HWL Ebsworth found to be negligent in arrangements for massive land deal in western Sydney … Quantum of damages yet to be determined … Loss of opportunity to develop the land … Failure to amend joint venture agreement in accordance with plaintiffs’ instructions … Don’t fence me in 

Damages of tens of millions of dollars are at stake. 

The land was owned by Gregory Hamilton Willoughby Lindsay-Owen and his company Dairycorp Pty Ltd.

Lindsay-Owen wanted to develop his enormous spread because it had been identified by the state government as land that could be released as part of western Sydney’s growth strategy.

Lindsay-Owen retained Martin Downing of HWL Ebsworth to advise on the development and a joint venture agreement with a developer, Schofields Property Development Pty Ltd, a special purpose vehicle of Villawood Management Group Pty Ltd.

Hanging over Lindsay-Owens head was a $20 million plus loan from the NAB, originally used to purchase his sister’s share in the property. The interest was capitalised and the loan was increased from time to time. 

It was important for Lindsay-Owens and Dairycorp that an incoming partner would agree that the bank debt would become a liability of the joint venture as the plaintiffs didn’t have the means to discharge the loan.

In a long and complex judgment, Justice Hormones Harrison, said that “Mr Downing knew and understood his instructions in that regard”. 

Yet, when the joint venture agreement was executed it obliged Lindsay-Owen and Dairycorp to repay the loan when planning approval was obtained.

Lindsay-Owen and Dairycorp couldn’t discharge the debt in accordance with the agreement and their joint venture partner relied on this as a default and forcibly sold the land to Stockland for $103,500,000 in March 2015. 

Hence the claim for damages for the lost opportunity to develop the massive spread and earn substantial profits.

The estimates for gross realisation of the land were anywhere between $274 million and $369 million – the mid-points of different assessments and modelling. 

The plaintiffs claimed they instructed Ebsworth that “the existing debt be discharged by external loan funds” borrowed by the joint venture. 

HWL Ebsworth denied this instruction in its amended defence. However, two days later Tim Faulkner SC for the defendants said: 

“… in view of Mr Downing’s evidence, we can’t maintain that denial of that paragraph … I am instructed that my client concedes that it breached its duty of care to the plaintiff in relation to the drawing of the joint venture agreement.” 

Lindsay-Owen and Dairycorp said that the default and the forced sale of the land would not have happened but for Ebsworth’s breaches. 

HH went on to find that damages arose for the lost opportunity to develop the land and for at least some of the plaintiffs’ expenses paid out of the proceeds of the sale to Stockland. 

Had the amendment to the JVA not been accepted by Schofields then Lindsay-Owen claimed he would have negotiated extensions for the NAB loan and found another partner in the development.

Justice Harrison thought that Downing was aware that the NAB facility would have to be renegotiated or replaced and that the bank should not be discarded as remaining a lender. 

“… The bank was in my opinion likely to have remained cooperative if some further time were needed to negotiate amendments required to give effect to [the plaintiff’s] instructions.” 

[snip]

“I am satisfied on the balance of probabilities that the plaintiffs lost an opportunity to amend the joint venture agreement so that the NAB debt became a joint venture responsibility, in accordance with their instructions to Mr Downing to that effect. The remaining question in this setting is whether the hypothetical amendments to the draft joint venture agreement had some value.” 

HWLE claimed that having regard to the profits made from the unamended agreement, the evidence does not establish that any further profits would have been earned. 

Further, the joint venture had no long term value even if the JVA had been amended because of the plaintiffs’ inability to work with Villawood.

Those reasons were rejected by HH, who said: 

“In my opinion, it cannot be correct to say that the lost opportunity to amend the joint venture agreement had no value, for either of the reasons propounded by HWLE … 

I do not accept that the relationship between the plaintiffs and Schofields had irretrievable broken down in the way contended for by HWLE. There were certainly tensions in existence in the period leading up to April 2014 but there is insufficient evidence for me to conclude that these difficulties would have precipitated a collapse of the joint venture.”

While there was a lost opportunity for the plaintiffs as a result of the failure to amend the JVA, Harrison was unable to find that the loss of an opportunity to contract with a different development partner “had any value beyond the purely hypothetical”. 

From the sale of the land to Stocklands, the plaintiffs received $63 million and they paid out $33.6 million in expenses “as the direct result of HWLE’s breaches of duty …” 

Adjusted for 50 percent of the NAB loan the expenses as damages came to over $22 million, plus interest from March 26, 2015. 

There were various submissions as to the calculation of the lost development profits and various hypothetical development models. Based on the expert valuer and consultant report, the maximum mid-point gross realisation of the development of the land was $369 million.

The scenario with the highest mid-point figure for the net development profit was $205.6 million. 

Harrison said he was unable “on any reasoned or principled basis” to choose between the competing opinions with certainty. He added that a discount should be applied to the loss of chance because of uncertainties associated with the realisation of the opportunity. 

HH left it to the parties to work out the quantum of the claim and to “provide me with their respective contentions about how best to proceed from here”. 

How many tens of millions of dollars Ebsworth’s insurers will have to stump up remains up in the air, for now. 

Lindsay-Owen v HWL Ebsworth Lawyers