fully known and resolved by the time each assessed lost rental was actually lost. If the loss was ongoing and continuous over the whole period, such "double discounting" is inappropriate. (iii) Mr Coleman notes that the decision of the Court in this regard does have a material impact on the outcome. He has calculated the loss to the plaintiff as follows depending upon whether paragraph 544(6) is applied or not: Estimate of Loss to Plaintiff (including "grossing up" for tax) $ million Loss (including Statutory Interest) if rental loss is continuous over period 137.7 Loss (including Statutory Interest) if loss is "once off' at 17 March 2000 106.7 1. The respective positions were also set out in their joint expert report in this way: "PARAGRAPH 544(4) DISCOUNT FACTOR Mr Gower Issue Mr Anderson and Mr Coleman 79. Mr Gower has been instructed that paragraph 544(4) is to be adopted assuming that there are the following alternate meanings of the paragraph: 74. The Judgment states at paragraph 544(4): 76. Mr Coleman has discounted the net cash flows by 8.94% in order to derive the net present value (NPV) as at 17 March 2000. The NPV is then converted to an annuity over the period of the Hospital Lease, using the after tax discount rate of 8.94%. Mr Coleman believes the intent of the Judgement is very clear in Paragraph 20(5) that a discount rate (after tax) of 8.94% p.a. should be used and not some other discount rate. (a) The discount factor is to be applied to the annual net cash flows in order to derive the rentals to be adopted when deriving the annuity rental payments. Under this alternative the discount rate of 8.94% is applied to determine the NPV under paragraph 544(6); or alternatively ''Discount that figure by an assumed discount factor to arrive at an annuity or annual rental payment. " 77. Mr Coleman also notes that it would appear that the purpose of the current task is to have regard to the instructions set out in the Judgment and to seek to interpret the Judgement reasonably (as aside from, taking instructions from other parties). (b) The "discount factor" in paragraph 544(4) is the discount rate of 8.94% which is to be applied in order to calculate the NPV. 75. The figure referred to is the net cash flow in each year of the Hospital Lease. 78. The annual rental is derived by grossing up for tax (i.e. divide by (1-30%) based on the assumption that the NPV is post-tax (or alternatively the annuity which he has derived is an after-tax annuity). 80. Mr Gower expresses no opinion as to whether Alternative A or B above should be preferred. Under Alternative A, for illustrative purposes only, Mr Gower includes a range of discount factors i.e. 25%, 50% and 75%. Mr Gower expresses no opinion as to whether any of these discount factors are appropriate and if so, whether any should be preferred. 1. At the hearing on 14 February 2017, the experts including Messrs Palassis, Gower and Coleman were all present. The question of the discounting under the methodology in paragraph [544] of the Principal Judgment was dealt with as one of the list of issues raised in the joint accounting expert report (T36:39-T40:24): "HIS HONOUR: All right, well, we'll move on and we'll come back to that point because I want to see what Mr Gower actually says in that report and then I will hear from the lawyers as to what they say ought to happen on that question. Can we move onto the discount factor? Mr Palassis, do you have a copy of the judgment handy? Would you go to paragraph 544 please, because for better or for worse I adopted your summary of this approach, and some of this raises an issue which I don't think was really argued in front of me and I want to make sure 1 understood it correctly. That is the status of what I've recorded as paragraph 6 of the summary I took from your report, "derive an aggregate figure" et cetera for market rental. Is that, at least as you saw it, a separate step, or simply the product of steps 1 to 5? WITNESS PALASSIS; Do you mind asking me that again your Honour? HIS HONOUR; Yes. Is 6 a separate step or is it just that is what happens when you do 1 to 5? I hope that question makes sense. WITNESS PALASSIS: It's a summation of the items that are derived post the discounting that occurs in 1 to 5. HIS HONOUR; Yes, so it's not in itself a separate step; it just tells you where you get to when you do steps 1 to 5, when you add them up, yes. That's how I had read it. Mr Gower, I take it from the way paragraph 79 is expressed you haven't actually expressed a view. You've just been told, "do it both ways." WITNESS GOWER: That's correct, your Honour. I don't have a firm understanding of it one way or another. HIS HONOUR; Mr Palassis, as the formulation originates from you, the issue - I withdraw that. I'll just go back to you, Mr Gower. The difference is at what point you apply the discount rate, isn't it? It's whether it's 544.4 or 544.6. Is that right? WITNESS GOWER; That's correct, your Honour. HIS HONOUR: Yes. WITNESS GOWER; Net - that's the nett present value discount rate, yes. HIS HONOUR: Mr Palassis, as I read it, I assumed that what you Had in mind, in terms of the methodology - which is a methodology that both parties said essentially they accepted - the discounting would take place at step 4. Is that correct? Does anyone want to be heard from the lawyers on this question? No? Yes, well, what I intended is I think the approach - it's what you've done, isn't it, Mr Coleman? You've done it at subparagraph (4), haven't you? WITNESS COLEMAN; Correct, your Honour. HIS HONOUR; Yes, that's what I intended to say, so that the discounting happens at - I'll see which of your versions it is, Mr Gower. Yes, it's B, 79B of the two options you were given. WITNESS GOWER: That's correct, your Honour. HIS HONOUR; Yes. So is that clear then to the experts now; that the discount factor of 8.94% is to be applied at effectively point 544.4 of the process set out in my judgment? WITNESS COLEMAN; And only there. HIS HONOUR: And only there. WITNESS COLEMAN; That's what I took to be the case. HIS HONOUR: Yes. As I understand it, Mr Palassis, that is how you intended the approach to work? WITNESS PALASSIS: Yes, your Honour. If I just may say that 1 understand that has maybe been taken from the transcript. HIS HONOUR; I think it has been taken from one of your reports. WITNESS PALASSIS; Has it? HIS HONOUR; So long ago I can't remember. WITNESS PALASSIS: Yeah. I thought it may have been taken - the, the longer form version is in one of my reports. HIS HONOUR: Yes. WITNESS PALASSIS: That's why that does provide a little bit more detail, and guidance but I, I don't think it's inconsistent with what's being discussed now. HIS HONOUR: All right. What I have said, namely the application of the discount factor is at subparagraph (4) of the summary and nowhere else, is consistent with your view of how it should be done, yes. Does that clarify the point for you, Mr Gower? WITNESS GOWER: Yes, it does, your Honour. HIS HONOUR; All right, so we'll be able to work through that mathematically, hopefully. Is there anything else in that section? No, I think we've covered that off then. All right, loss - so we're up to paragraph - WITNESS COLEMAN: Your Honour, can I just- HIS HONOUR; Sorry, Mr Coleman, yes. WITNESS COLEMAN; -clarify something? I'm not sure if you've dealt with which discount rate to apply in 74 or - in other words, Mr Gower's alternative A does not use 8.94. HIS HONOUR; No, but I've actually said it's B. My view is it's 79B, of the two views Mr Gower was asked to assume. WITNESS COLEMAN: So you're saying we should use his alternative B? HIS HONOUR: Well, 8 point - as I understand it, his alternative B accords with the view I have taken, which is that the discount rate of 8.94% is to be applied at subparagraph (4)— WITNESS COLEMAN; Yes, and- HIS HONOUR; -of the calculation. WITNESS COLEMAN; And, and only? HIS HONOUR; And only there. WITNESS COLEMAN; Yes, that's - okay. HIS HONOUR; Yes. WITNESS COLEMAN; I just want to clarify. HIS HONOUR; You're clear on that? WITNESS PALASSIS; Yes. HIS HONOUR; Mr Palassis agrees that that's what he had in mind in terms of when he gave that evidence. Very well. Now the loss and statutory interest. WITNESS GOWER; Your Honour, if I, if I, if I could just clarify that, the, the statement that the discounting occurs only then? HIS HONOUR; Yes. WITNESS GOWER; Under - there's a question about once you've calculated the rental figure, whether that is expressed at a nett, at, at, at the date of damage. And so the discounting that occurs at 4 is used in order to derive the annuity, the rental stream over the hundred years. You then end up with a rental stream during the period of damage, being the 15 years. The next question is whether that rental stream needs to be expressed as a single gross sum at the date of damage, being 17 March. HIS HONOUR; No, is the answer to that question. WITNESS GOWER; It, it does not need to be- HIS HONOUR; No- WITNESS GOWER; Just- HIS HONOUR; -because it's because - just pardon me a moment, Mr Gower, that triggers something else in my memory. I'll come back to that, it's a related point. The annuity represents effectively the annual rent. Do you accept that proposition? WITNESS GOWER; Yes, your Honour. HIS HONOUR: For the purposes of applying the notional rent to calculate mesne profits - and I'll hear the parties on this - my prima facie view is that it effectively is just an annual notional rental figure. So what we've got is a hundred and however many years worth of chunks of rent, and it's the first 15 years that we're arguing about. That figure I do not think needs to then be lumped up to the start of the period of damages, because it is truly a notional rental figure which would be an annual figure. So for that reason I don't think you pull it back to day 1, you simply pull it back - each year is the notional rent for that year. Then in so far as interest runs on that, it runs annually, as though rent would have been due on that particular day, and then interest runs on that figure. Does anyone want to be heard against that approach? DUBLER; No, your Honour. HIS HONOUR: Mr Jackman? JACKMAN: No, your Honour. HIS HONOUR: Does that answer the question? WITNESS GOWER: Yes, it does, your Honour." 1. Further progress regarding the calculation of the damages in relation to the Hospital Site had to abide the hearing which took place on 9, 10 and 11 May 2017 and the determination of two further specific issues. Judgment in relation to those issues was delivered on 18 September 2017. On that occasion, a hope was expressed that the final damages calculations could be submitted to the Court and the costs argument was listed for hearing on 20 October 2017. 4 October 2017 1. The matter was relisted on 4 October 2017 at the request of the Health District in relation to the nature of the costs applications foreshadowed by Macquarie. At that hearing, the Court was informed that Macquarie's expert had provided a damages calculation for the Hospital Site to the Health District and that there were "at least three problems with it" as far as the Health District was concerned. It was agreed that any remaining issues would be dealt with on the next occasion with the relevant experts present. The Court made directions for the exchange of any evidence and submissions on any remaining issues. 20 October 2017 1. For the purposes of the hearing on 20 October 2017, Macquarie relied on further evidence from Mr Coleman which relevantly gave a loss including interest calculated up to 18 September 2017 of $70 million. 2. A new expert, Mr Owain Stone, of KordaMentha Forensic, had stepped into the role previously occupied by Mr Gower as the Health District's expert on the question of the damages calculation. Mr Stone disputed the commerciality and reasonableness of Mr Coleman's calculation for reasons to which I will shortly refer. His calculation of damages was premised upon his opinion that it was necessary to perform the further discounting referred to in paragraph [544(6)] of the Principal Judgment as an additional step to arrive at the correct calculation. Mr Stone's calculation on that basis gave a damages figure (inclusive of interest) of $52.6 million. 3. Macquarie challenged this part of Mr Stone's report as being an impermissible attempt to reopen the methodology question which it submitted had been resolved at the hearing on 14 February 2017. Macquarie argued that Mr Stone was attempting to raise again an argument which had been raised in February by Mr Gower and rejected by the Court. In support of that proposition Macquarie's written submissions cited this portion of the transcript, which I reproduce again for convenience (T39:39-40:24): "WITNESS GOWER; It, it does not need to be- HIS HONOUR; No- WITNESS GOWER; Just- HIS HONOUR; -because it's because - just pardon me a moment, Mr Gower, that triggers something else in my memory. I'll come back to that, it's a related point. The annuity represents effectively the annual rent. Do you accept that proposition? WITNESS GOWER; Yes, your Honour. HIS HONOUR: For the purposes of applying the notional rent to calculate mesne profits - and I'll hear the parties on this - my prima facie view is that it effectively is just an annual notional rental figure. So what we've got is a hundred and however many years worth of chunks of rent, and it's the first 15 years that we're arguing about. That figure I do not think needs to then be lumped up to the start of the period of damages, because it is truly a notional rental figure which would be an annual figure. So for that reason I don't think you pull it back to day 1, you simply pull it back - each year is the notional rent for that year. Then in so far as interest runs on that, it runs annually, as though rent would have been due on that particular day, and then interest runs on that figure. Does anyone want to be heard against that approach? DUBLER; No, your Honour. HIS HONOUR: Mr Jackman? JACKMAN: No, your Honour. HIS HONOUR: Does that answer the question? WITNESS GOWER: Yes, it does, your Honour." 1. At the outset of the hearing on 20 October 2017 I raised with Mr Kanagaratnam of Counsel, then appearing for Macquarie, that the extract which he had cited in his submissions appeared to be directed to the question of interest and that therefore I was not certain that it stood in the way of considering Mr Stone's objections. As the hearing developed, this issue was not further pressed by Macquarie as a basis to resist considering Mr Stone's opinion about the need to perform, as an additional step, the calculation referred to in paragraph [544(6)] of the Principal Judgment. 2. For reasons which I will set out in the next section of this judgment, during the course of the hearing on 20 October 2017 and the colloquy between the experts, counsel and the Bench, I came to the view that Mr Stone's approach was to be preferred to Mr Coleman's. However, before coming to a final decision on quantum, I asked Mr Stone to perform an additional calculation which ultimately produced a damages figure of $59.8 million (inclusive of interest). Directions were made for that to be done and an opportunity afforded to the parties to make submissions as to which of Mr Stone's calculations should be preferred. 13 November 2017 1. Macquarie's costs applications had been listed for hearing on 16 and 17 November 2017. In practical terms some shorter part of that hearing was going to be given over to any final submissions on the damages question. However, the intended scope of that hearing took a slightly different turn when the matter was relisted on 13 November 2017. This was necessitated because, in addition to the submissions for which the Court had made directions, what was said to be an additional, unprompted submission from Mr Coleman dated 27 October 2017 had been served. This additional submission sought, as at least as the Health District perceived it, to agitate the argument in favour of Mr Coleman's damages figure of $70 million. 2. Mr Williams SC submitted that because the Court had eliminated Mr Coleman's approach at the hearing on 20 October 2017, the question ought not to be allowed to be reopened and Mr Coleman's latest report should not be received insofar as it propounded the $70 million figure. In response, Mr Kanagaratnam submitted that his client had not resiled from the fundamental position it had sought to advance at the October hearing and that the question had been resolved at the hearing in February in favour of not applying, as a separate step, paragraph [544(6)] of the Principal Judgment. 3. After hearing the parties, I came to the view that in the interests of procedural fairness and doing justice to the parties, to the extent it was necessary to reopen the question of the methodology as to the calculation of damages in relation to the Hospital Site, that issue should be reopened so as to permit both parties an orderly opportunity to advocate for their respective calculations which were now being advanced. I did so for these reasons: 1. There was no prejudice to any party by doing so. A further hearing was going to take place in any event concerning Macquarie's costs application, and I did not think the fact that the damages experts would have to attend Court one more time was a relevant form of prejudice to any party. Given the length of the hearing and the significant sums of money at stake, I was unable to identify any disadvantage in giving each party an orderly opportunity to present its case on this question. Moreover, given the matter was obviously destined to go further, the Court should not leave the parties in the position where one or the other might have a basis for saying that it had not been permitted to put any argument that it would have wished to have made on the ultimate question of quantum. 2. I was concerned that my decision to eliminate Mr Coleman's calculation at the hearing on 20 October 2017 may have miscarried through no fault of any party, in particular Macquarie, for want of the Court's attention not being specifically drawn to the argument that had taken place on 14 February 2017 (see paragraph [87] above) in relation to paragraph [544(6)] of the Principal Judgment, and not just to the exchange concerning interest. 3. Looking back to the hearing on 14 February 2017, I accepted submissions that Mr Williams SC had originally put on 20 October 2017 that there was a real possibility of confusion at the hearing on 14 February 2017, both because it was apparent that Mr Palassis was not the author in terms of the summary in paragraph [544] of the Principal Judgment and also because there may have been some doubt as to whether what was really being argued about was the use of different discount rates at different points in the analysis. To the extent there was any such confusion, I accept it was not the fault of either party, notwithstanding the apparent reluctance of each of them to put any submission to the Court about the precise integers of the Residual Land Value methodology that the Court had been told during the principal hearing had been agreed between the parties as the correct methodology. 4. The confusion about the attribution to Mr Palassis of the summary in paragraph [544] of the Principal Judgment was a distraction from the real issue to be determined, namely the correct method to determine damages, irrespective of the name to be given to that method and irrespective of the extent to which it had been agreed, in its particulars, between the parties. 17 November 2017 1. The final argument in relation to which of the damages calculations the Court should adopt took place on 17 November 2017. Mr Stone and Mr Coleman were present and Mr Coleman was asked a number of questions by Mr Williams SC. The parties then addressed the Court by reference to the damages reports and submissions that had been filed up to that point. 2. Macquarie contended that the correct approach was Mr Coleman's, giving a figure of $70 million (inclusive of interest). It submitted that Mr Stone's figure of $59 million (produced at the request of the Court) was "really a bit of a strange beast" which had "the virtue of being between 52 [million] and 70 [million] but not a lot of rationality otherwise" (T5975:3-5). Nevertheless, Macquarie submitted the $59 million figure should be adopted by the Court if the Court did not accept Mr Coleman's calculation. 3. The Health District's position was that Macquarie's attempt to argue again for the $70 million figure should not be allowed and that it was a matter for the Court to determine which of Mr Stone's figures should be adopted, having regard to both approaches being available and informed by the reasonableness of the overall result. Damages for the Hospital Site – the three possibilities 1. I will next set out the three options for the damages calculation in relation to the Hospital Site which were ultimately presented to the Court. As the argument proceeded by reference to paragraph [544] of the Principal Judgment, I repeat that again at this point for convenience: "544 The mechanics of the methodology which the Court considers should be applied may be taken from the summary of Mr Palassis: (1) Input the necessary expenditure to complete the balance of the development and the cash outflow (including ground rent) for the duration of the hypothetical term; (2) Assuming an opening of the private hospital on 1 July 2004, input the revenue assumed to be received through the operation of PAPH for the duration of the hypothetical term; (3) Derive a figure being the difference between (1) and (2); (4) Discount that figure by an assumed discount factor to arrive at an annuity or annual rental payment; (5) Denote that annual payment the "reasonable letting value" of the hospital site per annum; and (6) Derive an aggregate figure for market rental by calculating the net present value of the reasonable letting value for the duration of the trespass." 1. By the time of the final two hearings devoted to the question of damages, Mr Coleman and Mr Stone were agreed both as to the applicability of the methodology and the mathematical outcomes of sub-paragraphs [544(1)-(5)] of the Principal Judgment. This meant that the experts were agreed that the net present value of the Hospital Site by reason of the construction and operation of the hypothetical private hospital was a positive figure of $35.356 million as at the commencement of the trespass on 17 March 2000. They also agreed on the conversion of that figure into an annual post tax notional rental which for the first year was $2.187 million. This was increased by the agreed inflation rate of 2.5% annually for the 15 years of the trespass giving a cumulative notional rental for the period $41.203 million. 2. I have taken all of the figures in the preceding paragraph from Mr Stone's second report of 13 October 2017. It is at that point that their approaches diverge in ways which I will explain by setting out their respective calculations, to which I will refer to as "Coleman", "Stone 1" and "Stone 2". Coleman 1. For his part, Mr Coleman did not further discount the cumulative rental figure of $41.2 million. In other words, he did not take the step contemplated by paragraph [544(6)] of the Principal Judgment. Mr Coleman calculated Supreme Court interest on each year's post tax notional rental up to 18 September 2017. This yielded a figure to the end of the trespass of $41.203 million for notional rental and simple interest at Supreme Court rates totalling $28.82 million, giving a total damages figure in relation to the Hospital Site of $70.022 million. Stone 1 1. Mr Stone's original calculation took the cumulative rental of $41.2 million and did take the step contemplated by paragraph [544(6)] of the Principal Judgment. This meant that the notional annual rental figures were again discounted by the same discount rate used earlier in the process (being 8.94% as determined by the Court in the Principal Judgment) to give the net present value of those notional annual rentals of $21.791 million. Mr Stone then calculated Supreme Court interest on that figure alone from the commencement of the trespass up to 18 September 2017 (to be comparable to Mr Coleman's calculation) of $30.772 million, giving total damages of $52.563 million. Stone 2 1. This calculation was done at the request of the Court. It split out those elements of the discount rate that represent risk and the time value of money. The discount rate reflecting risk only was agreed between the parties as 6.52%. This gave a discounted cumulative notional rental figure of $34.356 million. Mr Stone then calculated Supreme Court interest on each of the annual notional post tax rentals up to 18 September 2017 as $25.438 million. This was intended to compensate for the time value of money, which component was removed from the discount rate used for this calculation. The total figure for damages in respect of the Hospital Site using this approach was $59.794 million. Damages for the Hospital Site – the parties' submissions 1. Two preliminary points should be made. 2. First, as part of Macquarie's submissions at this final stage, Mr Dubler SC submitted that the Court should not depart from the position said to have been reached on 14 February 2017, namely that no discounting back to the date of commencement of the trespass should occur. Mr Williams SC advanced an expanded version of the submissions which I have recorded in paragraph [97(3)] above. For the reasons set out in paragraph [93] above I do not regard the relevant issues as having been foreclosed on 14 February 2017 and hence I determined on 13 November 2017 that the issue of methodology should be reopened so each party could put their submissions in support of their respective damages calculations. 3. Second, as I have already noted, by this stage the parties (and their experts) agreed that paragraph [544(1)-(5)] of the Principal Judgment had captured the Residual Land Value methodology and the issue was whether the step in paragraph [544(6)] should be taken. The essential difference between the parties became whether the damages were calculated as at the commencement of the period of trespass (in which case the experts agreed that either of Mr Stone's approaches was available) or not (Mr Coleman's approach by reference to loss of annual notional rentals). 4. Macquarie's arguments that Mr Coleman's figure should be adopted may be summarised as: 1. It was contrary to law to discount the notional rentals back to the commencement of the trespass. In a landlord and tenant case, for example, where the tenant had overstayed, the mesne profits in the form of rent would be determined as at the hearing on the basis of rent that should have been paid. One would not discount that rent back to the date of commencement of the trespass. 2. As a matter of damages theory, there was no reason to double discount as Mr Stone had done. 3. In any event, Mr Coleman sought to explain in his evidence that he accepted the need in theory for the step in paragraph [544(6)] of the Principal Judgment, but he gave it a value of zero in this case. He explained this on the basis that if the loss was suffered in each year as an annual rental payment was lost, there was no need to do a further discount. The net present value of the total rentals lost was simply inapplicable. A variation of this argument was advanced by Mr Dubler SC to the effect that what paragraph [544(6)] meant was net present value as at today, so that no further discounting would be required. 4. Insofar as Mr Stone criticised Mr Coleman's result as commercially unreasonable and leading to Macquarie being overcompensated, his criticism was not grounded in any evidence of a likely commercial or market rental that would be applicable in the "real world". On the other hand, Mr Coleman had undertaken cross-checks for reasonableness. 1. The Health District's arguments may be summarised as: 1. Mr Coleman's result was unreasonable because it was to the effect that the value of Macquarie's damages for the 15 year trespass before interest ($46 million) was greater than the net present value of the entire 103 year project as at the date of commencement of the trespass ($39.5 million as calculated by Mr Coleman, the experts later agreeing the figure as $35.356 million). Together with interest this would give Macquarie a substantial windfall. Mr Stone gave an extreme example that if Mr Coleman's method was applied to a trespass for the entire 103 years, the value would be a little over a billion dollars before interest. 2. The unreasonable result was the product of Mr Coleman's failure to discount each of the annual notional rental amounts (paragraph [544(6)] of the Principal Judgment), which meant that he had implicitly treated uncertain cash flows as certain. It was necessary to discount the annual notional rental amounts because those figures were themselves the product of discounting and to add them up without further discounting was an inconsistent step which failed to take account of risk and the time value of money inherent in the calculation. 3. Mr Coleman's analysis is based on a notional rental that does not reflect commercial outcomes that would have arisen. A lessee of the private hospital would not pay a rental that reflects the total value of the private hospital project. (I immediately record that while these observations are correct, they do not answer Macquarie's case. As I understood it, the Residual Land Value including the notional rental approach was adopted precisely because the enquiry had ultimately proceeded on the basis that it was not realistic to hypothesise a commercial subletting or assignment of either the first 15 years or the entirety of the term of the Hospital Lease, not least because of the significant outlays required in the early years such that the project did not have a positive value on Mr Coleman's calculations until 2021). Damages for the Hospital Site - resolution 1. For the reasons which follow, Macquarie's damages in relation to the Hospital Site should be calculated in accordance with Stone 1. My reasons may be summarised as: 1. As a matter of law, the damages should be assessed when Macquarie's cause of action arose, which was at the commencement of the trespass. 2. Quite apart from the legal position, I accept Mr Stone's evidence that the logic of the Residual Land Value methodology adopted by the parties requires a further discounting back to the commencement of the trespass. 3. I accept Mr Stone's criticism that Mr Coleman's method produces an unreasonable and disproportionate result. 1. It is convenient to start with some of the legal conclusions which I expressed in the Principal Judgment (emphases added): "173 What emerges clearly from the foregoing statements of principle is that in Australia mesne profits are the means by which damages for trespass are awarded. Furthermore, the calculation of those mesne profits is done by reference to the user principle. The user principle means that the Court is not concerned with whether or not the innocent party could or would have used the land in question or whether the wrongdoer can demonstrate that it may have been able to gain some advantage if it had, in fact, negotiated with the innocent party for the use in question. In my view, the user principle requires a robust and straightforward inquiry firmly based upon what in fact occurred: what was the wrongful use and what is a market or going rate for that use? … 176 The exclusion of the hypothetical and speculative is unsurprising when the user principle is properly understood. In a case such as this, identified rights commencing with, but not limited to, the fundamental right to exclusive possession as lessee of the Car Park Site and the Hospital Site, have been infringed for a known period in the past. To borrow the Earl of Halsbury's pithy example, the chair was taken for a specified period irrespective of the facts that there were other chairs available or that the true owner could not or would never have sat in that chair. It is not an assessment of future economic loss but a retrospective one. In approaching the task, relevant events that have in fact happened or not happened during the period of the trespass are to be preferred over speculation (no matter how well informed) as to what might have happened. "Where actual facts are known, speculation as to the probability of those facts occurring is surely an unnecessary second-best": Willis v The Commonwealth (1946) 73 CLR 105; [1946] HCA 22 at 109 per Latham CJ. … 181 All of that having been said, it must be accepted that Macquarie's case in relation to the Hospital Site in particular presents some novel features insofar as no similar case has been able to be found, despite the extraordinary legal resources the parties devoted to these proceedings. In a case presenting novel features I take as my touchstone Allsop P's invocation in Bunnings (at [174]) of the "rules of compensatory damages sensibly and flexibly applied". That approach does not exclude a sensitivity on the part of the Court to the need to avoid undercompensation or overcompensation within the context of the principled application of the user principle. … 353 The Court has therefore approached its task by — where relevant — asking itself the question whether, in relation to any particular integer, the Court is able to make, on the balance of probabilities, a finding that reflects the situation that is likely to have occurred if the private hospital had been built by someone (not necessarily Macquarie). However, it is not a scientific exercise where precision is possible in every particular. As a Canadian judge observed when determining mesne profits, "this is an assessment rather than a calculation": Initiate School of the Canadian Rocky Mountains Ltd. v. Wolfenden Ventures Ltd., 2013 BCSC 257 at [46] per PJ Rogers J." 1. To those observations I would add two other propositions. 2. First, Macquarie's submissions referred to the Health District's trespass as being a "continuing trespass". As a matter of ordinary English, that description may be accepted. The trespass began on a particular day and continued for a known period of time until Macquarie's possession of the Car Park Site and the Hospital Site was restored. However, it was not a "continuing trespass" in the way that term has a special meaning in relation to the law of trespass because this was not a case of something brought on to the land in question and wrongfully left there. I respectfully adopt what is said on this topic in Fleming's The Law of Torts edited by C Sappideen and P Vines, 10th Ed, Law Book Co, 2011 at page 53 (citations omitted; emphasis added): "If a structure or other object is placed on another's land, not only the initial intrusion but also failure to remove it constitute an actionable wrong. There is a "continuing trespass" as long as the object remains; and on account of it both a subsequent transferee of the land may sue and a purchaser of the offending chattel or structure be liable," because the wrong gives rise to actions de die in diem until the condition is abated. Likewise, if the chattel was initially placed on the land with the possessor's consent, termination of the licence creates a duty to remove it; and it seems that, according to modern authority," a continuing trespass is committed by failure to do so within a reasonable time. In all these cases, the plaintiff may maintain successive actions, but, in each, damages are assessed only as accrued up to the date of the action. This solution has the advantage to the injured party that the statute of limitations does not run from the initial trespass, but entails the inconvenience of forcing him to institute repeated actions for continuing loss." The doctrine of "continuing trespass" applies only to omissions to remove something brought on the land and wrongfully left there; not where a defendant fails to restore the land to the same condition in which he found it, as where he digs a pit in his neighbour's garden and fails to fill it up. Here the plaintiff can only treat the initial entry as trespass and must content himself with one action in which damages are recoverable for both past and future loss." 1. The other fundamental principle is that, as a general rule, damages for tort or contract are assessed as at the date of breach or when the cause of action arises, acknowledging the qualification expressed by Mason CJ in Johnson v Perez [1988] HCA 64; (1988) 166 CLR 351 at 355-356 that the general rule is not universal and that "it must give way in particular cases to solutions best adapted to giving an injured plaintiff that amount in damages which will most fairly compensate him for the wrong he has suffered" (most recently applied by the Court of Appeal in El Ali v Tritton [2019] NSWCA 111). 2. There are three reasons for the conclusion I have reached. 3. First, having regard to the principles set out above, I do not accept Macquarie's submission that, as a matter of law, the damages ought not be discounted back to the date the trespass commenced. I understood this to be another way of submitting that damages should not be calculated as at the date the cause of action arises. This submission was put as part of Macquarie's case that the damages should be assessed by reference to the notional annual rental "lost" such that a new cause of action arose when each annual rent was not paid. In my respectful view, Macquarie's submission gives the analogy of an annualised notional market rental (which the parties were using by reference to the Residual Land Value methodology) a determinative role which is apt to distract from the task at hand. 4. By that I mean that the analogy of annual market rental is exactly that – an analogy. It is essential to bear in mind that this is not a case of a landlord being compensated for a tenant overstaying their lease. At no time did Macquarie, as a matter of fact in the "real" world, have a right to receive annual rental from the Health District (or anyone else) and the analogy should not drive the case to being characterised in law as Macquarie suing for unpaid rental. What Macquarie is being compensated for is a trespass where the land trespassed upon (the Hospital Site), the rights attached to that land by reason of the Hospital Lease and the period of that trespass are all now known. 5. Nor, for the reasons set out in paragraph [115] above, is there any legal significance in describing what occurred as a "continuing trespass". As a matter of law, no new cause of action accrued to Macquarie every day of the trespass or upon a notional annual failure to pay the notional annual market rent. 6. It therefore follows that unless there is some compelling reason of fairness or justice to do otherwise, the general rule that damages are assessed in tort at the time the cause of action arose should be applied. There is no such compelling reason to depart from the general rule in this case. On the contrary, the Residual Land Value methodology adopted by the parties enables the Court, when the step contemplated in paragraph [544(6)] of the Principal Judgment is taken, to answer the question which is at the heart of the Damages Enquiry: what sum of money, if paid to Macquarie as at the date of the commencement of the trespass, would have adequately compensated Macquarie for the loss it suffered as a result of its exclusion for some 15 years thereafter from the Hospital Site? (In this question, I am using the word "compensate" in its colloquial meaning and am not intending to invoke the conundrum of the extent to which mesne profits can be said to be compensatory as opposed to restitutionary). All of the information required to answer this question is now available to the Court because the entire period of the trespass is now in the past. The answer to this question requires the notional annual rentals to be discounted back to the date of commencement of the trespass, which accords with the general principle as to when damages should be assessed. 7. Mr Coleman accepted that if damages were to be assessed as at the commencement of the trespass then Mr Stone's approach was correct. As I will develop further below, taking this approach also answers which of Mr Stone's two options should be adopted by the Court. 8. Second, and quite apart from the legal answer, I also accept Mr Stone's evidence that the logic of the Residual Land Value methodology required the additional discount represented by the step in paragraph [544(6)] of the Principal Judgment to be done. The notional annual market rentals were the product of a discounting process. I accept Mr Stone's criticism that simply to add them up without discounting them further would be to ignore the element of uncertainty that had been built into the process from the start and would, in effect, be to convert uncertain cash flows into certain cash flows. 9. Third, I also accept Mr Stone's evidence that Mr Coleman's methodology should not be adopted because it gives an unreasonable result. As I noted in paragraph [113] above, the enquiry into damages upon which the Court is engaged is an assessment and not a scientific calculation. An important way of checking the validity of any assessment is whether the result it produces is reasonable. Because of the complexity of the issues and the number of possible permutations, the parties had little alternative but to conduct this aspect of the proceedings in an iterative fashion with the Court being called upon to determine various integers which would then be used by the experts. The disadvantage of this approach was that the reasonableness of any outcome achieved by those integers was unable to be tested along the way. Putting the matter colloquially, there were just too many moving parts. 10. At this final stage, reasonableness can be tested. It cannot be a reasonable outcome of a principled assessment of damages that a trespass for 15 years of a 103 year lease gives Macquarie a greater damages figure (even without interest) than the net present value of the entire project at the commencement of the lease. It is precisely that kind of outcome which the rules of compensatory damages, sensibly and flexibly applied, would avoid producing. 11. In coming to the conclusion that Mr Coleman's methodology produces an unreasonable outcome, I had not overlooked the "cross-checks for reasonableness" which he undertook, being contained in his reports of 1 September 2014 and 20 December 2016. 12. In his report dated 20 December 2016, Mr Coleman candidly disclosed that the cross-check in his report dated 1 September 2014 used figures that were not obtained using the methodology determined in the Principal Judgment and were pre-tax figures which were not directly comparable with the after-tax rental results set out in his later report (unless they were converted to pre-tax figures). In those circumstances I do not think the cross-checking in the 2014 report is useful to the present exercise, given that so many integers have changed. 13. Nor am I persuaded that the cross-check in his 20 December 2016 report is helpful. That report proceeds by reference to a net present value of the Hospital Lease of $48.6 million (whereas the figure to which Mr Coleman finally came and with which Mr Stone agreed was $39.5 million) and gave an annual after tax rental value as at March 2000 of $3.007 million ($4.295 million before tax), whereas the figure ultimately agreed for the first year of post-tax rental was $2.187 million. Furthermore, while in paragraph 42 of his 2016 report he concludes that the March 2000 rental figure was "not a commercially unreasonable result", the comparison was really directed to lending "further support to the use of 2.5% per annum rate of rental inflation being applied to the rental value increases in conjunction with all the other assumptions to be used as set out in" the Principal Judgment. 14. Because of the matters referred to in the preceding paragraph, I am not satisfied that the cross-check in Mr Coleman's 2016 report is sufficiently comparable with the position that the Court is now addressing. In any event, even if it is used only to support a submission that the rental values which he had calculated were, in his view "not a commercially unreasonable result" and the position which the parties have ultimately reached gives lower rental values, I do not think it really takes the matter any further. 15. As I noted in paragraph [111(3)] above, I do not accept that "commerciality" is a useful comparator when, at least as I understand it, the basis for the adoption of the Residual Land Value methodology was a recognition that it was very difficult to see how in "the real world" anyone would actually have sub-let or taken an assignment of the Hospital Lease, either for the term of the trespass or for the entire 103 year term. Rental in the context of the Residual Land Value methodology was notional. As Mr Stone said, and the Court accepts, in "the real world" rent would not be determined on an arm's length basis by reference to the net present value of the relevant asset or project. 16. Finally, the reasons which I have set out above also assist in resolving which of Stone 1 or Stone 2 the Court should accept as the just assessment of Macquarie's damages in relation to the Hospital Site. It will be recalled that Stone 1 gives damages of $21.791 million in notional rent and $30.772 million in interest, totalling $52.563 million, whereas Stone 2 gives damages of $34.356 million in notional rent and $25.438 in interest, totalling $59.794 million. 17. The calculation in Stone 2 was undertaken at my request as I wished to ascertain whether a more reliable outcome could be reached by reflecting the annual notional market rental aspect of the calculation by the way interest was calculated (i.e. on each year's notional annual market rent). This involved removing the time value of money component of the discount rate of 8.94% that had otherwise been used in the Residual Land Value calculation. 18. Stone 1 should be preferred over Stone 2 for three reasons: 1. Stone 1 is more consistent with the view of the law I have taken than Stone 2. Calculating damages as at the date the cause of action arose (the date of commencement of the trespass) gives a dollar sum which, in theory and with the benefit of hindsight, if it had been paid to Macquarie as at the date of the commencement of the trespass would have been adequate compensation. In those circumstances it seems to me that the traditional approach of calculating simple interest on that amount from the date of commencement of the trespass better accords with the underlying legal rationale of when damages should be calculated. 2. In the course of giving his evidence, when the possibility of doing the calculation which became Stone 2 was being discussed, Mr Stone observed (20 October 2017; T23:48-24:1): "If Supreme Court interest rates were a good surrogate for the time value of money, then one should end up with a number not dissimilar to the number I have ended up with, taking it all the way back and adding Supreme Court interest from the start". Mr Stone went on to say that he did not know whether Stone 2 would produce a higher or lower number. In my view, Stone 2 produces a materially different outcome from Stone 1 (particularly in relation to the amount of notional market rent) which at least suggests that Supreme Court interest rates are not a good surrogate for the time value of money when compared to the time value of money component that was built into the 8.94% discount rate which the Court determined should be applied. Having seen Stone 2 in its worked out form, the combination of the new discount rate (which removes the time value of money component) with Supreme Court interest rates has introduced new variables which produce a result for which I can find no support as a matter of legal principle. Putting this another way, and accepting the logic which underpins Stone 1, the Residual Land Value method adopted by the parties was premised upon the consistent application of the discount rate of 8.94% and I am satisfied that a consistent application of that rate through all steps of the process is required to produce a just result. 1. Stone 2 produces a notional market rent figure of $34.356 million which is also an unreasonably high figure when compared to the net present value of the entire 103 year project as at the date of commencement of the trespass ($39.5 million as calculated by Mr Coleman, the experts later agreeing the figure as $35.346 million). Costs – procedural history 1. Macquarie crystallised its application for costs by filing a motion dated 19 October 2017 (the "Costs Motion") which sought this relief: "1 Pursuant to section 98(1) of the Civil Procedure Act 2005 (NSW), an order that the Sydney Local Health District (SLHD) pay Macquarie International Health Clinic Pty Limited (MIHC) and Macquarie Health Corporation Limited (MHC) costs of the; (a) Supreme Court proceedings 2000/34949 in the period 1 July 2011 to date (Damages Enquiry); (b) Supreme Court proceedings 2010/90340 (Guarantee and Indemnity Proceedings); and (c) Land & Environment Court proceedings 2015/40944 (L&E Proceedings). 2 In the alternative to order 1 above, an order that the costs of the Guarantee and Indemnity Proceedings and the L&E Proceedings be part of the costs in the Damages Enquiry. 3 An order that the costs payable in relation to the Damages Enquiry are to be paid: (a) on the ordinary basis for the period up to and including 29 July 2014; and (b) on an indemnity basis for the period after 29 July 2014. 4 An order that the costs payable in relation to the Guarantee and Indemnity Proceedings be payable on an indemnity basis. 5 An order pursuant to section 101 (4) Civil Procedure Act 2005 (NSW) for interest on costs as and from the date on which each of the costs incurred in Damages Enquiry, Guarantee and Indemnity Proceedings and L&E Proceedings were paid by or on behalf of MIHC and MHC (or either of them). 6 Pursuant to section 98(4)(c) of the Civil Procedure Act 2005 (NSW), an order that the costs of MIHC and MHC in the Damages Enquiry, Guarantee and Indemnity Proceedings and L&E Proceedings be assessed on a gross sum basis and fixed in the amount of $8,192,917.00 or such other amount as the Court may determine. 7 SLHD pay MIHC's and MHC's costs of this motion. 8 Such further or other orders as the Court thinks fit." 1. Macquarie filed evidence which demonstrated, inter alia, that it had incurred costs in relation to the Damages Enquiry since July 2011 of approximately $8.2 million of which only approximately $160,000 remained unpaid. I shall return to the issue of the precise amount of Macquarie's costs later in these reasons. 2. Macquarie also relied upon an expert report from Mr Michael Dudman. Mr Dudman was well qualified in the area of costs assessment, having been admitted as a solicitor in 1991 and having engaged exclusively and continuously in the area of legal costs since 2000. It will be recalled that Macquarie sought its costs on the indemnity basis for the period after 29 July 2014. Mr Dudman expressed the opinion that Macquarie would recover from the Health District for its reasonable costs and disbursements $6.893 million on the ordinary basis for the entire enquiry or $7.115 million on the indemnity basis from 29 July 2014. 3. The Health District also retained the services of a highly experienced costs consultant, Ms Deborah Vine-Hall. Ms Vine-Hall was admitted as a solicitor in 1986. After full time practice as a solicitor at Blake Dawson Waldron for three years engaged in commercial litigation, Ms Vine-Hall commenced a full time career in costs consulting in October 1989 and in which she has been continuously engaged since then. Ms Vine-Hall expressed the opinion that Macquarie's recoverable costs on the ordinary basis would be $5.981 million or $6.446 million on the indemnity basis. 4. Because of what came to be referred to as the "adverse costs issue", Mr Dudman's and Ms Vine-Hall's final figures are not directly comparable. The adverse costs issue arose in the following way. 5. The Health District accepted that the Court should order the Health District to pay, on the ordinary basis: 1. a substantial part of Macquarie's costs of the Damages Enquiry; 2. Macquarie's costs of the Guarantee and Indemnity Proceedings; and 3. Macquarie's costs of the L&E Proceedings (in fact, I had already made an order that the Health District should pay Macquarie's costs of the L&E Proceedings). 1. The Health District also agreed that, if possible, those costs should be assessed on a gross sum basis. The difficulty, according to the Health District, was that the Court should only make a gross sum costs order when it had sufficient confidence that it could arrive at an appropriate sum on the material available. The Health District submitted that the Court did not have such material available to it, focusing in particular on what it submitted were inadequacies in Mr Dudman's report, including the adverse costs issue. 2. When the costs application came on for hearing before me on 16 November 2017, Mr Dudman and Ms Vine-Hall were still engaged in a conclave outside the Court. However, the adverse costs issue immediately came to the fore in an objection which Mr Williams SC took to the entirety of Mr Dudman's report. The adverse costs issue arose because, during the course of the Damages Enquiry, a number of costs orders had been made in favour of the Health District against Macquarie, including a costs thrown away order arising from the Court granting Macquarie leave to make substantial amendments to its case on 26 September 2014 (the "Second Amendment Application"). There was no dispute between the parties that in calculating the costs to which Macquarie might be entitled against the Health District, those costs could not include the costs of work done on behalf of Macquarie in relation to matters where Macquarie had been ordered to pay the Health District's costs. 3. Against this background, Mr Williams SC submitted that Mr Dudman's report either should be rejected in its entirety as not complying with s 79 of the Evidence Act 1995 (NSW) (the "EA") or, if it were admissible, should be excluded as unfairly prejudicial to the Health District under s 135 of the EA. Macquarie's fundamental complaint about Mr Dudman's report was that it lacked "transparency" because his reasoning was not fully exposed, including as to how he had dealt with the adverse costs issue. 4. This concern about Mr Dudman's report had been identified by Ms Vine-Hall in her report. She took the view that she did not have enough information to determine what deductions should be made in relation to adverse costs and had therefore undertaken her calculations without taking them into account. It is for this reason (as noted in paragraph [138] above) that Ms Vine-Hall's final figures were not comparable to Mr Dudman's: Mr Dudman had, in terms, said he had taken account of adverse costs in his report. 5. It is convenient to set out how Ms Vine-Hall raised these issues in her report: "The Effect of Adverse Costs Orders 69. The calculation of costs on a gross sum basis must result in an amount which is logical, fair and reasonable. 70. In my experience of providing evidence on gross sum costs applications I have found that it is prudent to err on the side of over caution in attempting to quantify the costs relating to adverse costs orders as it is difficult to provide sufficient information to the Court or to the opposing party of the actual costs incurred. … Methodology 80. I refer to paragraph 39 of Mr Dudman's report. I agree with Mr Dudman that in determining an amount to be awarded as a gross sum, the Court will apply a broad brush approach. 81. I refer to paragraph 42(a) of Mr Dudman's report in which he describes the process by which he has considered the materials provided to him and in which he asserts that he has reviewed every item of charge in the solicitors' invoices and undertaken an ersatz taxation exercise. 82. In my opinion this process would not result in an approximation of the outcome of an assessment, as there are so many variables in the determination of costs in the assessment process, including the objections provided by the opposing party and then the application of the assessor's discretion to weigh up the claims against the objections, which affect the result. 83. The Courts have consistently held that quantifying a gross sum costs award is not an attempt to approximate a result on assessment/taxation. 84. Furthermore, Mr Dudman asserts that he has taken into account the reductions required to address adverse costs orders but there is little information, except for an example given at paragraph 42(d)(i) of his report, of how much had been identified as unrecoverable for this reason. Without an explanation of the effect of the Adverse Costs, even on a broad brush basis, as opposed to possible reductions for other reasons, the result cannot be tested by the opposing party or the Court. 85. In my opinion this had led to a calculation which, while having the appearance of thoroughness, lacks the transparency necessary to ensure that the Court can be confident that the approach taken to estimate costs is logical, fair and reasonable." 1. While it was common ground that in making a gross sum costs order the Court was not engaged in a costs assessment, Mr Dudman had purported to do what is common on such applications, namely what Ms Vine-Hall referred to as "an ersatz costs assessment". The focus of the Health District's attack on Mr Dudman's report was Annexure E of that report, headed "Summary of Costs". In that summary, Mr Dudman took the various fees from solicitors, counsel, experts and for disbursements set out in the totality of the invoices that had been provided to him and set out in relation to each of those persons or items his reduction from those fees on either the ordinary or indemnity basis. 2. In order to understand why I did not uphold the Health District's objection to Mr Dudman's report, it is necessary to set out at some length how he described his approach: "40. In quantifying costs of the proceedings recoverable by Macquarie I reviewed a significant portion of the Material, as noted above, and compared approximately 300 documents with fees charged for their preparation. In my opinion, the portion of Material reviewed by me has enabled me to reasonably extrapolate my general findings to the work performed in the proceedings as a whole, in accordance with the "broad brush" principles appropriate to an assessment of costs on a gross sum basis. 41. I have formed this view as I found no significant inconsistencies in the manner of charging when comparing work product to fees charged for its preparation. 42. Steps taken by me to quantify costs in these proceedings following and in conjunction with my review of the Material are as follows; a. I have used the total costs of the proceedings detailed in the two volumes of invoices provided to me as a reasonable starting point for estimating the quantum recoverable by Macquarie from the Health District. During the period from 4 October 2017 to 17 October 2017 I reviewed and considered every entry within each of the two volumes of invoices referred to at paragraph 24(b) and made determinations as to whether I considered each charge itemised is reasonable given my knowledge of documents retained in the Material, the context provided by surrounding claims and by the proceedings generally, and specific reasons referred to below. b. I marked attendances in each invoice where I considered a specific reduction would be made should the costs of the proceedings be assessed by way of costs assessment. c. I tabulated these costs into a schedule, summarising specific reductions made to each invoice either on the ordinary or indemnity basis. A copy of that schedule is annexed and marked "Annexure E - Summary of Costs Recoverable"). Whilst I have not verified the totals within each invoice, I have reviewed each invoice in detail and have found no errors in additions within the invoices tabulated; d. Specific reductions I have applied, which, in my opinion, are appropriate and which arise from relatively obvious reasons, include: i. The application of an adverse costs order to the costs in question. By way of illustration, Mr Dubler SC's tax invoice numbered 135 and dated 25 September 2014 (listed Annexure E - Summary of Costs Recoverable showing fees charged in the amount of $95,000.00) included fees calculated by me as totalling $79,520.00 which, in my opinion, relate to work the subject of the adverse costs order made by the Court on 26 September 2014 directing Macquarie to pay the Health District's costs of and incidental to Macquarie's Notice of Motion to amend (filed on 21 August 2014), including costs relating to the informal application to amend on 14 August 2014. In relation to these attendances, I consider them recoverable neither on the ordinary basis nor on the indemnity basis; ii. Apparent duplication in charges, such as similar work undertaken by multiple Counsel. By way of illustration, on 5 June 2016 Mr Philips charges time spent "settling observations of Michael Staunton" and Mr Dubler SC charged time on 30 May 2013 "(s)ettling draft brief for Michael Staunton". In relation to this item I determined that time spent on the task by Mr Dubler SC (1.75 hours including time spent liaising with S Moran & Co) should be reduced by 50%; iii. Costs more appropriately classified as "solicitor/client" in nature; iv. Attendances which appear to be excessive in duration for the nature of the work described. By way of illustration, I considered a 2.5 hour attendance by Ms Penelope Moran of S Moran & Co on 9 January 2014 described as "(r)eview and consideration of emails from the previous week; work throughout the afternoon on matters requiring attention, including response re conclaves, email to Coleman and Anderson regarding requests from B&D, review of Batiste report, emails re same". This attendance, whilst relatively detailed, would not typically be allowed in full on costs assessment as the description lacks specificity as to recipients and senders of emails, lengths of documents and the nature of the "work throughout the afternoon". It being a relatively lengthy attendance, I reduced the attendance by 50%; v. Counsel's fees which exceed a daily rate. Fees charged in excess of a daily rate would ordinarily be disallowed on assessment on the ordinary basis without a compelling argument as to why they should be permitted. By way of illustration, I have reduced Mr Dubler SC's fees for 13 August 2014 from 11 hours at $880.00, a total of $9,680.00, to Mr Dubler SC's daily rate of $8,000.00 for an attendance described as "Hearing day before Kunc J, including all necessary reading and preparation"; and, vi. Other miscellaneous reasons, such as attendances performed by a professional at a relatively high hourly rate when they might have just as easily been performed by a less skilled member of staff with a commensurately lower hourly rate. e. Following completion of my analysis and application of specific reductions to each invoice, I then applied "global" reductions to each service provider to reduce the fees charged for each service provider further, where appropriate and in an amount I considered appropriate. I have done this to take into account: i. Some service providers have provided less detail in their invoice descriptions than others. Where less detail has been provided, particularly in relation to solicitors fees, such costs are typically reduced to a greater degree in a costs assessment; ii. An unusual factor in these proceedings is the relatively low involvement by solicitors and the relatively high amount of more "routing" legal work carried out by some Counsel. Consequently, some of the work performed by some barristers in these proceedings reflects work more typically carried out by an instructing solicitor. I consider this work to be more likely to be reduced on assessment when compared with more typical work carried out by barristers and I have applied various global reductions to Counsel's fees to reflect this; iii. Professional costs and Counsel fees incurred as between solicitor and a client are routinely reduced on assessment when a costs assessor has access to a fully itemised Bill of Costs and supporting file material. This can be as a consequence of fees charged in error, excessively or simply inappropriately, but for reasons not apparent within the Bill of Costs itself. f. Some specific reductions applicable to costs when considered recoverable on the ordinary basis would not typically be reduced on assessment on the indemnity basis. By way of illustration, 11 hours charged by Counsel during the course of a day may be allowed in full on the indemnity basis, there being no compelling reason as to why such costs are "unreasonable" on that basis, whereas these fees are likely to be reduced to a daily rate on the ordinary basis, as a more reasonable basis for undertaking such work on an inter partes basis. I have therefore applied different specific reductions to the same costs when considered on the indemnity basis. g. In contrast, other specific reductions applicable to costs when considered on the ordinary basis would also normally be reduced on the indemnity basis. Such costs include costs incurred in relation to which a party has received an adverse costs order. I have applied the same reductions on the indemnity basis as on the ordinary basis in relation to such costs. h. I have applied smaller global reductions to costs recoverable on the indemnity basis, as costs assessed on that basis are allowed except to the extent they have been unreasonably incurred or are of an unreasonable amount. I consider the specific reductions I have identified and applied under paragraph 42(d), above, deal with such reductions appropriately. … 47. A list of invoices retained within the two volumes of invoices referred to at paragraph 24(b) is set out tables in Annexure E - Summary of Costs Recoverable. 48. Alongside each invoice listed sequentially in the tables I have noted the Payee, any invoice reference, if I considered it to be of assistance, the invoice date, the fee charged for each invoice and reductions I have applied for specific reasons, corresponding to markings I have made within each invoice. I have made such reductions on, both, the ordinary basis and the indemnity basis. 49. By way of illustration, annexed and marked "Annexure F - S Moran Inv 1583 - 27 July 2015" is a partially redacted invoice referred to in the table at the sequential number 63 in relation to professional costs and sequential number 392 in relation to disbursements charged within the invoice. 50. Dealing first with the disbursement charges, I have applied reductions to travel expenses I considered excessive, "sundries" I considered lacking in particulars, bulk copying charged at $1.00 per page (excessive) and the general charges for facsimiles, telephone charges, mobiles and postage (lacking particulars). These items are all circled on the invoice, and my additions arrive at an amount of $1,010.69 by way of reduction on the ordinary basis (including allowance of $0.20 per page for bulk copying). In my experience such charges are likely to be allowed in full on the indemnity basis, hence my figure of "$0.00" in the final column. 51. Turning to professional fees reduced in this invoice, a 2 hour attendance is circled on 25 May 2015 and a 3 hour attendance on 2 June 2015, a 4.5 hour attendance on 12 June 2015 and 5.5 hour attendances on 30 June and 24 July 2015 as I considered these attendances excessive in view of the descriptions provided and, in the case of the latter two attendances, work in some respects duplicating that of Counsel. All of these attendances I reduced by 50%. 52. Additionally, a number of other attendances from 5 to 11 June 2015 are marked with a circled "M". These attendances I considered to relate to mediation, the costs of which are ordinarily borne by each party themselves. These attendances I each reduced by 100%. 53. The total of these reductions appear at sequential number 63 in Annexure E - Summary of Costs Recoverable under the column headed "Reduction - Ordinary Basis", whereas a nil amount appears under the column headed "Reduction - Indemnity Basis" as these costs were incurred after 29 July 2014 and, in my opinion, would not be considered unreasonable on the indemnity basis. 54. Following completion of the task of reducing this invoice for specific reasons, as outline above, I have applied a further global reduction to the remaining balance, for the reasons outlined in paragraph 42(e). in the case of S Moran & Co I applied further global reductions of 5% on, both, the ordinary and the indemnity bases." 1. It is uncontroversial that in order to be admissible opinion evidence, an expert must expose his or her reasoning. In the absence of Mr Dudman's reasoning in relation to each item being apparent, the Health District argued that it was not possible for it to test Mr Dudman's conclusions in cross-examination or otherwise. Mr Williams SC submitted that, with the exception of the one specific invoice provided by way of example in Mr Dudman's report, Mr Dudman had not exposed his reasoning in relation to the rest of what was contained in Annexure E to Mr Dudman's report. Mr Williams SC accepted that in terms of admissibility, rather than weight, that difficulty would have been overcome had Mr Dudman attached to his report all of the invoices with his markings. 2. Mr Williams SC further submitted that once Mr Dudman's report was excluded, the appropriate course was for the Court to dispose of Macquarie's application by acceding to the Health District's submission to the effect that rather than a gross sum costs order, the Court should take account of everything that had occurred (including the adverse costs issue) by ordering that the Health District pay a percentage (he submitted 80%) of Macquarie's costs of the Damages Enquiry. 3. Mr Hyde, for Macquarie, submitted that Mr Dudman's report did sufficiently expose his reasoning. The fundamental submission was that in circumstances where the Court was not engaging in an assessment of costs, it was sufficient for an expert to explain what he or she had done, give a specific example in relation to one invoice, and then express an opinion which is said to be based on the application of that same methodology to all the other invoices. It was submitted that if the Health District's approach was correct, evidence on applications of this kind from costs experts would have to be nothing less than evidence of a full assessment, which was exactly what the gross sum costs order procedure was intended to avoid. 4. Section 79(1) of the EA provides: "(1) If a person has specialised knowledge based on the person's training, study or experience, the opinion rule does not apply to evidence of an opinion of that person that is wholly or substantially based on that knowledge." 1. To be admissible under s 79 of the EA, it is essential for an expert to expose his or her reasoning so that the Court can be satisfied that the expert's opinion is wholly or substantially based on his or her specialist knowledge. I admitted Mr Dudman's report because I was satisfied that the sections which I have set out in paragraph [146] above, when read with Schedule E, demonstrated that his opinion as to Macquarie's likely recoverable costs on assessment was based wholly or substantially on his specialist knowledge. 2. In expressing this conclusion, I respectfully apply what was said by the High Court in Dasreef Pty Ltd v Hawchar [2011] HCA 21; (2011) 243 CLR 588, in which the plurality said (emphasis added): "37. It should be unnecessary, but it is nonetheless important, to emphasise that what was said by Gleeson CJ in HG (and later by Heydon JA in the Court of Appeal in Makita (Australia) Pty Ltd v Sprowles) is to be read with one basic proposition at the forefront of consideration. The admissibility of opinion evidence is to be determined by application of the requirements of the Evidence Act rather than by any attempt to parse and analyse particular statements in decided cases divorced from the context in which those statements were made. Accepting that to be so, it remains useful to record that it is ordinarily the case, as Heydon JA said in Makita , that "the expert's evidence must explain how the field of 'specialised knowledge' in which the witness is expert by reason of 'training, study or experience', and on which the opinion is 'wholly or substantially based', applies to the facts assumed or observed so as to produce the opinion propounded". The way in which s 79(1) is drafted necessarily makes the description of these requirements very long. But that is not to say that the requirements cannot be met in many, perhaps most, cases very quickly and easily. That a specialist medical practitioner expressing a diagnostic opinion in his or her relevant field of specialisation is applying "specialised knowledge" based on his or her "training, study or experience", being an opinion "wholly or substantially based" on that "specialised knowledge", will require little explicit articulation or amplification once the witness has described his or her qualifications and experience, and has identified the subject matter about which the opinion is proffered." 1. Writing separately, Heydon J (whose opinion, as Heydon JA in the New South Wales Court of Appeal in Makita (Australia) Pty Ltd v Sprowles [2001] NSWCA 305; (2001) 52 NSWLR 705, is foundational in this area) said (emphasis added): "Section 79 and the statement of reasoning rule 128 In relation to s 79 tenders, need the expert's reasoning be disclosed? The appellant submitted that it does, and stressed it as the crucial thing adverse to admissibility in this case. In contrast, the respondent directed rather less attention to this rule than to the first two. 129 Authority. There is ample authority supporting the view that it is not enough for evidence tendered under s 79 merely to state the expert's qualifications in a field of expertise and the conclusion. It is necessary to avoid the insidious risk that the trier of fact will simply accept the opinion without careful evaluation of the steps by which it was reached, and hence the evidence must state the criteria necessary to enable the trier of fact to evaluate that the expert's conclusions are valid . The evidence must reveal the expert's reasoning – how the expert used expertise to reach the opinion stated . It is not enough for evidence tendered under s 79 merely to state the expert's qualifications in a field of expertise and the conclusion. Admissibility does not depend on the reasoning being accepted as correct; that is a matter for consideration at the end of the trial. But admissibility does depend on the reasoning being stated. 130. Principle. In principle, that line of authority is correct. There is nothing in s 79 which suggests that the corresponding common law rule has been abolished. And the language of s 79 positively supports its continuance: without a statement of the expert's reasoning it is not possible to say whether the opinion is wholly or substantially based on the specialist knowledge claimed." 1. The passages which I have reproduced in paragraph [146] above clearly set out Mr Dudman's approach and reasoning, gave an example of how that was applied to a particular invoice and then affirmed that he had taken the same approach to all the other invoices, the results of which he summarised in Annexure E. This made it clear that his ultimate opinion was wholly or substantially based on his specialist knowledge. 2. While I was therefore of the view that Mr Dudman's report was admissible, that says nothing about its weight in circumstances where his individual workings in relation to each invoice were not available. However, in practical terms this issue was overcome, as was any possible suggestion of prejudice under s 135 of the EA, by the simple step of Macquarie offering to make Mr Dudman's workings available to Ms Vine-Hall. In any event, I did not think there was any prejudice for the purposes of s 135 because the Health District was not foreclosed from criticising Mr Dudman's report as a matter of weight. 3. Mr Dudman's workings were made available to Ms Vine-Hall and they spent the rest of the day in conclave while the Court heard other legal argument. The next day they returned to inform me as to how much time would be required both to look at Mr Dudman's workings and, more importantly, explore the extent to which agreement could be reached about deductions that should be made to reflect the adverse costs issue. I made directions to give effect to that process, which resulted in a joint report (to which I will return below) dated 13 December 2017, which was the subject of further argument and concurrent evidence at the hearing on 18 December 2017. Costs – should a gross sum costs order be made? 1. The Court has the power to make a gross sum costs order pursuant to s 98(4) of the Civil Procedure Act 2005 (NSW) ("CPA"): "98 COURTS POWERS AS TO COSTS (1) Subject to rules of court and to this or any other Act: (a) costs are in the discretion of the court, and (b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and (c) the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis. (2) Subject to rules of court and to this or any other Act, a party to proceedings may not recover costs from any other party otherwise than pursuant to an order of the court. (3) An order as to costs may be made by the court at any stage of the proceedings or after the conclusion of the proceedings. (4) In particular, at any time before costs are referred for assessment, the court may make an order to the effect that the party to whom costs are to be paid is to be entitled to: (a) costs up to, or from, a specified stage of the proceedings, or (b) a specified proportion of the assessed costs, or (c) a specified gross sum instead of assessed costs, or (d) such proportion of the assessed costs as does not exceed a specified amount. (5) The powers of the court under this section apply in relation to a married woman, whether as party, tutor, relator or otherwise, and this section has effect in addition to, and despite anything in, the Married Persons (Equality of Status) Act 1996 . (6) In this section, "costs" include: (a) the costs of the administration of any estate or trust, and (b) in the case of an appeal to the court, the costs of the proceedings giving rise to the appeal, and (c) in the case of proceedings transferred or removed into the court, the costs of the proceedings before they were transferred or removed." 1. There was no dispute that the relevant principles appear in the judgment of Beazley JA in Hamod v State of New South Wales [2011] NSWCA 375 ("Hamod") (emphases added): "813. I have already set out the relevant provisions of s 98. The discretion thereby conferred upon the court is not confined and may be exercised whenever the circumstances warrant its exercise, having regard to the scope and purpose of the provision: Harrison & Anor v Schipp [2002] NSWCA 213; 54 NSWLR 738 per Giles JA at [21]-[22]. In Harrison v Schipp, Giles JA considered that the discretion in s 98(4) may be exercised where the assessment of costs would be protracted and expensive and, in particular, if it appeared that a party obliged to pay the costs would not be able to meet a liability of the order likely to result from the assessment. However, his Honour stated, at [22]: "The power should only be exercised when the Court considers that it can do so fairly between the parties, and that includes sufficient confidence in arriving at an appropriate sum on the materials available." 814 See also Wentworth v Wentworth (Court of Appeal, 21 February 1996, unreported). The courts have typically applied a discount in assessing costs on a gross sum basis: Ritchie's Uniform Civil Procedure NSW , LexisNexis, Sydney, 2005 to date, " Civil Procedure Act ", at [s 98.65]; Charlick Trading Pty Ltd v Australian National Railways Commission [2001] FCA 629; Sony Entertainment (Aust) Ltd v Smith (2005) 215 ALR 788; Idoport Pty Ltd v National Australia Bank Ltd; Lorenzato v Lorenzato & Anor (No 2) [ 2011] NSWSC 790 per Black J. 815 In Beach Petroleum NL v Johnson (No 2) (1995) 57 FCR 119; 135 ALR 160, von Doussa J noted that the specified gross sum costs procedure was particularly useful in complex cases, that the power must be exercised judicially and only after giving the parties an adequate opportunity to make submissions, and that before exercising the power the court should be confident that the approach taken to estimate costs is fair, logical and reasonable. 816 The terms of s 98(4), together with the more general considerations reflected in the Civil Procedure Act, ss 56(1), 57(1)(d) and 60, suggest the factors that merit particular consideration include: the relative responsibility of the parties for the costs incurred (for example, Harrison v Schipp); the degree of any disproportion between the issue litigated and the costs claimed; the complexity of proceedings in relation to their cost; and the capacity of the unsuccessful party to satisfy any costs liability: Ritchie's Uniform Civil Procedure NSW at [s 98.45]. 817 The exercise of the power conferred by s 98(4) is particularly appropriate where the costs have been incurred in lengthy or complex cases and it is desirable to avoid the expense, delay and aggravation likely to be involved in contested costs assessment. This may arise either from the likely length and complexity of the assessment process: Beach Petroleum NL v Johnson (No 2) at 120; Charlick Trading Pty Ltd v Australian National Railways Commission; Australasian Performing Rights Association Ltd v Marlin [1999] FCA 1006; or from the likelihood that the additional costs of formal assessment would disadvantage the successful party because of the likely inability of the unsuccessful party to discharge the costs liability in any event: Harrison v Schipp; Sony Entertainment (Aust) Ltd v Smith (2005) 215 ALR 788 at [90], [194]-[195]; Hadid v Lenfest Communications Inc [2000] FCA 628. 818 The power may also be exercised where a party's conduct has unnecessarily contributed to the costs of the proceedings, especially where the costs incurred have been disproportionate to the result of the proceedings: Leary v Leary [1987] 1 WLR 72; [1987] 1 All ER 261; Sony Entertainment (Aust) Ltd v Smith; Microsoft v Jiang (2003) 58 IPR 445; [2003] FCA 101; Ritchie's Uniform Civil Procedure NSW at [s 98.60]). 819 The assessment of any lump sum to be awarded must represent a review of the successful party's costs by reference to the pleadings and complexity of the issues raised on the pleadings; the interlocutory processes; the preparation for final hearing and the final hearing: Smoothpool v Pickering [2001] SASC 131. In the exercise of its discretion the court is not required to undertake a detailed examination of the kind that would be appropriate to taxation or formal costs assessment: Harrison v Schipp at 743; Hadid v Lenfest Communications Inc at [35]; Auspine Ltd v Australian Newsprint Mills Ltd (1999) 93 FCR 1 at 5; [1999] FCA 673. 820 The costs ordered should be based on an informed assessment of the actual costs having regard to the information before the court (for example, by relying on costs estimates or bills): Beach Petroleum NL v Johnson (No 2) ; Leary v Leary ; Harrison v Schipp at 743; Sparnon v Apand Pty Ltd (FCA, 4 March 1998, unreported) . The approach taken to estimate the costs to be ordered must be logical, fair and reasonable: Beach Petroleum NL v Johnson at 164-165; Hadid v Lenfest Communications Inc at [27]; Harrison v Schipp at 743. This may involve an impressionistic discount of the costs actually incurred or estimated, in order to take into account the contingencies that would be relevant in any formal costs assessment: Leary v Leary at WLR 76 per Purchas LJ; Beach Petroleum NL v Johnson (No 2) at 123; Auspine Ltd v Australian Newsprint Mills Ltd at 164-165." 1. If I may respectfully say so, the parties correctly apprehended that this was a case where, if at all possible in a principled application of the power, it was in the interest of the parties and the public interest that Macquarie's costs of the Damages Enquiry be dealt with by a gross sum costs order. There was uncontradicted evidence from Mr Dudman that if the costs of the Damages Enquiry were to be assessed by way of a costs assessment, the parties would jointly incur expenses of $870,000 and the process would take 56 weeks. 2. To adopt the language of Giles JA as quoted by Beazley JA above, while this is not a case where there is a suggestion that the Health District would not be able to meet Macquarie's costs as assessed, there can be absolutely no doubt, given the history of this matter and without any criticism, that any costs assessment would be protracted and expensive. With no disrespect to Mr Dudman, just as every other estimate of time and costs in this matter has proved to be a significant underestimate, I am certain that any costs assessment would likely far exceed Mr Dudman's estimate. It would become another piece of satellite litigation, which the Court should strive to avoid: South West Helicopters Pty Ltd v Stephenson (No 2) [2018] NSWCA 99 ("Helicopters") at [53]. 3. The neuralgic question in this case was how the adverse costs issue could be dealt with. As I will set out in greater detail below, I am satisfied on the basis of the joint report of the costs experts, taken together with the other evidence provided by them, that the Court is in a position to produce an estimate of costs which is "fair, logical and reasonable" and is able to undertake "an informed assessment of the actual costs having regard to the information before the Court" (see paragraphs [813] and [820] of Hamod set out in paragraph [158] above). Costs – three preliminary issues 1. Macquarie presented its primary application as being for a gross sum costs order in relation to the Damages Enquiry, the Guarantee and Indemnity Proceedings and the L&E Proceedings. Macquarie submitted that only if the Court was not disposed to make a gross sum costs order in relation to those matters should the Court then proceed to determine Macquarie's applications as follows: 1. Macquarie should have its costs of the Damages Enquiry on the indemnity basis from 29 July 2014, being the date of a letter (the "Calderbank Offer") in which Macquarie offered to settle the proceedings for a payment of $56 million in accordance with the principles in Calderbank v Calderbank [1975] 3 All ER 333; 2. Macquarie's application for interest on costs; and 3. Macquarie's application for its costs of the Guarantee and Indemnity Proceedings on the indemnity basis. 1. It was less clear from Macquarie's submissions whether, in any event, the Court should proceed to determine its application for a special costs order in relation to the Guarantee and Indemnity Proceedings. Nothing turns on this because, while I have determined that application in favour of Macquarie, I am unable to take that outcome into consideration for the purposes of the gross sum costs order because Macquarie has not provided any evidence on which the Court can conclude how much more Macquarie would receive on assessment of the Guarantee and Indemnity Proceedings on the indemnity basis rather than the ordinary basis. 2. Notwithstanding the approach set out in paragraph [162] above, Macquarie also submitted, with a view to increasing the amount of any gross sum costs order, that the Court should take into account the likelihood of the indemnity costs orders sought by Macquarie being successful and the likelihood of Macquarie obtaining an order for interest on the costs. For reasons which I will now set out, I do not accept that "the likelihood" of those matters should be taken into account in determining the amount of any gross sum costs order. 3. As a general proposition, I do not think either the likelihood of an indemnity costs order or an order for interest on costs falls within what Beazley JA had in mind in paragraph [820] of Hamod where she said "This may involve an impressionistic discount of the costs actually incurred or estimated, in order to take into account the contingencies that would be relevant in any formal costs assessment". There was some suggestion in Macquarie's submissions that the likelihood of the matters to which it referred would be such "contingencies". However, both an order for indemnity costs and an order for interest on costs occur outside the costs assessment process and, as such, I do not accept that they are "contingencies that will be relevant in any formal costs assessment" (emphasis added). 4. In relation to the likelihood of an order for indemnity costs, while recognising the breadth of matters that could logically be considered in the exercise of the Court's discretion, I would not, as a matter of discretion, take into account the likelihood of an indemnity costs order. A party would either have to make the application or not make the application for indemnity costs. If it was to receive its costs on an indemnity basis, that would then be reflected in a higher gross sum costs order in the absence of any particular countervailing factors. 5. Another way of making the same point is that determining whether a party is entitled to indemnity costs is a logically anterior step to determining the amount of any gross sum costs order. While not a completely definitive answer, s 98 of the CPA (see paragraph [157] above) reflects what might be said to be a logical order of events. Section 98(1)(c) refers to the Court's powers to award costs on the ordinary basis or the indemnity basis. The power to make a gross sum costs order comes later in s 98(4)(c). 6. As the case has ultimately turned out, the question of likelihood of special costs orders is academic. For reasons set out below, Macquarie is not entitled to a special costs order in relation to its costs for the Damages Enquiry. While I have taken the opposite view in relation to Macquarie's costs of the Guarantee and Indemnity Proceedings, there is no evidence before the Court which enables me to determine by how much more Macquarie's costs might be increased because of an entitlement to receive its costs of those proceedings on an indemnity basis as opposed to the ordinary basis. 7. Turning to the relevance of the likelihood of an order for interest on costs, any such likelihood is an irrelevant consideration that ought not be taken into account in exercising the discretion to order a gross sum costs order. Macquarie's submissions recognised that an order for interest on costs is at the very least impracticable if a gross sum costs order is made. Absent some process of dissecting a gross sum costs order (which Macquarie did not invite and the Court could not, in any event, have done), once a gross sum costs order is made it is impossible to identify the starting date from which interest should run for particular costs payments. 8. The more fundamental difficulty in the way of taking the likelihood of an order for interest for costs into account is that the Court's power under s 98(4)(c) of the CPA is to order costs to be paid as a specified gross sum. The subject matter of the power is costs. In my respectful view, interest on costs is not costs. So much is the case as a matter of ordinary English. 9. That conclusion is also consistent with the language of s 101(4) of the CPA as the parties agreed it should apply in this case (being the form of the statute from 1 June 2005 to 23 November 2015) that interest is "to be paid on any amount payable under an order for the payment of costs". Costs and the interest on costs are two different things and are ordered under two different sections of the CPA. Accordingly, as a matter of law the possibility of an order for interest on costs is not a relevant consideration to the making of a costs order, including a gross sum costs order. 10. Given that conclusion, and the fact that the Court is satisfied that a gross sum costs order should be made, it is unnecessary for me to determine Macquarie's standalone application for interest on costs and I decline to do so. I should note for completeness that if I had gone on to consider that application, the apparent conflict to which I was referred in the relevant Court of Appeal authorities has now been resolved in Helicopters at [39] - [48]. Costs – preliminary issue 1: the Calderbank Offer 1. By letter dated 29 July 2014 Macquarie's solicitors sent the Calderbank Offer to the Health District's then solicitors: "WITHOUT PREJUDICE SAVE AS TO COSTS Dear Sirs RE: MACQUARIE INTERNATIONAL HEALTH CLINIC PTY LIMITED v SYDNEY LOCAL HEALTH DISTRICT - DAMAGES INQUIRY SUPREME COURT PROCEEDINGS 2000/34949 SYDNEY LOCAL HEALTH DISTRICT v MACQUARIE HEALTH CORPORATION LIMITED & MACQUARIE INTERNATIONAL HEALTH CLINIC PTY LIMITED - GUARANTEE AND INDEMNITY PROCEEDINGS SUPREME COURT PROCEEDINGS 2010/90340 We refer to the above proceedings. We are instructed to make an offer to resolve the above proceedings on the following terms: 1. Sydney Local Health District (SLHD) pay Macquarie International Health Clinic Pty Ltd (MIHC) the sum of $56,000,000.00 (fifty-six million dollars), such amount to be paid within 28 days of acceptance of the offer; 2. MIHC's claim against SLHD in the damages inquiry in Supreme Court Proceedings No. 2000/34949 (as outlined in the Plaintiffs Second Further Amended Points of Claim filed 19 February 2014) be dismissed; 3. SLHD's claim against MIHC and Macquarie Health Corporation Limited in Supreme Court Proceedings No. 2010/90340 be dismissed; 4. In Proceedings No. 2000/34949, there be no order as to costs (to the intent and effect that each party to those proceedings bear their own costs); 5. In Proceedings No. 2010/90340, there be no order as to costs (to the intent and effect that each party to those proceedings bear their own COSTS); 6. SLHD will not seek to enforce Order 4(2) made by the Court of Appeal on 13 December 2010; 7. MIHC will not seek to enforce the costs order against SLHD made by the Court of Appeal on 28 June 2011; 8. Any costs orders made in Proceedings No. 2000/34949 and 2010/90340, other than as set out above, be vacated; 9. MIHC be given possession of Lot 11 in DP809663 (the "car park site") and Lot 12 in DP809663 (the "hospital site") on and from the date which is three months after the date of receipt by MIHC of the sum payable pursuant to numbered paragraph 1 above; 10. Other than as set out above, the orders made by the Court of Appeal on 13 December 2010 shall remain unaffected. For the avoidance of doubt, MIHC's leasehold interests in the car park site and hospital site are to remain on foot as ordered by the Court of Appeal on 13 December 2010. Our client's offer is open for acceptance until 5:00 PM on Friday, 29 August 2014 at which time it should be considered to be withdrawn. If your client does not accept the above offer and our clients achieve the same or a better result at the hearing of the proceedings, our clients will rely on this letter for the purposes of its submissions in respect of the appropriate order for the costs of the proceedings, in accordance with the principles in Calderbank v Calderbank and subsequent authority in Australia. Yours faithfully S MORAN & CO" 1. The Health District did not accept the Calderbank Offer. Macquarie submitted that, by virtue of that non-acceptance, the Court should exercise its discretion to order that Macquarie's costs of the Damages Enquiry should be assessed on the indemnity basis from the date of the Calderbank Offer. 2. The debate in relation to the Calderbank Offer was conducted against the background of two agreed matters. 3. First, at the time of the argument (and, indeed, as at the date of this judgment) the Court had not yet entered a final judgment amount in favour of Macquarie. However, there was and is no doubt that the amount that will be entered will be greater than $56 million. In her affidavit in support of the Costs Motion, Macquarie's solicitor deposed that she expected an order for pre-tax damages in excess of $100 million to be made in favour of Macquarie (presumably inclusive of interest). The debate before me was conducted against the background that the bottom of the range (as at October 2017) for Macquarie's damages in relation to the Hospital Site was Mr Stone's figure of $52.563 million and that Mr Milou's calculation of the damages in relation to the Car Park Site presented to the Court at the hearing on 14 February 2017 had alternative figures of approximately $30 and $31 million. For the purposes of the costs argument it was irrelevant that Mr Milou's figures would have to undergo some further alterations having regard to subsequent decisions that the Court made. No one suggested that, for the purposes of the argument in relation to the Calderbank Offer, a damages figure of approximately $80 million (inclusive of interest) was inappropriate. 4. Second, the parties were in agreement that the exercise of the Court's jurisdiction to award indemnity costs turned on whether Macquarie could satisfy the Court that it was unreasonable for the Health District not to have accepted the Calderbank Offer. 5. Macquarie referred the Court to, and I respectfully adopt, the summary of principles in relation to such offers in Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 per Basten JA (with whom McColl and Campbell JA agreed): "8. The willingness of the courts to take account of a "without prejudice" offer of settlement in disposing of costs was originally tempered by the view that the practice should only be adopted where the alternative of a payment into court was unavailable: Cutts v Head [1984] Ch 290. The practice was, however, adopted in this jurisdiction without the restriction: Messiter v Hutchinson (1987) 10 NSWLR 525 (Rogers J); SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 at [45] (Giles JA). The expansion of formal rules providing for offers of compromise has not diminished the willingness of the courts to act upon informal offers, rather the contrary. However, there is no presumption that an offeree who does not accept an offer and does not obtain a judgment more favourable than the offer will necessarily pay indemnity costs from the date of the offer: Leichhardt Municipal Council v Green [2004] NSWCA 341 at [19] (Santow JA, Stein AJA agreeing); Jones v Bradley (No 2) [2003] NSWCA 258 at [6]-[9]; Ambulance Service of New South Wales v Worley (No 2) [2006] NSWCA 236; 67 NSWLR 719 at [18]. The approach frequently adopted in this jurisdiction has been to ask two questions, namely whether – (a) there was a genuine offer of compromise, and (b) it was unreasonable for the offeree not to accept it. Genuine offer of compromise 9 There is authority for the proposition that both an offer of compromise under the rules and an informal offer must involve "a real and genuine element of compromise": The Anderson Group Pty Ltd v Tynan Motors Pty Ltd (No 2) [2006] NSWCA 120; 67 NSWLR 706 at [8]. While this terminology is not entirely apposite, it has been described as "serviceable": Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368 at [25] (Spigelman CJ, Beazley and McColl JJA). To characterise an offer by reference to epithets such as "real" or "genuine" adds little to the requirement of compromise, and may imply (wrongly) that the appropriate inquiry is as to the subjective intentions of the offeror: Hancock v Arnold; Dodd v Arnold (No 2) [2009] NSWCA 19 at [23] (Ipp, McColl and Basten JJA); Evans of Robb Evans & Associates v European Bank Ltd (No 2) [2009] NSWCA 170 at [17]-[18]. As explained by Giles J in Hobartville Stud Pty Ltd v Union Insurance Co Ltd (1991) 25 NSWLR 358 at 368: "Compromise connotes that a party gives something away. A plaintiff with a strong case, or a plaintiff with a firm belief in the strength of its case, is perfectly entitled to discount its claim by only a dollar, but it does not in any real sense give anything away, and I do not think that it can claim to have placed itself in a more favourable position in relation to costs unless it does so." Unreasonable refusal 10 Most cases will turn on the second element, namely whether there has been an unreasonable refusal by the offeree. This in turn involves a number of considerations. (a) timing 11 It is not in doubt that the response of the offeree must be assessed at the time it was made, and not with the benefit of hindsight resulting from a known outcome, recorded in a judgment: Regency Media at [33]. However, that factor should not entail a detailed investigation into the state of preparation or knowledge of the offeree as at the date of the offer. The expense and use of resources which settlement is intended to avoid include those involved in the assessment and preparation of a case. (b) relevant factors 12 In Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298; 13 VR 435 the Court of Appeal (Warren CJ, Maxwell P and Harper AJA) identified the factors relevant to determining whether the rejection of an offer was unreasonable as including the following: "(a) the stage of the proceeding at which the offer was received; (b) the time allowed to the offeree to consider the offer; (c) the extent of the compromise offered; (d) the offeree's prospects of success, assessed as at the date of the offer; (e) the clarity with which the terms of the offer were expressed; (f) whether the offer foreshadowed an application for indemnity costs in the event of the offeree's rejecting it." 13 The Court rejected the suggestion that an offer need set out with specificity the bases upon which it was said that the offeree should accept the compromise proffered. The relevance of such material would depend upon the extent to which the issues had already been canvassed, for example by way of pre-litigation correspondence, and whether there were circumstances with which the offeror might reasonably expect the offeree not to be conversant. In some circumstances greater leniency may be accorded to a defendant offeree at an early stage of proceedings, than to a plaintiff offeree. 14 The extent of the compromise offered will always be a relevant factor in determining the reasonableness of the offeree's rejection. In Robb Evans & Associates an offer in compliance with the UCPR, r 20.26, involved an effective amount (after deducting a sum as to which there was no dispute) of less than $2,000 to settle a claim in excess of $800,000. The Court stated: "[20] ... If the offer were based on a legal assessment of the likelihood of success in an amount in excess of $800,000, the claim should have been struck out as frivolous and vexatious. It ultimately failed in this Court, but could not, on any view, be so categorized. It is implausible that the appellant so categorized it in quantifying his offer. [21] If the appellant had carried out a commercial evaluation, rather than a pure legal assessment of the likelihood of success, he would undoubtedly have concluded that, even if ultimately successful, he would be unlikely to recover many thousands of dollars of costs incurred if the litigation proceeded. A commercially based offer would have taken that matter into account. This offer clearly did not. ... [23] ... The amount offered, beyond that amount which was not in dispute, is properly characterized as trivial or contemptuous. It does not engage the costs consequences provided by r 42.15." 15 A similar approach was applied in Regency Media, where an offer of $10,000 was made in response to a claim of approximately $600,000: at [16]. The Court noted at [32]: "If a derisory offer, of the kind made in these proceedings, could result in an order for indemnity costs, then it is likely that many, perhaps most, contract interpretation disputes would result in an indemnity costs order, if the formality of an offer in accordance with the rules had been made at an early stage. If the appellant were to succeed in the present case, it is quite likely that such an offer would accompany most statements of claim as a matter of commercial practice. The purpose of the special order - to encourage settlement - would no longer be served. An order for indemnity costs could, in our opinion, become the normal order in many commercial disputes." (c) onus of proof 16 The general rule is that costs payable under an order of the court are to be assessed on the ordinary basis: UCPR, r 42.2. The court may otherwise order, but the burden of persuading the court will lie with the offeror: Black v Lipovac [1998] FCA 699; 217 ALR 386 at [217] (Miles, Heerey and Madgwick JJ), which has been regularly followed in the Full Court - see, eg, CGU Insurance Limited v Corrections Corporation of Australia Staff Superannuation Pty Ltd [2008] FCAFC 173 at [75] (Moore, Finn and Jessup JJ). Again, however, the reference to onus of proof is not intended to suggest that an application for indemnity costs be turned into a mini-trial. Generally, such applications are dealt with on the papers, a practice which should be maintained. It is nevertheless correct, as a matter of principle, to say that it is the offeror which must persuade the court that the rejection of the offer was, in the circumstances at the relevant time, unreasonable." 1. The Health District did not suggest that the Calderbank Offer was not a genuine offer. The parties joined issue about whether it was unreasonable for the Health District not to have accepted the Calderbank Offer. 2. Macquarie submitted that it was unreasonable for the Health District to have rejected the Calderbank Offer because: 1. The extent of the compromise was significant, particularly in circumstances where it was made in relation to a Damages Enquiry. Liability was no longer an issue and it was obvious that Macquarie enjoyed reasonably good prospects of success to obtain substantial damages; 2. At the time the Calderbank Offer was made, the Damages Enquiry was well advanced and the Health District had Macquarie's lay and expert evidence; 3. It should have been obvious to the Health District at the time of the Calderbank Offer that it was facing a very large and complex case; 4. The Calderbank Offer was expressed clearly; 5. Twenty eight days was adequate time for the Health District properly to consider the Calderbank Offer; and 6. The Calderbank Offer foreshadowed the application for indemnity costs. 1. The Health District submitted that, notwithstanding that Macquarie had done better in the final result than the amount offered in the Calderbank Offer, the Court should not award indemnity costs for these reasons: 1. Except for an amount of approximately $1.3 million, the damages which would be awarded to Macquarie comprised mesne profits in respect of the Car Park Site and the Hospital Site; 2. As at the date of the Calderbank Offer, Macquarie's case was confined to a claim for mesne profits in respect of the Car Park alone and not on the basis on which it finally succeeded; 3. It was not until 26 September 2014 (almost one month after the expiry of the Calderbank Offer) that Macquarie was granted leave in the Second Amendment Application to amend its pleading to seek mesne profits in respect of the both the Car Park Site and the Hospital Site on the basis which the Court ultimately accepted in the Principal Judgment; 4. As part of the Second Amendment Application, Macquarie abandoned its loss of profits claim in relation to the Hospital Site; 5. In the Calderbank Offer, Macquarie offered no explanation as to how the amount of $56 million was calculated; and 6. In the Calderbank Offer, Macquarie gave no reasons as to why the Calderbank Offer should be accepted. 1. The Court accepts the Health District's submissions as to why indemnity costs should not be ordered, notwithstanding the Calderbank Offer. The Court's acceptance of those arguments may be reduced to two, independent reasons. However, the force of each of those reasons depends upon understanding the case with which the Health District was confronted as at the date of the Calderbank Offer. 2. At that time, Macquarie's claim was for loss of profits or mesne profits in relation to the Car Park Site, and for loss of profits in relation to the Hospital Site. Macquarie's claims for loss of profits were met with the adamantine demurrer that loss of profits was not a head of damages known to the law of trespass. Having regard to the authorities, many of which were ultimately traversed in the Principal Judgment, the Health District had every reason to think that its legal answer to the loss of profits case was very strong. I would go so far as to presume that Macquarie recognised the strength of that demurrer in making the Second Amendment Application. 3. It is a well-recognised principle that the Court will not award indemnity costs for non-acceptance of a settlement offer if the successful party's case changed significantly between the date of the offer and the case on which the party ultimately succeeds: see, for example, South Eastern Sydney Area Health Service v King [2006] NSWCA 2 at [85] per Hunt AJA (with whom Mason P and McColl JA agreed). 4. On 26 September 2014 (a month or so after the Calderbank Offer expired), the Court gave leave to Macquarie to make significant amendments to its case pursuant to the Second Amendment Application. Those amendments included what I referred to then (and will again now) as the "mesne profits amendment", which I described in my judgment giving reasons for allowing the various amendments (Macquarie International Health Clinic Pty Ltd v Sydney Local Health District; Sydney Local Health District v Macquarie Health Corporation Ltd (No 6) [2014] NSWSC 1549): "74. The second category of amendment (the "mesne profits amendment") related to both the carpark and the private hospital site. It involved the abandonment of the loss of profits case in relation to both, the introduction of a claim for what was said to be mesne profits in relation to the hospital site and an articulation of how those mesne profits were to be calculated which was, obviously enough, new in relation to the hospital site but also involved an amendment as to how it was said mesne profits were to be calculated in relation to the carpark. 75 The critical amendment to the claim in relation to the carpark was: 9. [not used] In the premises pleaded in paragraph 5 to 8 above, the plaintiff's estimate of its claim for damages (or the lost opportunity to earn profits) for being kept out of the Car Park to the estimated date of completion of stage 2 of the Car Park is as follows: lost profits for the period from 18 March 2000 to the date of completion of stage 2 of the Car Park in June 2014; the Car Park Approval Costs. Particulars The plaintiff relies upon the expert report of Mr Milou dated 31 July 2013 and the expert report of Mr Barker dated 2 August 2013. 9A. In the alternative to paragraph 9(a),Tthe plaintiff claims damages for trespass, being a claim for mesne profits measured by the difference between the market rent for the Car Park and the rent and outgoings payable under the Car Park Sub-Lease over the period 17 March 2000 to the date possession is restored, or alternatively, measured by applying a reasonable rate of return per annum on the market value of the Car Park Lease and/or Car Park Sub-Lease over the period 17 March 2000 to the date possession is restored or alternatively, measured in the manner pleaded at paragraph 2(2) (c) (ii) of the Reply. Particulars The plaintiff relies upon the expert reports of Mr Milou dated 31 July 2013, 10 December 2013, 29 April 2014, 5 May 2014, two (one Joint Report and one Final Assessment report) dated 27 June 2014 a further valuation report to be served and the matters pleaded at paragraph 2(2) (c) (ii) of the Reply. 76 The critical amendment in relation to the claim for the hospital site was: 12. The plaintiff claims damages for trespass, being a claim for mesne profits measured by applying a reasonable rate of return per annum on the market value of the Hospital Site over the period 17 March 2000 to the date possession is restored, or alternatively, measured by the market rent for the Hospital Site over the same period or alternatively, measured in the manner pleaded at paragraph 2(2) (c) (ii) of the Reply. In the premises, the plaintiff is entitled to damages for lost profits from the operation of the Private Hospital, or the lost opportunity to earn profits on the operation of the Private Hospital, from 1 July 2004 up until the date that the plaintiff is restored to possession, which is yet to occur, and the Private Hospital is constructed and open in the future, which is estimated to take approximately 3 years to construct after approvals. Particulars To be supplied by way of an expert report or joint expert report from Mr Coleman and/or Mr Lonergan and a separate expert report from Mr Lister and the Plaintiff relies upon the matters pleaded at paragraph 2(2) (c) (ii) of the Reply." 1. From a juridical point of view, the mesne profits amendment was a very significant change to Macquarie's case. Two short examples will suffice. First, at least at the level of principle, it deprived the Health District of a strongly arguable demurrer (see paragraph [183] above). Second, it gave Macquarie an arguable basis (which the Court ultimately upheld) for contending that all of the negative counterfactuals upon which the Health District sought to rely (and which would have been open to it to meet Macquarie's loss of profits case) were not available as a matter of law. 2. The Court is satisfied that, notwithstanding that much of the evidence which the Court heard before the Second Amendment Application remained relevant, the case on which Macquarie succeeded was materially different to the case which Macquarie was propounding at the time of the Calderbank Offer. Putting it another way, while costs may follow the event, the event on which Macquarie succeeded was not the event confronting the Health District in July 2014. In accordance with the authority to which I have referred in paragraph [184] above and in the exercise of the Court's discretion, Macquarie's change in case disentitles it from what otherwise might have been the exercise of the Court's discretion to award indemnity costs in its favour. 3. Even if Macquarie's case had not changed, the Court would have refused its application for indemnity costs in relation to the Calderbank Offer for a second reason, being that the Calderbank Offer made no attempt to explain how the $56 million settlement figure had been calculated. The importance of the presence or absence of such an explanation will vary from case to case. In some cases it may be unnecessary to give any explanation, for example where the figure may be tied to some obvious piece of information well known to both parties. However, in other cases, of which this is one, an explanation of the basis of an offer may be essential to enable the offeree to give it reasonable consideration. 4. In the "Plaintiff's Opening Outline of Issues of Fact and Law" dated 5 February 2014 ("Macquarie's Opening Outline") on which Macquarie originally opened the Damages Enquiry, Macquarie's primary case in relation to damages for the Hospital Site was put (at paragraph 7) "in the range of $170 million to $250 million". In relation to the Car Park Site, Macquarie's primary case was said to be (at paragraph 12) that "it is entitled to its lost profits for the period in question plus Court interest to judgment, calculated by Mr Milou and Mr Coleman at $72,609,234". In those circumstances, only a few months later and without explanation, I am not satisfied that the Calderbank Offer gave, in its terms, a reasonable basis or opportunity to the Health District to consider whether to accept it or not. Having been told in February that Macquarie's total claim was up to $320 million, what was the Health District to make of an unexplained offer of $56 million only some five months later? The Health District could have asked rhetorically why not $100 million or $10 million? The Court is satisfied that in the circumstances of this complex and unusual case, the Health District's failure to accept the Calderbank Offer was not unreasonable because the Calderbank Offer did not give the Health District a reasoned basis upon which to consider it. 5. For these two, independent reasons, Macquarie's application for indemnity costs from the date of the Calderbank Offer is refused. Costs – preliminary issue 2: Macquarie's costs of the Guarantee and Indemnity Proceedings 1. The Guarantee and Indemnity Proceedings were briefly opened during the parties' opening addresses. Reference was also made to them in their written opening outlines. 2. Macquarie's opening outline devoted six pages and nine numbered issues to maters arising from the Guarantee and Indemnity Proceedings. Macquarie raised defences of res judicata, Anshun estoppel and limitation issues. Macquarie's principal answer set out in Macquarie's Opening Outline was that the Health District had no evidence to support the claim which the Health District said was worth "in excess of $130 million": "ISSUE 32: HAS THE DEFENDANT MADE OUT ITS CLAIM FOR DAMAGES OF IN EXCESS OF $130M? 176. The issue is particularised at (b) of paragraph 7(f) of the ASOC. 177. To the extent that damages are claimed for the period after 17 June 2000, manifestly they are not available on point of principle, as any failure by the plaintiff to construct the Private Hospital after that date was due to the fact that it had been unlawfully excluded from the site by the defendant (see further Issue 38 below). 178. In any event, the evidence led does not make out the claim. To succeed on a claim for loss or damages the defendant needs to establish that the existence of the Private Hospital would have resulted in the defendant being financially better off. In other words, the defendant needs to establish that the existence of the Private Hospital would have reduced its outgoings. If a private patient that was being serviced by the Private Hospital is replaced by another patient from the waiting list (and in particular a public patient on the waiting list) then there will be no effect on the hospital's outgoings or budget. 179. As no evidence has been led on this critical issue, and indeed, no evidence at all on the effect of the Private Hospital on the budget as a whole for the defendant, the claim has manifestly not been made out. There is also evidence that it would have no effect on the outgoings of the defendant." 1. The Health District devoted only the final paragraph of its written outline of opening submissions dated 4 February 2014 to the Guarantee and Indemnity Proceedings (which it referred to as the "cognate proceedings"): "26. The defendant's claim in the cognate proceedings is being heard together with these proceedings, with evidence in one to be evidence in the other. Aspects of that claim are also matters of defence in these proceedings. In essence, the plaintiff's claim in these proceedings would, it is submitted, be offset entirely by success on those matters, with the defendant being owed significant sums by the plaintiff. The major item is the plaintiff's failure substantially to commence the private hospital. For patents with private insurance who are treated as private patients in RPA, the defendant does not recover the "gap" between costs of treatment and the amount recovered from the patient's private health insurer. The private hospital taking private patients from RPA would have substantially reduced that loss." 1. Thereafter, the hundred or so hearing days of the Damages Enquiry passed without either party referring to the Guarantee and Indemnity Proceedings. Each party dealt with them in their closing written submissions and invited me to deal with the claim on the papers. In the Principal Judgment I said: "Issue 47 — Issues arising out of proceedings 2010/90340 595 By an amended statement of claim filed on 3 February 2012 (the "ASOC"), the Health District sues Macquarie and its parent, MIHC, for relief under various guarantee and indemnity provisions in the Transaction Documents. The ASOC asserts several different types of liability, including a claim by the Health District for damages for "in excess of $130,000,000" said to have been caused by Macquarie's breaches of the Transaction Documents. Macquarie's defences include claims of Anshun estoppel, res judicata and lack of causation as well as substantive factual answers to the claim. By orders made in 2012 the ASOC was ordered to be heard with the damages enquiry. 596 Each party opened its case in relation to the ASOC as part of their openings in the enquiry generally. However, little was thereafter heard of it for the entirety of the proceedings and no substantive oral arguments were addressed in relation to it during nine days of final submissions. The parties invited the Court to deal with the ASOC on the papers. 597 For the following reasons I have come to the view that it is inappropriate for the Court to accept that invitation. The proper course is for there to be a further hearing in relation to the ASOC so that the Court may have the benefit of the assistance of the parties in oral argument. My reasons for this are: (1) The possibility that the scope of the matters in dispute in the ASOC may be narrowed as a consequence of other determinations in this judgment; (2) The very large sum of money claimed; and (3) The complexity of the legal arguments raised. 598 As part of the directions that will be made consequent upon the delivery of these reasons, the Court will make directions for the parties to identify what issues raised by the ASOC remain genuinely in dispute and to attempt to agree on further preparatory steps to enable the just, quick and cheap determination of those issues." 1. I made directions of the kind foreshadowed in paragraph [598]. This led to the Health District's new solicitors writing to Macquarie's solicitors on 3 February 2017 to bring the "in excess of 130 million dollars" claim to an end in two, short sentences: "We refer to the orders made by his Honour Justice Kunc on 9 December 2016. We are instructed that our client does not press any aspect of its cross claim against your client." 1. Macquarie submitted that it followed from the Health District having "abandoned" the Guarantee and Indemnity Proceedings that Macquarie should have its costs of those proceedings on the indemnity basis. The Health District accepted that it should pay Macquarie's costs of the proceedings on the ordinary basis, but submitted that there was no reason why the Court should exercise its discretion to order indemnity costs. To do so, the Health District argued, would be to punish it for having made an entirely responsible decision as a litigant observing its obligations under s 56 of the CPA. 2. I accept the Health District's submission as far as it goes. It would have been open to the Health District to discontinue the Guarantee and Indemnity Proceedings (whether by leave or by consent). In the absence of an order otherwise or agreement, the Health District would have had to pay Macquarie's costs of the discontinued proceedings (see UCPR Part 42, r 42.19(2)). That outcome under the Rules does not automatically bring about an order for indemnity costs. Under the Rules and the general law, something more is required before the Court will make an order for indemnity costs. 3. There was no dispute between the parties that, in order to enliven the Court's discretion to make an order for indemnity costs, considerations of the kind recorded by Sheppard J in Colgate-Palmolive Company v Cussons Pty Ltd [1993] 46 FCA 536; (1993) 46 FCR 225 at 233-234 would have to be present: 5. Notwithstanding the fact that that is so, it is useful to note some of the circumstances which have been thought to warrant the exercise of the discretion. I instance the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud (both referred to by Woodward J in Fountain and also by Gummow J in Thors v. Weekes (1989) 92 ALR 131 at 152; evidence of particular misconduct that causes loss of time to the Court and to other parties (French J in Tetijo); the fact that the proceedings were commenced or continued for some ulterior motive (Davies J in Ragata) or in wilful disregard of known facts or clearly established law (Woodward J in Fountain and French J in J-Corp); the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions (Davies J in Ragata); an imprudent refusal of an offer to compromise (eg Messiter v. Hutchinson (1987) 10 NSWLR 525, Maitland Hospital v. Fisher (No. 2) (1992) 27 NSWLR 721 at 724 (Court of Appeal), Crisp v. Keng (Supreme Court of New South Wales, 27 September 1993, unreported, Court of Appeal) and an award of costs on an indemnity basis against a contemnor (eg Megarry V-C in EMI Records). Other categories of cases are to be found in the reports. Yet others to arise in the future will have different features about them which may justify an order for costs on the indemnity basis. The question must always be whether the particular facts and circumstances of the case in question warrant the making of an order for payment of costs other than on a party and party basis." 1. Macquarie submitted that it should have been obvious to the Health District that the Guarantee and Indemnity Proceedings were hopeless, at the very least for complete want of expert evidence. To consider the present application the parties invited me to reread the closing written submissions on Issue 47. I have done so. While they are slightly longer than the opening written submissions on this topic, they are to the same effect. The criticism in Macquarie's Opening Outline that I have reproduced in paragraph [192] above remained just as valid at the end of the hearing as it was at the start. 2. At all times before me the Health District has been advised by highly competent lawyers. I am satisfied that it ought to have been obvious to them at the outset of the hearing, and for some considerable time before the hearing began given the need to prepare complex expert evidence, that the Health District did not have the evidence to support the Guarantee and Indemnity Proceedings. It is that circumstance, analogous to some of those referred to by Sheppard J, which in this case enlivens the Court's discretion to make an order for indemnity costs. 3. The Health District has offered no persuasive reason why that discretion should not be exercised. No question of punishing the Health District for making a responsible decision by abandoning the proceedings arises. Rather, the fact that the Health District, by its legal advisers, ought to have known well before the commencement of the hearing that it did not have evidence to support the Guarantee and Indemnity Proceedings means that the usual compensation in costs offered to a successful party should extend to a complete indemnity. This is because Macquarie had to deal with a case that should never have been pursued because the Health District through its legal advisers at least ought to have known that it did not have the evidence to support. 4. The Guarantee and Indemnity Proceedings will be dismissed with an order that the Health District pay Macquarie's costs of those proceedings on the indemnity basis. However, that outcome will not assist Macquarie in relation to the gross sum costs order. Macquarie has not filed any evidence in relation to its application for costs that identifies how much of its costs are attributable to the Guarantee and Indemnity Proceedings and what the difference might be were those costs to be assessed on the indemnity basis. There is therefore no evidence which enables the Court to award a higher gross sum costs order to take into account that proportion of Macquarie's costs which the Court has concluded it would otherwise be entitled to have assessed on the indemnity basis. Costs – preliminary issue 3: Macquarie's application for interest on costs. 1. Macquarie accepted that it was not logically possible for such an order to be made if a party obtains a gross sum costs order. I refer to what I have said in paragraphs [169] above. Costs – how much were Macquarie's costs? 1. Ms Moran's affidavit of 16 October 2017 in support of the Costs Motion deposed that Macquarie's costs were $8,268,334.48. That figure was derived from a supporting affidavit sworn by Macquarie's accountant, Mr Rajakumar Sinnathambu. Mr Sinnathambu's affidavit also established that what I will regard as an immaterially small amount of those fees remained unpaid. I will assume in Macquarie's favour that they have since been paid. 2. Mr Dudman's report for Macquarie dated 18 October 2017 recorded the amount of costs claimed as $8,324,666.65. In her report, Mr Vine-Hall noted the unexplained difference of $56,332.17. She wrote her report by reference to the figure in Ms Moran's affidavit. 3. Through the work of the experts it became apparent that there was some double counting and adjustments that had to be made. Those matters were attended to in the experts' joint report of 13 December 2017 and I am satisfied that the most reliable figure is set out in Annexure F to that report entitled "Joint Experts' Summary of Adverse Costs". That summary records Macquarie's claimed costs as: Solicitor' fees $508,199.83 Counsels' fees $4,909,430.30 Experts' fees $2,591,906.97 Disbursements $133,238.68 TOTAL $8,142,775.78 1. On the final day of the costs hearing (18 December 2017) Macquarie sought to update its costs claim through a second affidavit of Mr Sinnathambu made on 15 December 2017. That affidavit recorded further costs of $329,397.32 which a third affidavit of Mr Sinnathambu confirmed had all been paid. In an updating report of 17 December 2017, Mr Dudman gave his opinion of the likely assessment of those additional costs set out in Mr Sinnathambu's second affidavit. 2. I admitted Mr Sinnathambu's second affidavit and Mr Dudman's updating report over the objection of the Health District. That objection was primarily based on the ground of lateness. The additional costs claimed in Mr Sinnathambu's affidavit were: Solicitor' costs $63,767.32 Counsels' fees $151,295.00 Experts' fees $114,335.00 TOTAL $329,397.32 1. While I have not undertaken a line by line analysis of the invoices attached to Mr Sinnathambu's second affidavit, a relatively cursory perusal demonstrates that at least some of those invoices relate to both the final outstanding issues in relation to damages as well as Macquarie's application for costs. The latter is certainly the case in relation to one of the disbursements, being Mr Dudman's fees, which relate only to the question of costs. 2. For the purposes of the broad brush assessment which the Court is now undertaking to produce a gross sum costs order, I propose to discount entirely the amount of costs claimed in Mr Sinnathambu's second affidavit. I will include that amount as part of the overall discounting which the Court will make as part of arriving at a gross sum for costs (see paragraph [251] below). However, two points need to be made about that discounting. 3. First, for the purposes of calculating the amount of the discount, I will immediately exclude the $60,025.00 in Mr Sinnathambu's affidavit that relates to Mr Dudman's costs. This leaves an amount of $269,372.32 (the "Recent Costs"). It is neither practical nor appropriate for me to attempt to otherwise divide those costs that remain between the damages hearing and the costs hearing. 4. Second, while mathematically some of what is left in that figure relates to the costs hearing and will form part of the discount, any such overlap will be without prejudice to Macquarie's right to claim those costs on an assessment of its costs of the costs hearing. There was some discussion at the conclusion of the costs hearing as to what the Court should do about the costs of the costs hearing. For the avoidance of doubt, the gross sum costs order which the Court will make in relation to Macquarie's costs pursuant to the Costs Motion does not include Macquarie's costs of that motion (i.e. the costs hearing). While I will hear the Health District if it wishes to make submissions on this point, the simplest approach is that the orders finalising the Damages Enquiry should include an order that the Health District pay Macquarie's costs of and incidental to the Costs Motion. 5. As I have decided to exclude or discount all of the costs and disbursements claimed in Mr Sinnathambu's second affidavit, the mathematical starting point for what follows will be the amounts claimed as set out in the joint experts' summary reproduced in paragraph [206] above, being a total claim by Macquarie for costs of $8,142,775.78. Costs – adverse costs 1. In considering the question of adverse costs, the experts arrived at five categories: 1. Excluded costs - $890,721.52; 2. Partly excluded costs - $1,077,983.62; 3. Contentious excluded costs - $567,903.00; 4. Mr Milou - $279,471.25; 5. Mr Wright - $55,952.50. 1. I will deal with each of these in turn. 2. Two of these items are straightforward. The experts agreed that the excluded costs should be excluded as part of resolving the adverse costs issue. Furthermore, Macquarie conceded that the costs of and related to Mr Wright's evidence should be excluded. Those two amounts total $946,674.02 and when deducted from the total of Macquarie's costs claimed, reduce Macquarie's claim to $7,196,101.76. Costs – adverse costs: partly excluded costs 1. In their joint report, the experts explained the category of partly excluded costs totalling $1,077,983.62: "15. We have been able to identify costs which we believe probably contain elements which relate to the Adverse Costs, in particular to the costs thrown away by the amendments to Macquarie's pleadings and the orders made on the Second Amendment Application; however, we have been unable to come to any conclusion, agreed or otherwise, as to the percentage of those costs which should be determined as "thrown away". We have categorised these costs as "partly excluded costs". Examples of costs falling into this category are the cost of preparation of opening submissions and the cost of attending hearing days prior to hearing of the Second Amendment Application. … 30. Notwithstanding our attempts to identify a methodology to "apportion" mixed costs or descriptions of work which we could not confidently characterise as relating to costs thrown away, we were unable to do so and thus we consider that any determination of the proportion of mixed work/costs or insufficiently identified work/costs which should be allocated to costs "thrown away" would be more likely to be correct if it were made by the Court on the basis of impression, given the Court's more detailed understanding of the case. 31. We placed all of the costs which clearly contained elements which were likely to have been thrown away by the Second Amendment Application in a category which we identified as Partly Excluded Costs. 32. This includes the work preparing the tender bundles, the opening submissions, the discussions with counsel which were described generally as "damages" and all of the first 39 hearing days. We have also included disbursements incurred to 26 September 2014 for photocopying, and the transcript for those hearing days in the Partly Excluded Costs." 1. The largest component of the partly excluded costs is approximately $895,000.00 for counsel's fees. That is unsurprising because the main assumption underlying this category was the exclusion of the first 39 hearing days as potentially costs thrown away by reason of the Second Amendment Application. 2. With respect to the experts, I accept Macquarie's submission that this assumption is almost completely misconceived. 3. In my judgment allowing the Second Amendment Application I said: "114 The third question in relation to costs which the Court has taken into account is the practical consequences of Macquarie's entirely proper concession that an order should be made, if leave to amend were granted, to pay the Health District's costs thrown away by reason of the amendment. There is no evidence before the Court as to what the quantum of the costs thrown away might be. There is some reason to think that, in the overall context of litigation of this size and complexity, those costs may not be great. Nevertheless, the Court raised with Macquarie the possibility of security being provided to support any order for Macquarie to pay the Health District's costs thrown away. Macquarie has taken up that suggestion and, as part of the conditions of leave, has offered up an unencumbered property in Paddington owned by Dr Wenkart which the Court accepts on the evidence had a market value as at 1 July 2013 of $1,275,000. The provision of such security is a factor weighing in favour of the amendments being allowed. … 133 In this regard I repeat what I have said in paragraphs [110] to [114] above on the question of costs. Furthermore, the Court notes that neither party, but in particular the Health District, has sought to quantify what it says the costs wasted by the amendments will be. While there will undoubtedly be some costs thrown away to the extent that Macquarie will now not read some of its evidence which the Health District has presumably prepared to meet, that will be ameliorated by the order which Macquarie accepted should be made to pay the Health District's costs thrown away by reason of the amendment. Furthermore, Macquarie is providing security for such costs. No submission was put by the Health District that the value of the security property ($1,250,000) would be inadequate. No other item of potential wasted costs (for example, time taken in Court that would now be made otiose) was identified." 1. Those observations were based on my fresh recollection and impression of those days of the hearing which the experts' assumption now seeks to exclude. I have briefly reviewed the first 39 days of the transcript at least to bring back to mind what witnesses were called during that period and the general subject matter of their evidence. That exercise has confirmed the impression reproduced in the preceding paragraph. 2. Looking at the matter very broadly, if not all, then a very large part of the evidence in those first 39 days was relevant to the Health District's various hypothetical reasons why Macquarie would never have been able to build the private hospital or that it would have been a financial disaster. Those submissions were summarised in the Principal Judgment: "116 In this case the user principle means that the Court rejects as irrelevant submissions that: (1) Notwithstanding that during the period of the trespass only staff used the Car Park Site, damages in respect of the 1,026 spaces in the Car Park Site should take into account use by the general public of 426 spaces because Macquarie only had to provide 600 spaces for staff. (2) Macquarie cannot claim increased patronage in the car park from completion of the private hospital because the private hospital was not built during the period of the trespass. (3) At the commencement of the trespass, Macquarie did not intend to build the private hospital. (4) Macquarie had no financial capacity to build, and therefore would never have built, the private hospital. (5) If Macquarie had built the private hospital it would have been a financial disaster, from which it has been saved by the Health District's trespass. (6) The Health District would have built the multi-storey Susan Street Car Park which would have had an adverse, competitive effect on Macquarie's car park. (7) The possibility of industrial action if Macquarie charged staff more than what was referred to as the Liverpool Rate to park in its car park. (8) No third party would have considered the private hospital feasible with the specified existing design (described by the Health District as "unviable, unprofitable and inefficient") and the other contractual constraints under the Transaction Documents. (9) Damages should be assessed on the fact that at the time of its dispossession, Macquarie had been prepared to part with the Hospital Site for no value. (10) There was a risk the Transaction Documents would be validly terminated. (11) More than the risk just referred to, the Transaction Documents remained liable to termination as at 17 March 2000 and the Health District would have validly terminated them by at least late 2000." 1. The Health District persisted in those various hypothetical defences in answer to Macquarie's case after the Second Amendment Application. I therefore accept Macquarie's submission that is inappropriate to exclude the first 39 days of the hearing and the work connected with that. 2. Nevertheless, while I disagree with the fundamental premise underlying the partly excluded costs, I am satisfied that some deduction ought to be made. Macquarie accepted that by reason of its amendment, about half of the costs of the oral and written opening submissions heard on 10 and 11 February 2014 should be excluded. Macquarie submitted this represented about 2.5% of the first 39 days, giving a reduction of $25,000 from the total of approximately $1 million in legal fees in this category. 3. However, I accept the Health District's submission that Macquarie's concession did not go far enough. It did not take into account what would have been a great deal of work done by Macquarie's lawyers in preparation for those opening submissions. 4. Bearing these matters in mind, I propose to allow 10% of the figure proposed by the experts for the partly excluded costs, requiring a deduction from the total amount of fees claimed by Macquarie of $107,798.36. This seems to me to be a fair adjustment to reflect three matters: 1. A more realistic allowance in respect of the concession made by Macquarie concerning the written and oral opening submissions; 2. An acceptance that a detailed scrutiny of the evidence given over those days would be likely to identify some, but not necessarily large, amounts of evidence that were rendered irrelevant by the Second Amendment Application including some of the experts' costs; and 3. The fact that the amendment was heard on the 38th day and that the 39th day was a very short hearing which takes up only 10 pages of transcript. Costs – adverse costs: contentious excluded costs 1. The experts identified a further category to which they referred as contentious excluded costs totalling $567,903.00. The experts explained this category in their joint report: "17. We have been presented with conflicting submissions from each party on the extent of the work/costs which may have been "thrown away" by the amendments to Macquarie's pleadings and the orders made on 29 September 2014. We have been able to isolate those costs into a separate calculation: however, we have been unable to come to any conclusion, agreed or otherwise, as to the percentage of those costs which should be determined as "thrown away". 18. We have categorised these costs as "Contentious Excluded Costs". An example of a cost falling into this category is costs relating to the evidence of Mr David Stocken of Alpha Securities, which SLHD asserts relate, until 26 September 2014, to costs thrown away by reason of the Second Amendment Application, whereas Macquarie has provided no such submission. 19. These costs have been calculated in a total of $567,903.00. … 33. Similarly, the information provided to us by the parties revealed discrepancies in their position as to the extent of the "costs thrown away" in respect to the orders on the Second Amendment Application. 34. For example, Macquarie did not identify any of the evidence previously filed, other than reports of Messrs John Morrison, Tony Coleman, John Batiste and Robert Lister as having been impacted by the change in direction of the damages claim. This was evidence specifically excluded by the orders of 29 September 2014. 35. In contrast, SLHD identified a number of witnesses whose evidence may have been affected by the change in direction of the damages claim, with resultant costs being thrown away. This evidence was listed in columns 2 and 4 of their summary, which is annexure D to our report, and included the evidence of the following witnesses; • Steven Carr • Lou-Anne Blunden • Charles Farah • Michael Wallace • Diane Horvath • Jon Isaacs • Shane Wooton • Michael Palassis • Cully Gower • Linda Griffiths • Jennifer Haines • Ian Jackson • Ian Harris • Michael Arnott • Michael Blass • Richard Cox • David O'Neill • Gregory Rowe • Candy Cheng • John Morrison • Brett Colin Sloane • Christine Wenkart • David Wenkart • Scott Wenkart • Thomas Wenkart, And experts as follows; • Greg Anderson • Tony Coleman • Tim Staker • Josephine Maprock • John Meredith • John Barker • Bob Lister • Wayne Lonergan • John Batiste • David Stocken • Ken Wolf. 36. In our opinion, some evidence served in affidavits or reports and taken at the hearing prior to 26 September 2014 was most likely affected by the Second Amendment Application and, to some extent, "thrown away''. One example of this is the evidence of Mr Barker and Mr Meredith. While Mr Barker's reports were largely superseded by those of Mr Meredith, it is not clear from the invoices rendered by Rider Levitt Bucknell whether any of the early work by Mr Barker was of use to Mr Meredith in the preparation of his report. 37. Another example is in relation to the work relating to the experts engaged by SLHD who responded to the early reports of Mr Morrison, Mr Coleman, and Mr Anderson. While SLHD identified the work/costs relating to those experts as thrown away, Macquarie did not. 38. Notwithstanding our attempts to identify a methodology to come to a view, whether agreed or otherwise as to whether the work relating to this category was thrown away and if so by how much, we were unable to do so with any precision. Thus we consider that any determination of the proportion of mixed work/costs or insufficiently identified work/costs which should be allocated to the Contentious Excluded Costs would be more likely to be correct if it were made by the Court on the basis of impression, given the Court's more detailed understanding of the case. 39. We placed all of the costs which related to the discrepancy in the position of the parties, that is the material identified in columns 2 and 4 of SLHD's response to the Scoping Aid, in a separate category which we identified as Contentious Excluded Costs." 1. Macquarie made two concessions in relation to the contentious excluded costs: $21,980 in relation to Lonergan & Edwards and $10,800 of the $123,499.50 charged by RLB. Macquarie otherwise submitted that the assumptions which supported this category were incorrect. Those assumptions were: 1. That any evidence prepared by sixteen different witnesses (both lay and expert for either side) prior to 26 September 2014, and all work relating to damages for the Hospital Site, prior to 26 September 2014, was subject to an adverse costs order and therefore should be regarded as costs thrown away by reason of the success of the Second Amendment Application; and 2. Any evidence prepared by seven lay and eleven expert witnesses for either side prepared prior to 26 September 2014 should be regarded as partially covered by an adverse costs order and therefore be regarded as costs thrown away by reason of the success of the Second Amendment Application. 1. For the reason given in paragraphs [220] to [223] above, I accept Macquarie's submission as to the general inapplicability of the assumptions identified in the preceding. Furthermore, insofar as some elements of the contentious excluded costs related to work done by experts which directly or indirectly fed into questions of the profitability of the Car Park and the hypothetical private hospital, I accept Macquarie's submission that its abandonment of the loss of profits case does not necessarily mean that all of that work was irrelevant. I find that much (but not necessarily all) of that work would have been relevant and was relied upon in subsequent evidence for the mesne profits case. 2. Nevertheless, as with the partly excluded costs, some allowance for the contentious excluded costs should be made to reflect the Court's acceptance of the likelihood that were a detailed assessment of the contentious excluded costs ever to be undertaken (the cost of which I am certain would be disproportionate to the benefit to be obtained in improving the accuracy of any assessment), some of Macquarie's costs that should be excluded would be identified. Doing the best I can, and consistently with the view I took in relation to the partly excluded costs, I am satisfied that justice will be done to both parties, but in particular to the Health District, if 10% of the contentious excluded costs identified by the experts were excluded from Macquarie's total claims. This requires a deduction of $56,790.30. Costs – adverse costs: Mr Milou 1. The experts identified $279,471.25 of costs in relation to Macquarie's Car Park Site damages expert Mr Milou ($225,700 of this were his fees). In their joint report, the experts said: "Mr Milou 45. We identified a further category of costs which was not included by either party in its summaries of the Adverse Costs which we consider should be taken into account as a Partly Excluded Cost, and that was the work relating to the report of Mr Milou. 46. Mr Milou was an expert relied upon by Macquarie in relation to the valuation of the Car Park. The transcript of day 6 of the hearing records Mr Dubler SC explaining that Mr Milou's reports addressed both a scenario of lost profits and one of mesne profits (pages 286 and 287 of the transcript). 47. Thus, it was likely that the cost of retaining him, including the instructions provided to him, conferences with counsel and work assisting him, was partly thrown away when his evidence on the loss of profits was no longer useful. 48. Due to the fact that the parties themselves had not identified Mr Milou as a witness which might be taken into account as an Adverse Cost we have placed the costs relating to his reports (up to 26 September 2014) in a separate calculation." 1. Macquarie submitted that none of the costs associated with Mr Milou should be excluded because all of his evidence and reports remained relevant and was relied upon by Macquarie on all of the issues relating to damages in connection with the Car Park Site. Macquarie drew attention to the fact that in its points of claim filed after the granting of the Second Amendment Application, it expressly relied upon seven reports of Mr Milou which had been served in the proceedings to that date. 2. The Court accepts Macquarie's submission for the reasons identified in paragraph [229] above. The profitability of the Car Park Site in matters such as daily fees and operating expenses, which were considered by Mr Milou, all remained relevant for the mesne profits case. However, for the reasons given in paragraph [230] above, I am satisfied that a similar 10% allowance should be made in relation to the costs identified as relating to Mr Milou prior to the time of the Second Amendment Application. This means that a further $27,947.12 should be deducted from the total amount of costs claimed by Macquarie. Costs – adverse costs: conclusion 1. The position reached thus far can be summarised as follows: $8,142,775.78 [Amount claimed by Macquarie as set out in Joint Experts' Report] - $890,721.52 [Excluded costs] - $55,952.50 [Mr Wright] - $107,798.36 [Allowance for partly excluded costs] - $56,790.30 [Allowance for contentious excluded costs] - $27,947.12 [Allowance in relation to Mr Milou] Total $7,003,565.98 1. For the purposes of the calculation that follows, I will round that figure for Macquarie's claimed costs to $7,000,000. 2. The costs experts agreed that once the Court had come to a view as to the appropriate deductions for adverse costs, it would then be necessary to consider their respective methodologies as to how the Court should arrive at a gross sum costs order. Costs – the experts' approaches 1. I have already set out Mr Dudman's description of his methodology in paragraph [146] above. In summary, after making specific deductions on the various invoices, he applied what he referred to as "further global reductions" in varying percentages. Importantly, as will also be apparent from the extract from his report in paragraph [146] above, Mr Dudman said that he had made allowance for the adverse costs issue. However, it was very difficult, if not impossible to tell exactly for what amount and on what basis he had done that. This did reduce the weight I thought should be given to Mr Dudman's overall conclusions. 2. Ms Vine-Hall's report took issue with a number of fundamental matters in Mr Dudman's report, in particular how S Moran & Co's fees and Mr Dubler SC's fees would be treated on an assessment. I will return to this. Like Mr Dudman, Ms Vine-Hall applied various percentage deductions based on her knowledge and experience. For reasons which I have already explained, her report did not take make any deductions for the adverse costs issue. 3. Before I express any further views on the relative merits of the experts' reports, and because the Court is engaged in a broad brush exercise, a useful starting point is to look at the outcomes of each of the experts globally as to their assessments on the ordinary basis. 4. In his initial report (as corrected by him later), Mr Dudman expressed the view that on assessment Macquarie would likely recover $6,893,498.63 of total costs incurred of $8,324,666.65. This represents a recovery of 82.80%. 5. Mr Dudman prepared a second report dated 17 December 2017 in which he took into account the excluded costs from the joint experts' report (but not any deductions for the partly excluded costs, contentious excluded costs, Mr Milou or Mr Wright). He also sought to incorporate the Recent Costs which I have discounted as set out in paragraph [210] above. In his second report, Mr Dudman opined that Macquarie would recover costs of $6,792,895.54 from total costs expended of $8,461,422.79. This represents a recovery of 80.28%. Because it does take into account the agreed excluded costs, I will treat Mr Dudman's second report as the more reliable and authoritative one for the purposes of the comparison I am making. 6. In her report, Ms Vine-Hall expressed the opinion that Macquarie would recover $5,981,147.86 from a total claim of $8,135,494.48. This represents a recovery of 73.52%. 7. In making this global comparison I have not overlooked that Ms Vine-Hall's report does not take account of adverse costs. That does not, in my view, invalidate the comparison of the outcomes of the methodology which each of the experts applied. The issue of adverse costs goes to the starting point of the amount of Macquarie's claim, not to the proportion between the claim and what might be recovered. 8. The point I draw from this comparison is that the overall percentage rate of recovery arrived at by the experts is not all that far apart when considering the broad brush nature of the exercise in which the Court is engaged. Costs – resolution 1. For the following three reasons I prefer Ms Vine-Hall's approach; 1. Overall, Ms Vine-Hall's report demonstrates a closer engagement with the financial and practical detail of the case. This includes her identifying some mathematical errors and double counting in Mr Dudman's report. That engagement with detail has substantive consequences. For example, in relation to senior counsel, Mr Dudman considered the daily and hourly rates that were charged to be reasonable and likely to be recovered in full on a costs assessment. In her report, Ms Vine-Hall engaged more precisely with what senior counsel was charging, and when, and analysed the issue by reference to what costs assessors were allowing for senior counsel in particular years, as well as referring to the Costs Assessor's Rules Committee's Guideline for Senior Counsel's Rates in 2016. This is only one example of a more precise approach demonstrated in Ms Vine-Hall's report. In making this observation and in fairness to Mr Dudman, I should record that he made plain in his report that he had been given only ten days in which to prepare his report. 2. The most substantial differences in principle between Mr Dudman and Ms Vine-Hall were how two related matters would be treated: the relatively low rates charged by Macquarie's solicitors and the very high reliance on junior counsel and, in particular, senior counsel for the day to day management of the matter. I found Ms Vine-Hall's analysis of both of these issues more persuasive than Mr Dudman's approach. Ms Vine-Hall's views on these matters, with which I agree, are set out in her report: "106. I agree with Mr Dudman that the rates charged by S Moran & Co are low compared to the market rates during the period 2012 - 2017; however, I do not agree with the suggestion at paragraph 63 of Mr Dudman's report that the low hourly rates and the transference of most of the work to counsel reflects "strong management" of the costs by Macquarie. 107. What Mr Dudman has characterized as strong management, that is the transference to counsel of work that would normally have been conducted by a solicitor has, in my opinion, resulted in higher costs. 108. This is because counsel's fees are generally presented in a manner which is less transparent to that required of solicitors and thus harder for a cost consultant to review for reasonableness, and also the rates charged by counsel may be higher than those charged by a solicitor for the same work. … 125. I refer to paragraph 79 of Mr Dudman's report. I agree with Mr Dudman that in a matter that is conducted without over reliance on counsel, a litigant is likely to recover a greater percentage of counsel's fees than the reductions generally suffered by solicitors' fees. 126. I do not agree with Mr Dudman's opinion in paragraph 83 of his report that a litigant generally recovers 90%-95% of counsel's fees, as the range of recovery will depend on many issues including the rates charged and the nature of the work undertaken. Thus, in circumstances such as the conduct of the Proceedings utilising counsel for the work generally undertaken by solicitors, it is likely that there would be a much greater percentage reduction, particularly in senior counsel's fees, to reflect the unusual management of the Proceedings. … 134. I agree with Mr Dudman's opinion that a rate of "generally" "$8000 to $8800 per day and $800 to $880 per hour for senior counsel is reasonable and likely to be recovered in full on cost assessment" for work in 2016-2017; however, this rate does not apply across the whole of the period and is inconsistent with the costs agreement in exhibit "PWM Costs" to Ms Moran's Affidavit. 136. Mr Dudman has not provided details of the manner in which he has addressed the fact that senior counsel was undertaking much of the work usually undertaken by junior counsel and that there may have been a significant overlap/duplication of effort between junior and senior counsel. … 139. In my experience of reviewing files in commercial litigation, the preparation of a bundle of documents for use in the proceedings is generally undertaken by either a junior lawyer or junior counsel at rates of 50% of the rate charged by Mr Dubler SC. … 142. In my experience, the almost daily work conducted by Mr Dubler SC reflects an over reliance on senior counsel by both the solicitors and by junior counsel. The costs resulting from this method of work practice, particularly given the high hourly rates charged by Mr Dubler take this matter out of the ordinary range and this is an issue which should be reflected in the calculation of a figure for a gross sum cost award." 1. For the following reason, I was left with a lingering concern about the reliability of Mr Dudman's approach when he presented his second report. As I have already noted, that report sought to take into account both the agreed excluded costs of $890,721.52 and the Recent Costs in their full amount of $329,397.32. Notwithstanding the extensive work undertaken by the experts to identify and agree on the excluded costs of $890.721.52, Mr Dudman's corrected figure for Macquarie's recoverable costs in his first report of $6,893,498.63 was only reduced by $100,603.09 to $6,792,895.54. When cross-examined about this apparently quite small difference notwithstanding the large amount of agreed excluded costs, Mr Dudman's answers were to the effect that he had already taken into account adverse costs in his first report. He may well have done so. The difficulty from the Court's point of view is that the way in which his reports were prepared meant that it was not really possible to come to a clear understanding as to how this was so. This apparent discrepancy left residual doubt in my mind about the reliability of Mr Dudman's approach and his willingness as an expert to make proper concessions where it may not have been in his client's interests to do so. 1. In coming to the conclusion that I should prefer Ms Vine-Hall's approach, it is not necessary for me to resolve some particular areas of dispute between her and Mr Dudman. In particular, they disagreed as to what (if any) allowance should be made for Macquarie's in-house solicitor Ms Cousins or for work done by the firm of Bruce & Stewart. The fees involved, for example, in relation to those two disputes represent 1.46% of the $7,000,000 claim under consideration and are de minimis for the purposes of a gross sum costs order in this case. 2. In accepting Ms Vine-Hall's approach to these central questions, I am not to be taken as being critical of Macquarie or its legal advisers for the way in which they chose to deploy the various legal resources available to them. However, the principles underlying the assessment of costs engage different considerations from those which might justify particular cases being run in particular ways. Whether something will or will not be recoverable on assessment is but one of many factors that clients and their lawyers take into account in making decisions as to how to run litigation. 3. Based upon the outcome of Ms Vine-Hall's report (see paragraph [242] above), for the purposes of a gross sum costs order I propose to allow 73.52% of the $7,000,000 total costs incurred as determined in paragraph [235] above. This gives a figure of $5,146,400. However, that is not the end of the matter. Two further deductions need to be considered. Costs – a general discount? 1. First, there is the question of whether the Court should make a further global percentage reduction as is often done in the case of gross sum costs orders. The basis for doing so was explained by Brereton J (as his Honour then was) in Hancock v Rinehart (Lump Sum Costs) [2015] NSWSC 1640: "56. The first defendant submits that there should be a further global percentage reduction of 15%, for two main reasons: first, because on assessment, even on the indemnity basis, a successful party invariably recovers something less than its actual costs, typically 15% where the assessment is on an indemnity basis; and secondly, the necessarily broad-brush approach of the court to assessment on a lump sum basis – involving some risk that the sum includes costs that would not be recovered on assessment – coupled with the savings to the costs creditor in time and costs through avoiding a detailed assessment, and the loss to the costs debtor of the opportunity to scrutinise and object to a detailed bill, has resulted in a practice of applying a discount on lump sum assessments. 57. While it is undoubtedly the usual practice of the court when making a lump sum costs order to apply a discount for the reasons mentioned, that does not mean that the Court must apply a percentage discount to the sum sought by the successful party, [31] and the Court "must be astute not to cause an injustice to the successful party" by applying "an arbitrary 'fail safe' discount on the costs estimate submitted to the court". [32] Thus if the court can be confident that there is little risk that the sum includes costs that might be disallowed on assessment, the case for a discount is seriously undermined." 1. I was initially of the view that this was a case in which it would have been appropriate to make a general discount of 20%. Given the large sums involved and the complexity of the issues, and bearing in mind the rationale identified by Brereton J, the making of a gross sum costs order will result in a significant saving to Macquarie, but also deprive the Health District of the opportunity to engage in what would, I have no doubt, have been a detailed scrutiny of Macquarie's bill. However, I will reduce the proportion of the further general discount to 15% to reflect the higher degree of certainty that has been obtained through the assistance of the experts in identifying a significant sum of money as excluded costs. 15% of $5,146,400 is $771,960. 2. As explained in paragraph [210] above, I propose to allocate the Recent Costs of $269,000 towards that discount, so that only $502,960 ($771,960 - $269,000) need be further deducted from the $5,146,400. This gives a final gross sum costs figure of $4,643,440 which I shall round to $4,643,000. This conclusion is subject only to the determination of whether there should be one further discount. Costs – A discount for Macquarie's lack of success? 1. The Health District submitted that if the Court was minded to make a gross sum costs order, there should be a discount of 20% from whatever Macquarie was otherwise entitled to recover in order to reflect Macquarie's lack of success on a number of issues. The Health District submitted: "52. In the Damages Inquiry, Macquarie was unsuccessful, or partly unsuccessful, on the following issues: a) Claim for "Escalation Costs" abandoned. b) Aspects of Macquarie's claims as to the "user principle". c) Legal restrictions on pricing in the Development Consent. d) Revisitation of opinion evidence of Ms Griffiths. e) Reduction of fit-out for shell-only areas. f) FFE for initial construction. g) Position at the end of the trespass. h) Bed day inflation rate 2005-2024 of 3.8 per cent opposed to 4.0 per cent contended for by Macquarie. i) Bed day inflation rate 2024-2099 of 2.8 per cent as opposed to 4.0 per cent as contended for by Macquarie." 1. In making this submission, the Health District accepted that it would not be appropriate in a matter of this kind for the Court to attempt to apportion costs in respect of discrete issues, but that in adopting a broad brush approach there should be a reduction in Macquarie's costs by an appropriate percentage amount, in this case 20%. 2. The Health District also called in aid the fact that while Macquarie was likely to obtain approximately $85 million, a substantial proportion of which was for interest (plus potentially a tax gross up), Macquarie had previously quantified its claim as high as $260 million and, thereafter, at various points on a "best case" basis down to $140 million. 3. There will be cases where the usual rule that costs should follow the event will be ameliorated by the recognition that it would be unjust to visit all of the costs on the unsuccessful defendant where the successful plaintiff claimed much and won little, or won notwithstanding having lost on many of the issues that were litigated. Cases can exhibit either or both of these features. The Court's underlying concern in such cases is one of proportionality. 4. In this case there is no unfairness or disproportionate outcome for the Health District to pay all of Macquarie's costs on the ordinary basis as assessed by the gross sum costs order. The Damages Enquiry was large and complex litigation, fought between two well-resourced and sophisticated litigants. I observed in the Principal Judgment: "77 Before leaving this account of the procedural history of the enquiry, I should record that, contrary to the impression that history might give, there was much practical co-operation between the parties. It would not do justice to what occurred if the Court did not acknowledge the many occasions during a long and complex hearing when solicitors and counsel, without resiling from the vigorous advocacy of their client's respective positions, found sensible ways to accommodate disagreements and save time and, it is to be hoped, costs." 1. Without resiling from that observation, this was nevertheless a case in which every point that could properly be taken was taken and no quarter was given or asked. Macquarie has been successful in obtaining a judgment for a very large sum of money. To get to that point both parties put forward many issues, some of which they won and some of which they lost. In the total scheme of this litigation, I am unable to accept that either the difference between what Macquarie claimed and received, or the number of discrete issues on which it might have failed, are of such magnitude or significance to warrant a departure from the usual outcome that the Health District as the unsuccessful defendant should pay all of Macquarie's costs of the enquiry as assessed by the Court. 2. The orders which the parties bring in should include an order that the Health District should pay Macquarie's costs of the Damages Enquiry, the Guarantee and Indemnity Proceedings and the L&E Proceedings assessed on a gross sum basis as $4,643,000. Conclusion 1. The Court will direct the parties to prepare short minutes of order giving effect to these reasons and such other orders consistent with the Court's earlier judgments as are necessary to bring the Damages Enquiry [1] to a formal conclusion. Endnote 1. In these reasons I have adopted the convention of referring to this process as an "enquiry" because it was an "enquiry" that was ordered by the Court of Appeal: see paragraph [28] of the Principal Judgment. The parties' submissions and the transcript have not been consistent between "enquiry" and "inquiry". This reflects the truth of the observation in the Macquarie Online Dictionary for "en-" that "corpus evidence shows that in Australian English a distinction in meaning has arisen between ensure and insure. In other cases, for example, enquire and inquire, the forms are interchangeable." Amendments 17 July 2019 - Amendment to paragraph 250. 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: 17 July 2019