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[2011] NSWSC 119
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Jacfun Pty Limited v Sydney Harbour Foreshore Authority [2011] NSWSC 119 (8 March 2011)
Last Updated: 14 April 2011
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Case Title:
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Jacfun Pty Limited v Sydney Harbour Foreshore
Authority |
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Decision:
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1. Proceedings dismissed. 2. The plaintiff pay
the defendant's costs. |
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Catchwords:
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TRADE PACTICES - misleading and deceptive conduct
- Fair Trading Act 1987 s 42 - statements about prospects of redevelopment of
leased premises - no misrepresentation. DAMAGES - misleading and deceptive
conduct
- allegation that lessee induced to surrender lease - lease not found to
have greater value than amount obtained on surrender - loss
of opportunity -
potential involvement in redevelopment - value of chance no greater than amount
received on surrender |
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Legislation Cited:
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Parties:
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Jacfun Pty Limited (Plaintiff) Sydney Harbour
Foreshore Authority (Defendant) |
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Representation
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Counsel: Mr B Walker SC (Plaintiff) Mr M A
Jones (Plaintiff) Mr C R C Newlinds SC (Defendant) Mr J Baird
(Defendant) |
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- Solicitors:
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Solicitors: Landerer & Co
(Plaintiff) Clayton Utz (Defendant) |
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Publication Restriction:
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Judgment
- In
these proceedings the plaintiff, Jacfun, claims damages from the defendant,
SHFA, for misleading and deceptive conduct in breach
of s 42 of the Fair
Trading Act 1987 which Jacfun says induced it to surrender a lease that SHFA
had granted to it of the Darling Walk site situated in Darling Harbour.
Jacfun
pleads an alternative claim in negligence.
Factual Background
- SHFA
is a statutory corporation established by the Sydney Harbour Foreshore
Authority Act 1998 ( SHFAA ). It was created to manage the harbour
foreshore area, including Darling Harbour. The management of its day-to-day
activities are
the responsibility of a chief executive officer (see SHFAA, s 30)
who, during the relevant time, was Mr Greg Robinson. It also has a board which
is responsible for overseeing the activities of the
Authority. The Board
consists of the CEO, the Director-General of the Department of Urban Affairs and
Planning, who at the time was
Ms Sue Holliday, and up to 5 other persons,
including a chairperson, who were appointed by the relevant Minister: SHFAA s
29. One of the members appointed by the Minister was Mr Frank Sartor, who at the
time was Lord Mayor. The chairperson of the board was
Mr Gerry Gleeson, a well
known and respected public servant. SHFA was and remains subject to the "control
and direction" of the relevant
Minister: SHFAA s 28. Section 17(1) of the SHFAA
permits SHFA to acquire land by agreement or by compulsory process in accordance
with the L a nd Acquisition (Just Terms Compensation) Act 1991.
- The
Darling Harbour Development Plan No 1 1985, which was made under the (now
repealed) Darling Harbour Authority Act 1984 , required
development approval for commercial development at the Darling Walk site. Under
the 2002 version of the Environmental Planning and Assessment Act 1979 (
EPAA ), the Minister for Planning was the consent authority for
development approval for the Darling Harbour area: EPAA, Sch 6, cl 22(1).
Only
SHFA, or a person with its written consent, could apply for development approval
in relation to land under its control: Environmental
Planning and Assessment
Regulations 2000 (NSW), reg 49(1) (historical version as at 6/9/02).
- The
lease of the Darling Walk site to Jacfun commenced on 22 March 1997. It was for
an initial term of 41 years, with two options
to renew of 26 years each. Clause
4.3 of the lease provided:
4.3 Permitted Use
(a) During the Term the Demised Premises shall be used as an Entertainment
Complex and for any other purposes referred to in the Lessee's
Proposal.
(b) The Lessee will not, during the Term, permit any noxious, immoral,
offensive or illegal act, trade, business occupation or calling
at any time
during the Term to be exercised, carried on, permitted or suffered in or upon
the Demised Premises.
- The
document referred to as the "Lessee's Proposal" was not in evidence. The case
proceeded on the basis that that document did not
permit use of the Darling Walk
site for commercial office space or for use as a hotel.
- The
lease required Jacfun to pay rent calculated by reference to the income it
received from the premises. It also set a minimum rent
which was payable each
year. Jacfun was entitled to assign the lease but, in that event, cl 6.7 gave
SHFA a first right of refusal.
- Jacfun
subleased the premises. Initially, the principal subtenant was SEGA Enterprises
(Australia) Pty Limited ( SEA ) which operated an entertainment complex
known as "SEGA World". The balance of the subtenancies were for a mixture of
retail and
entertainment uses.
- In
1999, SEGA Enterprises of Japan, SEA's parent, transferred its shares in SEA to
interests associated with Jacfun in return for
$36,810,769. A proportion of that
amount was used to pay Jacfun's external debt, with the result that Jacfun was
from that time funded
entirely by its shareholders.
- The
SEGA World concept was not a success and, after the end of the Sydney Olympics,
it was closed. Following the closure of SEGA World,
Jacfun began exploring how
it might derive value from its lease. It regarded the issue as pressing, since
by then the leased premises
were approximately 75 percent vacant and Jacfun was
incurring significant losses.
- In
October 2000, Jacfun commenced work on concept plans for the redevelopment of
Darling Walk. It engaged the Hayson Group of Companies
and, in particular, Mr
Ian Hayson to assist it in that task. At about the same time, SHFA decided that
it would prepare a Master
Plan for Darling Harbour. That plan became known as
the Darling Harbour 2010 Master Plan. Both parties recognised that the original
concept for Darling Walk was flawed. Part of the problem was that the site could
not attract people during the week. In addition,
as Mr Ronald Dyne, Jacfun's
general manager, was to record a year later following a meeting with
representatives of SHFA on 19 November
2001:
[I]t has been proven through the demise of Sega World, Luna Park
and Fox Studios that Sydney cannot support any major destination
entertainment
businesses.
- Mr
Hayson recommended that the solution to these difficulties was to redevelop the
Darling Walk site for use as commercial offices
as well as for entertainment and
retail and, during the period from October 2000 to August 2001, Jacfun put
forward to SHFA a number
of proposals which involved redeveloping the site in
that way. Each of those proposals was rejected by SHFA.
- On
27 July 2001, SHFA wrote to Jacfun saying that Jacfun should not do any further
work on a proposed redevelopment until the Darling
Harbour 2010 Master Plan was
complete, which was expected to take 6 to 9 months and, at a board meeting of
SHFA on 13 September 2001,
the board delegated to Mr Robinson authority "to
negotiate the purchase of the site from Jacfun at an acceptable value". It
appears
that the board thought at that time that that would enable SHFA to
redevelop the site to include residential accommodation. Although
the timing is
not clear from the evidence, it appears that, shortly after the SHFA board
meeting, Mr Robinson met with Mr Hayson
and raised the possibility of SHFA
buying out Jacfun's lease for an amount of $15 million. Mr Robinson also told Mr
Hayson that SHFA
proposed to appoint Mr Max Bowen, who had extensive experience
in the property development industry, to conduct negotiations with
Jacfun
concerning the surrender of its lease.
- Mr
Hayson had several discussions with Mr Bowen concerning a buyout during which he
indicated that a price in the order of $20 million
would be acceptable to
Jacfun. However, negotiations to buy out the lease soon stalled and, on 5
November 2001, Mr Bowen told Mr
Dyne that SHFA was no longer interested in a
buyout. Instead, Mr Bowen proposed that SHFA and Jacfun enter into some form of
cooperative
arrangement under which SHFA would seek to change the use that could
be made of the site and would share in the resulting increase
in value. A few
days later, on 8 November 2001, Mr Robinson confirmed in a letter to Mr John
Leece, one of Jacfun's directors, that
SHFA was no longer interested in a
buyout. In that letter Mr Robinson said:
It appears that your view of the value of your leasehold stake is
significantly greater than that which we could justify, particularly
from a
Government process point of view, and as such we are not in a position to
negotiate further.
- During
the first half of 2002, the parties discussed proposals to redevelop the Darling
Walk site. During that time, SHFA took active
steps to progress that part of the
Darling Harbour 2010 Master Plan concerned with the Darling Walk site. It
appointed Cox Richardson,
architects, and other consultants to progress those
plans. Representatives of SHFA and Jacfun met regularly together and with Cox
Richardson to discuss various options. The option preferred by both the
management of SHFA and by Jacfun was one that involved three
towers, one of
which would accommodate a hotel and the remaining two of which would accommodate
commercial office space. During one
of the meetings, it was also suggested that
the then proposed cross city tunnel ventilation shaft could be included in one
of the
office towers and that that may make the proposal more attractive to
government.
- During
this period, Jacfun largely put on hold attempts to sublease space in Darling
Walk in the expectation that a redevelopment
plan would be agreed.
- On
19 June 2002, there was a board meeting of SHFA. At that meeting, both Mr Sartor
and Ms Holliday expressed concern about the preferred
option and, in particular,
the height of the proposed office buildings. The board resolved:
As the majority of Members considered that a higher stack for the
Cross City Tunnel is preferable, a number of options should be considered
and
referred to the Minister for consideration. These options are to include the
Darling Walk re-development ...
If a tower building is to be constructed as part of the Darling Walk
re-development, consideration should be given to locating the
building out of
the Darling Harbour precinct and across the envelope separating Darling Harbour
from the city.
Shortly afterwards, SHFA terminated the consultants it had engaged to work on
the proposed redevelopment.
- On
4 July 2002, Mr Bowen and Ms Di Talty, Director Major Projects with SHFA, met
with Mr Dyne to inform him of the board's position.
Mr Dyne's file note of that
meeting records in part:
They advised that the proposed plan for the Darling Walk
development had met with some resistance at the SHFA board meeting. Most
vocal
opponents were Frank Sartor and Sue Holliday, Director of Planning NSW.
Sartor, supported by Holliday, objected to the height and scale of the
development and as a result the board adopted the conservative
approach that
they should wait to see the results of the Master Plan 2010 before proceeding
with any development at Darling Walk.
It was stated that consideration should be
given to a low-rise development and uses should be determined after completion
of Master
Plan 2010.
Master Plan 2010 is the new plan that SHFA is developing for the entire
Darling Harbour precinct. It is a detailed study of what is
needed in Darling
Harbour for the future.
The problem that this presents is that this master plan is expected to be
completed in September 2003 and SHFA is no longer able to
fast track the Darling
Walk development as originally stated. The delay is at least 12 months. They
also cannot be sure that they
can deliver the minimum area of 55,000 square
metres as set out in the proposed deed with Jacfun.
The SHFA executives expressed regret for their board's position. ...
Jacfun asked for a rent reduction, but that was refused. Mr Dyne reported
what he was told by Mr Bowen and Ms Talty to the directors
of Jacfun in an email
he sent to them on the day of the meeting.
- According
to a file note prepared by Mr Dyne, Mr Robinson also met with Mr Hayson on 18
July 2002 to explain SHFA's position. That
note records Mr Robinson as saying:
1 There was strong opposition by the external board members to a
large-scale development.
2 Expressed bitter regrets that the board had not approved the plan.
3 If it was up to him and Gerry Gleeson, the plan would have been approved.
4 Goodwill exists between SHFA executives and Jacfun.
5 SHFA should buy the site from Jacfun but they could not meet the price
expectations put forward by Jacfun in 2001.
6 Wants Max Bowen to negotiate a deal with us in the range of $9 to $10
million.
- Subsequently,
discussions took place between Messrs Hayson and Bowen. Mr Hayson reported back
to Mr Dyne the results of those discussions.
Mr Dyne set out what he was told in
an email dated 1 August 2002 to members of the Jacfun board. The email
relevantly says:
The SHFA board decided that they [sic] would be no large scale
development on the Darling Walk site in the foreseeable future and
the status
quo would remain until the Darling Harbour Master Plan 2010 is completed.
However the CEO, Greg Robinson, believes that
because of the current situation
at this end of Darling Harbour and the additional disruptions that will be
caused by the construction
of the Cross City Tunnel he can convince the board to
buy the site. They cannot justify a valuation for the site and the purchase
would result in a negative cash flow to SHFA but he believes they should
purchase to be able to control their own destiny.
...
They are not trying to con us into selling out and at best they see a hotel
development with retail but no offices. They acknowledge
that Greg Robinson
mentioned a figure of $15 million last year but thereafter they were not able to
justify that price. That is why
they then put forward the joint venture
proposal. Max believes that $8 million is "appropriate and generous" ...
Mr Hayson's only recollection of the conversation is that he was told that
the SHFA board was against large scale development.
- Following
these meetings, Jacfun received a number of enquiries about selling the site. It
appointed Laing & Simmons and Colliers
International to develop a marketing
strategy. Laing & Simmons expressed the view in a marketing report that the
current market
sales potential of the lease was in the range of $13 million to
$16 million. It also advised Jacfun that the "investment value" of
the lease was
$12,100,000 "fully leased". Colliers International expressed the view in a
similar report that the "realistic sale
price range for Darling Walk is $14
million to $20 million". Its estimate of the investment value fully leased was
$13,500,000. The
reason for the difference between market value and investment
value was not explained in the evidence; and the reports themselves
were not
admitted as evidence of value. SHFA also obtained a confidential valuation
report from Handley Paris & Partners. That
report estimated that the
commercial value of the lease was $0 and that the estimated compulsory
acquisition value was $12,000,000
to $16,000,000 (on the basis that the lease
was worth $2,000,000 to $4,000,000 and the buildings were worth $10,000,000 to
$12,000,000).
The report recommended an "acquisition range" of $7,750,000 to
$12,000,000.
- At
the same time that Jacfun was investigating the sale of its lease it also once
again started actively to seek tenants.
- On
10 October 2002, Mr Dyne and Mr Hayson met with Mr Bowen. Mr Dyne made a
handwritten file note of that meeting which records:
$10m to emotionally control the site. Compulsory acqu."
In his affidavit, Mr Dyne says that he recalls Mr Bowen saying words to the
effect of:
SHFA is prepared to pay $10 million to emotionally control the site. If you
do not agree to sell then it will consider compulsory
acquisition.
Neither Mr Hayson nor Mr Bowen had a practice of keeping file notes and
neither gave evidence about the meeting. No explanation was
given of what
precisely was meant by the expression "emotionally control the site".
- There
was a further meeting between Mr Dyne and Mr Bowen on 11 October 2002. Mr Dyne
made a typewritten file note of that meeting.
It is not clear when that file
note was prepared. However, it was prepared no later than 16 October 2002. The
file note records the
following:
Met with Max Bowen on Friday 11 th October 2002 for an "off the
record" discussion. I advised that Jacfun was extremely dissatisfied
at the way
SHFA had dealt with us over the years. Bowen advised that SHFA wish to gain full
control of the Darling Walk site to be
in a position to control its destiny. But
this would not be at the expense of Jacfun. They do not foresee an office
development ever
being permitted and at best the only additional rights could be
a low-rise hotel. They may consider some negotiation with RTA on
the smoke stack
for the Cross City Tunnel.
Bowen stated that he had consulted a valuer who had determined that Jacfun's
interest in the site was worthless. However, to get control
SHFA is willing to
pay $10,000,000 to Jacfun. This would be the maximum. SHFA is also considering a
Compulsory Purchase of the site
which Bowen maintains they are entitled to do.
In this event the value would be determined by the Valuer General.
Bowen believes there is a "window of opportunity" for Jacfun to do a deal
with SHFA. I stated that I would not submit any proposal
to the Jacfun board
unless it contained a clause allowing for additional payments to Jacfun in the
event that additional value was
created post sale by changing zoning. Bowen
agreed to this.
It is the conversation recorded in this note that is said to amount to
misleading and deceptive conduct on the part of SHFA.
- There
was a further conversation between Mr Dyne and Mr Bowen on 15 October 2002. Mr
Dyne's note of that conversation records that
Mr Bowen indicated that the price
of $10 million was acceptable subject to due diligence in relation to any
tenants' claims and that
SHFA would negotiate an additional payment to Jacfun in
the event of changes to zoning of the site in the future - described in the
note
as a "kicker".
- Mr
Dyne repeated the contents of his file note of the 11 October 2002 meeting in
his report to the Jacfun board in a note he circulated
on 16 October 2002. The
board met on 17 October 2002. The meeting was attended by Mr John Landerer, Mr
John Leece, Mr Kevin Bermeister
and Mr Bruce Fink. The board agreed in principle
to accept Mr Dyne's recommendation that Jacfun should accept SHFA's proposal to
buy out Jacfun's lease. However, it was agreed that Jacfun should try to get a
higher price. Each of Mr Landerer, Mr Leece and Mr
Bermeister gave evidence.
Each said they relied on Mr Dyne's report of his conversation with Mr Bowen on
11 October 2002 and, in
particular, the statement that SHFA did not foresee an
office development ever being permitted in reaching that conclusion. Each
also
said he took other matters into account, including the threat of compulsory
acquisition and the fact that SHFA may have been
able to frustrate a sale
through the first right of refusal. Each of the directors and Mr Dyne was
cross-examined on what he understood
was the effect of what Mr Bowen had said at
the meeting on 11 October 2002. Mr Dyne said that he understood Mr Bowen to be
saying
that "there would be no office development in the foreseeable future",
which he took to mean the next 10 to 20 years. Mr Landerer
thought that he was
being told that no office development would ever be permitted. Mr Leece thought
that he was being told that SHFA
did not foresee an office development ever
being permitted until such time as the Darling Harbour 2010 Master Plan was
available.
Mr Bermeister thought that he was being told that SHFA did not
foresee an office development being permitted until the expiry of
the initial
term of the lease - that is, for 35 years.
- Following
Jacfun's board meeting, there were extensive negotiations concerning the terms
of the buyout. Jacfun was unsuccessful in
negotiating an increase in the price.
It originally sought a "kicker" that extended for a period of 10 years. That,
however, was
resisted by SHFA. The surrender of lease was finally signed on 3
March 2003. Under the terms of the deed of surrender SHFA paid Jacfun
approximately $10 million. Clause 7.1 of the deed relevantly provided:
If, at any time up to and including 1 July 2008, the Landlord
Disposes of the Premises to realise a Net Disposal Price in excess of
$40,000,000 (excluding GST) then any excess above $40,000,000 (excluding GST) is
to be shared equally by the Landlord and the Tenant.
Jacfun regarded this term as the best it could negotiate in the
circumstances.
- In
late 2007 and early 2008, there were a number of press reports that Lend Lease
had been selected by SHFA to construct a substantial
commercial development on
the Darling Walk site. Jacfun became aware of those reports and, on 15 May 2008,
Landerer & Company,
its solicitors, wrote to SHFA expressing concern that
there had been a disposal of the site within the meaning of cl 7.1 of the deed
of surrender and seeking information relevant to that question. There was no
suggestion in that letter that Jacfun had been induced
to surrender its lease by
misleading conduct. That allegation was first made in an affidavit sworn by Mr
Dyne on 29 August 2009 in
support of an application for preliminary discovery.
- On
2 January 2009, the Minister for Planning approved a development and building
application for the construction of two 9 storey
buildings on the site.
Did SHFA engage in misleading conduct?
- In
considering whether the statements made by Mr Bowen to Mr Dyne at their meeting
on 11 October 2002 were misleading, it is helpful
to start with what the true
position was, since it is by reference to that that the question whether the
statements said to have
been made by Mr Bowen were misleading or deceptive is to
be determined.
- As
at 11 October 2002, the true position was itself open to some interpretation.
The management of SHFA, including its CEO, and indeed
its chairperson, Mr
Gleeson, were in favour of a high rise commercial office development. They
appeared to recognise that the original
concept for the site was flawed and that
the use to which it was put would have to change in order to make the site
successful and,
perhaps, even viable. Moreover, SHFA was having discussions with
the Roads & Traffic Authority about the location of a ventilation
stack for
the cross city tunnel and one of the possibilities that was being discussed at
the time - although it was ultimately rejected
by the government - was to locate
the stack within a high rise building. Despite these considerations, it was
clear that two members
of the board were opposed to a high rise office
development and they wanted to wait for the 2010 Master Plan, which was expected
to take some time to complete. Their views prevailed at the meeting on 19 June
2002. As a result, SHFA terminated the consultants
it had engaged to work on the
proposed redevelopment. What did all this mean for the prospects of a commercial
development as at
11 October 2002? Mr Bowen in his affidavit said:
My state of mind at the time was that I thought there may well be
an office development on the site, but probably not in the next
few years. I
knew that [SHFA] was working on developing a master plan for the site (but I was
not aware what that final plan was),
but I had no reason to think that it would
not include office developments.
SHFA called no other evidence concerning its intentions as at 11 October
2002. In those circumstances, Mr Bowen's views should be
taken as an accurate
statement of the position.
- The
relevant legal principles are not in doubt. The question whether conduct is
misleading or deceptive is an objective one that must
be determined having
regard to all the surrounding circumstances: Chase Manhattan Overseas
Corporation and Others v Chase Corporation Ltd & Anor (1985) 63 ALR 345
at 355 ; Specsavers Pty Ltd v The Optical Superstore Pty Ltd (No 2)
[2010] FCA 566 at [103]; Taco Co Australia & Anor v Taco Bell Pty Ltd
& Ors [1982] FCA 136; (1982) 42 ALR 177 at 202 ; Parkdale Custom Built Furniture Pty
Ltd v Puxu Pty Ltd [1982] HCA 44 (1982) 149 CLR 191 at 198; SAP Australia
v Sapient Australia Pty Ltd [1999] FCA 1821; (1999) 169 ALR 1. Where the
conduct consists of statements, the question whether it is likely to mislead or
deceive is to be answered by asking whether
there is a real and not remote
possibility that the statements will induce error in the minds of the person to
whom they were directed:
see Chase Manhattan at 355; Global Sportsman
Pty Ltd & Anor v Mirror Newspapers Ltd & Anor [1984] FCA 180; (1984) 55 ALR 25 at
30. If the statements relied on are oral, it is normally necessary to determine
what words were spoken and then to ask whether
those words were, having regard
to all the relevant circumstances, misleading or deceptive: Watson v Foxman
(1995) 49 NSWLR 315, applied in James Hardie Industries NV v ASIC
[2010] NSWCA 332 at [259]-[291]. There is, however, an artificiality in
adopting a two stage approach in the context of this case. Mr Bowen has no
recollection of
the conversation on 11 October 2002. Although Mr Dyne, on
occasions, said that he could recall the conversations about which he gave
evidence, he conceded, when pressed, that he could not recall the words used and
that his evidence of what was said was a reconstruction
from his file notes. In
particular, in relation to the conversation on 11 October 2002, Mr Dyne conceded
that his note of the meeting
did not set out the precise words used and that it
was just as likely that Mr Bowen said that there was no likelihood of an office
development in the foreseeable future rather than (as his note records) "ever".
There is nothing surprising in this given that the
relevant conversations
occurred over 8 years ago. The best evidence of what was said, then, is what is
set out in Mr Dyne's file
note construed against the context in which it was
written and taking into account the fact that the file note itself does not set
out the actual words used. The techniques used to identify the words spoken,
then, are the same as the techniques used to identify
the meaning they conveyed.
In those circumstances, there seems little point in this case in trying to
separate the two tasks.
- Jacfun
pleads the representations conveyed by Mr Bowen in the meeting on 11 October
2002 in these terms:
(a) It was not reasonably foreseeable that any office development
would ever be permitted by the defendant on the Darling Walk site;
(b) At best, the only foreseeable additional development on the Darling Walk
site that the defendant would permit would be a low-rise
hotel.
- There
is no real dispute that the second of these representations was made. The case
focussed on the first. Jacfun says that that
representation is supported by Mr
Dyne's file note and the evidence given by Mr Dyne. On the other hand, it says
Mr Bowen could not
deny that he made the representation, although he gave
reasons in his affidavit for thinking that he did not make it. Moreover, Jacfun
submits that the representation is consistent with the position taken by SHFA
that the lease was worthless. Mr Bowen accepted in
cross-examination that the
lease was only worthless if there was no reasonable possibility of redevelopment
being permitted. Consequently,
when he told Jacfun that the lease was worthless,
he was impliedly asserting that no redevelopment would be permitted. It is not
surprising that he made express what was already implied in what he said.
According to Jacfun, it is not necessary to identify the
precise meaning
conveyed by what Mr Bowen said. The important point is that it conveyed that
there was no reasonable possibility
of an office tower being permitted in the
foreseeable future (the use of the word "ever", if it was used, adding emphasis
to this
proposition) whereas the fact was that there was a reasonable
possibility of that happening.
- I
do not accept Jacfun's submission. In my opinion, Mr Dyne's file note of the 11
October 2002 meeting accurately records the substance
of what was conveyed by Mr
Bowen subject to one qualification. The qualification is that, whatever words
were actually used by Mr
Bowen, in the context, they conveyed an impression
that, as things stood, there was no reasonable possibility of a large scale
office
development. They did not convey an impression that the position could
not change in the future if circumstances changed. I say that
for several
reasons.
- First,
it is inherently unlikely that Mr Bowen would have conveyed an impression about
the likelihood of a commercial development
whatever the circumstances. Anyone
would have appreciated that a statement to that effect was false. For example,
it is obvious that,
if there were a change of government or even a change of
Minister, the prospects of a commercial development could change substantially
-
not least because SHFA was subject to the direction and control of the relevant
Minister. It could not be supposed that Mr Bowen
had any more knowledge about
those matters than Jacfun. In those circumstances, it is improbable that Mr
Bowen was intending to say
or would be interpreted as saying something about the
likelihood of either of those events happening or, more accurately, not
happening
or of their effect - that is, that there would be no change of
government or of the responsible Minister in the foreseeable future
or, if there
were, it would make no difference to what would be permitted on the site. Yet
statements to that effect are implicit
in the unqualified representation pleaded
by Jacfun. Similarly, it is difficult to see that Mr Bowen was intending to say
something,
or that he could be taken as saying something, about the likelihood
of the composition of the Board of SHFA changing (or not changing)
or about the
recommendations that would be made in the Darling Harbour 2010 Master Plan.
Those matters could have a substantial effect
on the prospect of a commercial
office tower being permitted at the Darling Walk site. Yet implicit in the
unqualified representation
pleaded by Jacfun are statements that the composition
of the board would not change and that the 2010 Master Plan would not contain
a
recommendation in favour of large scale commercial development or that, if there
was a change in the board (for example, if Mr
Sartor and Ms Holliday left) or
the 2010 Master Plan recommended a large scale commercial development, those
things would make no
difference. Again, they are matters about which Mr Bowen
could not have been expected to have any particular knowledge about. They
are
statements which, if made, were obviously false. In those circumstances, the
likelihood is that Mr Bowen did not make them.
- Second,
the context is important. From Jacfun's point of view, at least, SHFA had waxed
and waned about what it wanted to do with
the site and there were clearly
differences of opinion both between management and the board and between members
of the board itself
on whether a large scale commercial development should be
permitted. Jacfun was about to make an important decision. It had put a
lot of
effort into developing the proposal that was ultimately rejected by the SHFA
board. It was natural in those circumstances
for Mr Dyne to want to confirm that
the effect of the decision of the SHFA board really was that there was no point
in pursuing the
proposals which had been the subject of so much effort in the
first half of 2002. In my opinion that was the effect of what he was
told by Mr
Bowen at the meeting on 11 October 2002. If Mr Bowen actually used the word
"ever", then that word simply added emphasis
to what he was saying: that the
SHFA board was resolute in its position.
- Third,
the earlier conversations in which representatives of Jacfun were told of the
SHFA board's decision to reject the recommended
proposal are important. In those
conversations, Mr Bowen and other representatives of SHFA gave an accurate
account of what had happened.
They made it clear that the SHFA board at least
wanted to see what the results were of the 2010 Master Plan before making any
decisions.
What might happen then was left unclear. In my opinion, it is
unlikely that, having given Jacfun such a frank account of what had
happened and
of the prospects of a commercial development being permitted in the future, Mr
Bowen would then mislead Jacfun about
that matter. In addition, if the
statements made by Mr Bowen on 11 October 2002 really were substantially
different from the statements
he and others from SHFA had made in July 2002, it
would have been natural for Mr Dyne to ask Mr Bowen for an explanation of the
change
of position. However, he did not do so. That fact suggests that he took
Mr Bowen to be doing no more than confirming a position that
he had already
communicated. But there is nothing in Mr Bowen's earlier communications which
would suggest that SHFA would not permit
a large scale commercial development at
any time in the future come what may; and, of course, there is no allegation
that any of
those earlier representations were misleading or deceptive.
- Fourth,
I accept SHFA's submission that it is difficult to reconcile Jacfun's case with
cl 7.1 of the surrender deed. That clause
contemplated the possibility that SHFA
would dispose of the Darling Walk site within a period of 5 years. A disposal
which triggered
the operation of cl 7.1 was only likely to occur in connection
with an office development on the site. Jacfun attached some importance
to cl
7.1 (or at least the principle behind it) in the negotiations for the surrender
of the lease. However, it is difficult to see
why it would have done so if it
really was told that there was no prospect of a redevelopment in the foreseeable
future.
- Fifth,
I accept SHFA's submission that the fact that Jacfun did not complain that it
had been misled immediately it found out about
the proposed arrangements with
Lend Lease undermines its case. On Jacfun's case, critical to its decision to
surrender the lease
was the fact that it was told that it was not reasonably
foreseeable that an office development would be permitted by SHFA on the
Darling
Walk site. Mr Landerer, in evidence, described cl 7.1 of the surrender deed as
the "cherry" on top of the cake. Yet it was
the loss of the cherry not the cake
that was first the subject of complaint. If Jacfun really had been misled and if
that is what
was critical to its decision, then it is to be expected that that
would be the focus of its complaint, not cl 7.1.
- Lastly,
in my opinion, Jacfun's conduct is explicable on the basis of the representation
that I have found Mr Bowen did make. Jacfun
had incurred or was projected to
incur significant losses in 2001 to 2003. As at October 2002, the losses from
January 2002 to June
2002 were $1,158,199, and the budgeted losses for July 2002
to June 2003 were $1,606,557. Although Jacfun was taking steps to find
new
tenants and although the evidence suggests that, if the premises were fully
tenanted, it would make a modest profit, there was
no certainty that it would
find suitable tenants and there was a substantial risk that, without a
redevelopment, it would continue
to incur losses in the future. There was no
certainty if and when that redevelopment would be permitted. There was a risk,
in the
meantime, that its lease would be the subject of compulsory acquisition
which was likely to result in protracted negotiations and
possible court
proceedings about price, which would themselves give rise to uncertainties. The
threat of compulsory acquisition,
the first right of refusal and the uncertainty
about whether redevelopment would be permitted were matters that were likely to
cause
uncertainty about whether and for what price Jacfun would be able to sell
its interest in the site to a third party, and may have
made such a sale
difficult. In those circumstances, in my opinion, it was reasonable for Jacfun
to agree to the terms that it did,
even assuming that there was a reasonable
possibility that redevelopment including an office tower would be permitted some
time in
the future. This is not a case where it is difficult to explain the
plaintiff's conduct absent the representation on which it relies.
That, of
course, does not prove that the representation was not made. But it does remove
one of the reasons for thinking that it
was made.
- Nor
do I think that the conclusion I have reached is undermined by the fact that Mr
Bowen described the lease as worthless. Mr Dyne's
file note actually records
that Mr Bowen said that SHFA had advice that the lease was worthless. That
statement was undoubtedly correct.
Mr Bowen conceded in cross-examination that
he shared that view and that he may well have expressed it to Mr Dyne. It
appears that
the basis of that view was that, without an amendment to cl 4.3 of
the lease permitting the site to be used for an office development,
the lease
had no value because any rent that could be derived from subleasing the premises
was unlikely to exceed substantially the
base rent payable to SHFA. Accepting
that Mr Bowen expressed that view as his own, I do not think he was saying
anything more than
the lease as it stood was worthless. That was the lease that
SHFA was paying Jacfun to surrender, not a lease which permitted redevelopment.
Understood in that way, I do not think that Mr Bowen by making the statement
that the lease was worthless was saying anything about
the prospects that SHFA
would agree to an amendment to it. It is true that the lease had value to SHFA
because it was an impediment
on SHFA's ability to control its own destiny
(whatever precisely that meant). That explains why SHFA was willing to pay $10
million
to secure its surrender. But again, these facts do not establish that Mr
Bowen was likely to have said something about the prospects
of redevelopment
beyond what I have found he said.
- It
follows from what I have said that SHFA did not engage in misleading or
deceptive conduct, or conduct that was likely to mislead
or deceive. There was a
clear basis for believing that, as things stood, there was no real prospect that
the board of SHFA would
change its mind. Mr Bowen's statement that he thought
that there may well be an office development on the site but probably not in
the
next few years is not inconsistent with that proposition. In part, no doubt,
that belief was based on the view that an office
development was necessary to
make the site viable or at least successful. But Mr Bowen's statement does not
carry with it the implication
that the board would change its mind in the
foreseeable future. Rather, all it carries with it is the implication that the
problems
with the existing use meant that an office development was likely to be
permitted some time in the future. That may have happened
when the composition
of the board changed, which it inevitably would, or as a result of
recommendations made in the 2010 Master Plan
or for some other reason. However,
that fact did not make what Mr Bowen said about the existing board's attitude
misleading.
Reliance and Damages
- Having
regard to the findings I have made, it is not necessary to deal with the
question of reliance. It is implicit in what I have
said that, even if Mr Bowen
did make an unqualified statement about the prospects of redevelopment, it would
have been unreasonable
for Jacfun to rely on it. It must have been obvious to
anyone that things could change and that explains why cl 7.1 of the surrender
deed was of some importance to Jacfun. I should, however, say something about
Jacfun's damages case.
- Jacfun
puts its claim for damages in two ways. First, it says that its loss is to be
measured as the difference between the true value
of the lease and what it
received. It says that the true value of the lease can be measured in one of two
ways. One way is to calculate
the true value by reference to the position absent
any redevelopment. The other and preferred method is to calculate the true value
on the assumption that a redevelopment including an office tower was permitted
and occurred. In the alternative, Jacfun says that
its loss is to be measured as
the loss of an opportunity to participate in a commercial redevelopment of the
site.
- Jacfun
served an expert report from Mr Roger Price, who is a senior director with CB
Richard Ellis and who provided a valuation of
the lease on the two bases I have
identified (that is, without and with redevelopment). Jacfun did not serve any
valuation evidence
specifically directed at its case based on what was said to
be the loss of an opportunity to participate in a commercial redevelopment
of
the site. However, it pointed to Mr Robinson's original offer of $15 million,
Hadley Paris & Partners' estimate of the compulsory
acquisition value of $12
million to $16 million and Jacfun's own assessment that the lease was worth $15
million to $20 million as
being of assistance in valuing the lost chance.
- Mr
Price adopted two approaches to valuation in his report. His primary approach
was to capitalise projected future earnings on the
two bases I have identified.
As a check, he also used a discounted cash flow approach to determine value on
each of those two bases.
He concluded that, without redevelopment, the true
value of the lease was $13.3 million and with redevelopment the true value was
$20 million.
- In
arriving at the $13.3 million figure, Mr Price concluded that it was reasonable
to assume that the Darling Walk site would be fully
tenanted within a period of
9 months. He took the view that the area previously occupied by SEGA World could
be relet to several
operators who would run a venue he described as "Kids
World", a bowling complex, a cinema complex, a 2 level pub/night club and a
concept store. He assumed that some existing tenants of the remaining part of
the premises would leave but that they would be replaced
and the remaining
vacant shops would be sublet to a combination of retail and "specialty" stores.
He then estimated the rent that
each tenant would pay by reference to rent
payable at comparable sites, identified various expenses and took account of
those to
arrive at his final figure.
- In
arriving at the $20 million figure, Mr Price assumed the construction of two 7 -
9 storey commercial buildings in accordance with
the concept plan approved by
the Minister for Planning on 2 January 2009. Mr Price assumed that approval for
the construction of
the buildings was given in March 2003. He estimated that it
would take a year to obtain development approval and another three years
to
construct and let the buildings. Once again, he then estimated the rent that
each tenant would pay by reference to rent payable
at comparable sites and took
account of various expenses to arrive at his final figure.
- In
my opinion, Mr Price's report does not provide an adequate foundation for the
true value of the leased premises on either approach
that he took.
- There
are two interrelated difficulties with Mr Price's valuation on the first
approach (without redevelopment). The first is with
his "assumption" that the
premises would be fully leased within a period of 9 months. This is not an
assumption in the strict sense.
It was an opinion held by Mr Price. That opinion
should be given some weight. However, in my opinion, it was overly optimistic
having
regard to what had happened at the site. SEGA World was not a success and
Jacfun was having difficulties attracting other tenants.
Mr Price explained that
he thought that part of those difficulties was due to the fact that Jacfun was
looking for a single major
tenant to replace SEGA World rather than a number of
smaller tenants who could appeal to different demographics. In addition, Jacfun
had put its search for new tenants on hold for a period of time when it expected
that it would reach agreement with SHFA on redeveloping
the site. Consequently,
little weight should be given to the fact that it had not attracted new tenants
following the closure of
SEGA World. Even so, the site had not been a success,
although no doubt it was thought at the time SEGA World was established that
it
would be. Both SHFA and Jacfun thought that the original plans for the site were
flawed, and that view appears to have been shared
by Mr Hayson, who recommended
that the site be redeveloped to include offices. SHFA had at least raised the
possibility of compulsory
acquisition, which is not something that Mr Price took
into account. Moreover, the site was a unique one. That makes predictions
about
what was likely to happen based on what had or was happening elsewhere
difficult. Against that background, in my opinion, it
was necessary for Jacfun
to point to actual likely tenants and to explain why those tenants were likely
to be attracted to the site
before the court could be satisfied that the basis
on which Mr Price was proceeding was a reasonable one.
- Secondly,
it was always open to Jacfun not to agree to surrender its lease and to seek to
relet the premises. It chose not to do so
and instead it agreed to surrender its
lease on the terms that it did. In my opinion, the terms on which it did so are
a better indication
of the likely value of the lease as things stood than an
analysis which depends on forming a view about the ability of Jacfun to
let the
premises.
- The
difficulty with Mr Price's valuation on the second basis (with redevelopment) is
that Mr Price assumes that approval would have
been given to a redevelopment in
March 2003. As Mr Price readily conceded, that was a true assumption made by
him. He thought that
it was one that he was required to make by the instructions
he had been given. In my opinion, there is no basis for that assumption.
The
facts do not support it. Ministerial approval of the concept of redevelopment
was not given until 2 January 2009, with the result
that the 3 year period
allowed for by Mr Price for the actual development would only start to run from
that time. Jacfun sought to
answer this point by pointing to the fact that cl
7.1 of the surrender deed provided SHFA with an incentive not to do anything
until
after 1 July 2008. There is no reason to think that Ministerial approval
would have taken so long absent that clause. This point
may provide a reason for
discounting what actually happened as an indicator of what was likely as at
March 2003. But it does not
justify the assumption made by Mr Price. Without
that assumption, Mr Price's report does not prove the value of the lease with a
commercial development. There are no other facts from which it is possible to
estimate how long it would take for a change of use
to be approved and there is
no means of knowing what consequences a delay would have on Mr Price's
valuation. That problem is exacerbated
by the fact that Mr Price assumes that a
commercial development would have been permitted in March 2003. However, even
taking Jacfun's
case at its highest, the most that could be said was that there
was a reasonable possibility of that happening in the foreseeable
future and
that Jacfun lost the opportunity to obtain the benefit of that redevelopment. Mr
Price cannot be criticised for failing
to discount his valuation to reflect the
fact that what was lost was a chance not a certainty. That is a task for the
court. But
it is not a task the court can perform without a starting point and,
for the reasons I have given, Mr Price's report does not provide
one. In
addition to these considerations, it would also be necessary to take account of
the likelihood that SHFA would seek compulsorily
to acquire the lease if it
could not reach agreement with Jacfun. SHFA certainly had the power to do so and
had made a threat that
that is what it would do if agreement could not be
reached. Taking all these matters into account, I do not think that Jacfun has
established that it is entitled to any damages on its preferred basis for
assessing them.
- That
leaves Jacfun's case based on the loss of a chance. This case did not depend on
Mr Price's evidence but rather on other evidence
of value - principally the
offer of Mr Robinson, the report of Handley Paris & Partners and the views
expressed by Jacfun.
- In
my opinion, it is appropriate to characterise any loss Jacfun suffered as a loss
of a chance. Essentially, its case was that it
was deprived by SHFA's conduct of
the opportunity to take the benefit of a redevelopment of the site if that
opportunity arose. There
is no doubt that, if Jacfun can establish a breach of s
42 of the Fair Trading Act and that there was a substantial chance of a
redevelopment, it is entitled to be compensated for that lost chance, even if
the chance
is less than 50 percent and even if the task is difficult and some
guess work is involved: Sellars v Adelaide Petroleum NL [1994] HCA 4,
(1994) 179 CLR 332; Malec v JC Hutton Pty Ltd [1990] HCA 20, (1990) 169
CLR 638 at 643 per Deane, Gaudron and McHugh JJ; La Trobe Capital &
Mortgage Corporation Limited v Hay Property Consultants Pty Ltd [2011] FCAFC
4 at [90] per Finkelstein J.
- However,
in my opinion, the evidence is inadequate to establish that that chance had
value in addition to the amount that it received.
I do not think that Mr
Robinson's indication that SHFA would be prepared to pay $15 million for the
lease provides an indication
of the value of that chance. That offer was
withdrawn at a time well before Mr Bowen is alleged to have engaged in the
misleading
conduct. Nor do I think that a hope on the part of Jacfun that it
could negotiate a surrender price of between $15 million and $20
million
provides an adequate basis to value the lost chance. That hope was, no doubt, a
product of Mr Robinson's suggestion that
an appropriate price was $15 million.
That leaves the report of Handley Paris & Partners. That report valued the
lease at between
$12 million and $16 million on the basis of a compulsory
acquisition. But that is not the lost chance in respect of which Jacfun
makes a
claim. The report goes on to recommend an "acquisition range" of $7,500,000 and
$12,000,000. It is not clear how those figures
are arrived at, but they need to
be considered in the context where Handley Paris & Partners had expressed
the view that the
commercial value of the lease was $0.
- Two
other matters also need to be taken into account. One, which has already been
mentioned, is the risk of compulsory acquisition.
Handley Paris & Partners'
report suggests that that risk had some worth, but it is noteworthy that Jacfun
was concerned about
the risk of compulsory acquisition and that that was one of
the matters that caused the board to agree to surrender the lease on
the terms
that it did. The other matter that needs to be taken into account is cl 7.1 of
the surrender deed. The benefit of that
clause had some value to Jacfun. It
compensated it for the chance that there might be a disposal of the lease within
the next 5 years
and, in doing so, compensated it for the chance that a
redevelopment would be approved in that time. The fact that that chance turned
out to be worthless does not mean that Jacfun was not compensated for it. The
question, then, is whether the payment of the $10 million
adequately compensated
Jacfun for any other chance it missed out on bearing in mind that Jacfun also
faced the very real risk of
a compulsory acquisition if it did not reach
agreement with SHFA. In my opinion, Jacfun has failed to establish that that
chance
had a significant value over and above what it received.
- For
these reasons, Jacfun's claim based on s 42 of the Fair Trading Act must
fail.
Negligence
- Jacfun
did not suggest that there was any basis on which its claim in negligence could
succeed if its claim for a breach of s 42 of the Fair Trading Act failed.
Consequently, that claim also fails.
Orders
- The
proceedings should be dismissed.
- The
plaintiff should pay the defendant's costs. However, I give leave to either
party to apply for a variation of this order by contacting
my associate within 7
days of today's date.
**********
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