This important decision examined the concept of loss of valuable commercial opportunity, specifically in circumstances where overall a plaintiff was more likely to make a loss than to make a profit.
Briefly, the facts were as follows.
- A call option for the sale of land from the defendant to the plaintiff was subject to development approval and required the development to have 149 car parking spaces for the defendant’s use.
- The Call Option Deed provided that the plaintiff would prepare and lodge a “Development Permit Application” with a view to obtaining a “Development Permit”. In the event a satisfactory Development Permit was obtained the plaintiff was to be entitled to acquire the Land and to develop it.
- In late 2011, the plaintiff submitted a draft development application to the defendant, the land owner, for its approval and consent to lodge the application with Council. –.
- The defendant withheld its approval and the plaintiff claimed damages for breach of contract. .
The amended statement of claim alleged that the Call Option Deed required the parties to set up and maintain a “Committee” of representatives who were to approve the proposed Development Permit Application prior to lodgement with the Council. . Pursuant to that arrangement, the plaintiff alleged that one representative of the plaintiff, a key member of the Committee, failed to agree to the Committee approving its proposed Development Permit Application for lodgement, in breach of contract by the defendant. The plaintiff alleged that as a consequence it was unable to obtain a Development Permit that would have entitled it to exercise the Call Option to purchase the Land and to carry out the proposed development. . It further argued that in repeatedly failing to cause its representative on the Committee to approve the proposed Development Permit Application, the defendant repudiated the contract. .
Importantly, it was apparently conceded by both parties that the express provision of the Call Option Deed that the Committee must not unreasonably withhold its approval to a complying Development Permit Application involved an implied contractual promise on the defendant’s behalf that its representative would not do so. .
His Honour took the view that the defendant’s failure or refusal to agree to approval of the proposed Development Permit Application breached cl 15.2 of the Call Option Deed, which provided that the Committee must not “unreasonably withhold or delay its approval” and must provide its approval or refusal within five days of the request for approval. In addition, his Honour found there was a breach of the defendant’s obligation under cl 16.5 to sign as registered owner all forms, plans and other documents reasonably necessary to facilitate the making of the application. . He did not regard any of the defences raised by the defendant as being meritorious. .
In relation to whether the breaches amounted to a repudiation or breach of contract justifying termination, referring to DCT Projects Pty Ltd v Champion Homes Sales Pty Ltd  NSWCA 117 and in the absence of any ground other than the unsuccessful defences already raised in answer to the conclusion that its continuing failure or refusal to approve the proposed Development Permit Application was a repudiation of the Call Option Deed by the defendant, his Honour concluded that the plaintiff had successfully established that the defendant had repudiated the Call Option Deed. .
In its claim for damages for breach of contract, the plaintiff alleged that it was deprived of the valuable commercial opportunity to acquire the land so as to carry out the proposed development. . The particulars of the alleged loss contained a gross profit calculation of the profits that the plaintiff claimed it would have made in the event the proposed development had come to fruition. It argued that damage ought to be assessed by finding that the lost commercial opportunity was to receive a benefit that was valuable, followed by an assessment on the “probabilities” that it would have made the alleged loss of profit. .
In Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 it was explained that, generally in a case of alleged loss of a valuable commercial opportunity, damages should be ascertained by reference to the court’s assessment of the prospects of success of that opportunity had it been pursued. That is dependent upon the plaintiff first demonstrating that some loss or damage was sustained by the contravening conduct, and that the commercial opportunity had some tangible value. , .
Applying the Sellars methodology to whether the plaintiff had indeed suffered the loss of a valuable commercial opportunity, his Honour bluntly noted that proposed developments carry with them an innate risk that the developer might make a loss:
“The project may not have been saleable. Yet, if the planets had aligned, the developer may have made money. At the point of assessment, the developer may have significant sunk costs that would have been recoverable only from revenue gained by completing the project”. .
In considering the matter, his Honour noted that a number of “hurdles” had to be overcome by the plaintiff in order to acquire the land and successfully develop it – and the burden rested with it to prove that it would have overcome each obstacle on the balance of probabilities. . (emphasis added) Those matters included the risks that it may not have been able to pay the purchase price of the Land ($1.1 million); ; that it might not have been able to obtain development finance; that it might not have been able to obtain sufficient pre-sales to satisfy the conditions of any development finance; and that its expenses might have exceeded those budgeted for. .
In his overall assessment, his Honour formed the view that the plaintiff was more likely to lose money than it was likely to make profits due to unachievable proposed sale prices. . Having regard to that matter, amongst the other numerous contingencies, he held that in the circumstances there was no loss of a valuable commercial opportunity. . Bearing in mind that although the plaintiff succeeded on the claim for breach of the Call Option Deed as a breach of contract, however failed to prove that it suffered loss or damage by reason of the breach of contract, he ordered judgment for the plaintiff against the defendant for nominal damages of $100. .