IN BRIEF - PRINCIPAL PROPERTIES SUCCESSFUL ON APPEAL
In this update, we focus on the consideration given by the Court in relation to whether a commercial opportunity that is likely to result in a loss, prevents a claimant from recovering an award of damages. It should, however, be noted that this decision also considered the question of quantum.
PARTIES ENTER INTO CALL OPTION DEED ON LAND OWNED BY BRISBANE BRONCOS
The Brisbane Broncos Leagues Club Ltd (Broncos) was the owner of land. Principal Properties Pty Ltd (Principal Properties) sought to obtain the consent of the Broncos to lodge a Development Application with the Brisbane City Council in respect of the land.
Principal Properties and the Broncos agreed to enter a Call Option agreement (agreement) with a view to Principal Properties obtaining a development permit to acquire and develop the land subject to the terms of the agreement. Under the agreement:
- Principal Properties was granted an option to purchase the land (option),
- Principal Properties proposed developing the land by constructing some 54 apartments and other facilities,
- In the event that the option was exercised, Principal Properties was to pay the Broncos $1,000,000,
- The option was to be exercised within three years (or such longer period as extended by Principal Properties) during which time the development permit was to be obtained from the relevant local council,
- In the event of an extension of time, Principal Properties was to pay the Broncos $100,000, and
- Principal Properties' entitlement to exercise the option was expressly subject to approval, which approval was not to be unreasonably withheld provided that the development permit application was compliant.
The Broncos failed to consent to the proposed Development Application lodged by Principal Properties. As such, Principal Properties elected to terminate the agreement and commenced proceedings against the Broncos for damages, on the basis that Principal Properties had suffered a compensable loss as a result of being deprived of a valuable commercial opportunity.
In particular, Principal Properties claimed that the opportunity lost was an opportunity to acquire the land, develop it and sell the apartments and associated interests so as to yield an overall profit of approximately $7,500,000.
TRIAL JUDGE FINDS NO PROFITS, NO COMPENSABLE LOSS, AND AWARDS PRINCIPAL PROPERTIES NOMINAL DAMAGES
The trial judge held that:
- It was more probable than not that Principal Properties would have lost money from the development, and
- as a matter of law, this had the necessary consequence that there was no compensable loss, and therefore, only nominal damages could be awarded.
Principal Properties appealed against the trial judge's decision, as an error of law.
COURT ALLOWS APPEAL AND AWARDS SUBSTANTIAL DAMAGES
On appeal, McMurdo JA reaffirmed the High Court authority of Sellars v Adelaide Petroleum NL (1994) 179 CLR 349 that a contract to provide a commercial opportunity, if breached, enables the innocent party to bring an action for damages for the loss of that opportunity. In order to recover substantial damages, a plaintiff must establish that the lost commercial opportunity had some value.
As His Honour discussed (at [24]), "[m]any investments are pursued with an appreciation that, more likely than not, they will not be profitable after money is spent in pursuing them. They are pursued because the magnitude of the potential profit, considered against the relatively small amount of the potential loss, makes the risk, sometimes a high risk, of that loss one which is worth taking."
McMurdo JA allowed the appeal and the Broncos was ordered to pay Principal Properties the sum of $250,000 together with interest of $62,307.37. In allowing the appeal, McMurdo JA (with Philippides JA and Boddice J agreeing) held that a likelihood that Principal Properties' proposal would have been a loss-making development did not, as a matter of law, preclude the award of more than nominal damages. The question was whether the opportunity to profit from the development had a value, which His Honour agreed was possible, despite a loss being more likely than a profit.
PURSUING DAMAGES FOR LOSS OF A COMMERCIAL OPPORTUNITY - KEY CONSIDERATIONS
This decision highlights some of the key considerations to succeed in an award of substantial damages for loss of a commercial opportunity. Ultimately, a claimant must prove, on the balance of probabilities, that it has suffered a loss, and that the lost opportunity had some value, regardless of whether it is more likely than not that the opportunity would have resulted in a loss.
If the opportunity had no more than a theoretical or negligible value, then no compensable loss can be caused. In this case, the Court was satisfied that despite the prospect of the project making a loss, the opportunity under the Call Option Deed was not without value.
If the loss or damage is established, on the balance of probabilities, that value must then be assessed by the courts.
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