In a decision handed down last week, NSW Supreme Court Justice Ian Harrison ruled that HWL Ebsworth had been negligent in advising Mr Lindsay-Owen on the land debt of a redevelopment of a lot in Sydney’s western suburbs, that the relationship between the two had reached “a poisonous state of irreconcilable conflict” and that Mr Lindsay-Owen was, as such, entitled to compensation for damages.

The firm had previously argued against the damages and said that the proposed redevelopment in Schofields was a risky plan — and that the claim from Mr Lindsay-Owen should have been lower, after valuations were provided to the NSW Supreme Court last year.

Mr Lindsay-Owen alleged that HWL Ebsworth and his former lawyer, Martin Downing, failed to spot a red flag in a loan agreement from 2006 that would eventually expect him to pay the full amount owing on the redevelopment project in Schofields.

As part of the project, Mr Lindsay-Owen bought out his sister in order to redevelop land that had been in his family since 1947, in what was a $16 million deal whereby Mr Lindsay-Owen received a loan from National Australia Bank (NAB) with an initial limit of $21.5 million in December 2005. This loan limit was increased to $22.6 million in December 2006.

Then, in 2012, the 52-hectare land was rezoned, as Mr Lindsay-Owen then sought to build 224 residential properties on the Schofields site and engaged Schofields Property Development, owned by Melbourne-based builder Villawood, to start redevelopments.

To finance this, Villawood and Schofields borrowed another $35 million from NAB, and Mr Lindsay-Owen also took on more debt through Dairycorp.

Mr Lindsay-Owen was subsequently unable to make payments on the loan, and he defaulted in October 2014, before the land was sold to Stockland for over $103 million, as reported by The Australian. This sale resulted in $56.9 million going to Mr Lindsay-Owen and his company — but he argued that the land value of the finished site could likely have been “just shy of $200 million” and that he and his company “incurred significant expenses and lost the opportunity to develop the land and earn substantial profit”, according to the judgment.

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In 2016, Mr Lindsay-Owen filed a statement of claim, alleging that he told HWLE that “one of the key objectives of any joint venture (or similar transaction) was that the existing debt be discharged by external loan funds” and that “such funds were to be borrowed by any joint venture (or similar transaction) into which the plaintiffs entered into [sic] for the development”.

After the sale, Mr Lindsay-Owen filed proceedings against Schofields for 50 per cent of the debt, but Justice Michael Ball ruled in 2014 that Mr Lindsay-Owen and Dairycorp were responsible for the amount owing on the loan — and that the joint venture agreement with Schofields and Villawood did not mean that the debt should be repaid from the joint venture — in addition to finding that the agreement required each party to borrow loan funds externally and in line with their own interests.

“Mr Lindsay-Owen started looking for a joint venture partner in about August 2009. He settled on Villawood in late 2009. Before doing so, he says that he sent Villawood a statement of his assets and liabilities, which disclosed that his total assets were approximately $83.7 million (including the Schofields land at $65 million) and that his total liabilities were approximately $29.2 million (including the loan to NAB of $23.5 million),” Ball J said in his 2014 decision.

“There is, however, no evidence that Villawood received that statement of assets and liabilities, and, in my opinion, it is unlikely that it was sent.”

Following these proceedings, in March last year, HWLE filed its amended defence, but still denied those allegations. However, two days later, Tim Faulkner SC, acting for Gilchrist Connell on behalf of HWLE, told the court: “I am instructed that my client [HWLE] concedes that it breached its duty of care to the plaintiff in relation to the drafting of the joint venture agreement.”

To this end, Harrison J ruled that “in those events, the case is no longer concerned with whether HWLE breached their duty or their retainer but whether in either case the breach caused loss to [Mr Lindsay-Owen and Dairycorp] and the quantification of any such loss if it did”.  

“The plaintiffs also maintain a claim that their loss and damage arise from HWLE’s misleading and deceptive conduct,” he said in his decision.

Mr Lindsay-Owen told the court that HWLE’s breaches caused him and his company loss and damage in the form of expenses incurred during the proceeds of the sale of the land, as well as that the losses of being unable to receive a share of the resulting net development profit once the redevelopment was complete.

He also alleged that he would not have defaulted — or been forced to sell the land — if HWLE had not breached its duty.

Although maintaining a number of defences for a period of time, HWLE eventually only relied on “a specific denial of the misleading and deceptive conduct allegation together with their general response to the whole of [Mr Lindsay-Owen and Dairycorp] claim that neither their admitted breach of duty and breach of retainer nor their alleged misleading and deceptive conduct caused the plaintiffs to suffer any loss,” according to the judgement.

HWLE also submitted that Villawood would not have agreed to amendments to the joint agreement, which would only have changed who became responsible for the NAB debt once planning approval was achieved.

However, Harrison J ruled that if [HWLE] Mr Downing had “properly followed his instructions on the joint venture’s assumption of the land debt”, these amendments would have been taken into account.

“I am unable to accept that the NAB would have withdrawn its support for [Mr Lindsay-Owen and Dairycorp] if the 31 March 2010 deadline had not been met. As HWLE’s submissions make clear, [Mr Lindsay-Owen and Dairycorp] had been indebted to the bank for some years by early 2010. The bank had an exposure about which it appears in correspondence to have been concerned,” His Honour stated.  

“Concerns about that exposure, inevitably tied to the value of the land, could only or at least would preferably have been mollified by the prospect of a successful joint venture and the exploitation of its full development potential. Far from being a source of possible frustration, securing the agreement of Schofields to the debt becoming a joint venture responsibility would more likely than not have been attractive to the bank.

“I am satisfied on the balance of probabilities that [Mr Lindsay-Owen and Dairycorp] 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.”

HWLE also submitted that an amended joint venture agreement would not have had any value — but Harrison J found this to be untrue, and that “the opportunity to amend the joint venture agreement in order to ensure that the NAB debt became a joint venture obligation had a real value”.

[Mr Lindsay-Owen was the owner] of a substantial parcel of land with an uncontested commercial value as a development opportunity … However, [he was] coincidentally burdened with a debt that [he] could not discharge without either selling the land in its then condition or securing a joint venture partner who was willing and able to take over or share responsibility for that debt on appropriate terms and conditions,” the judgement stated.  

“The opportunity to secure an outcome in which [Mr Lindsay-Owen’s] immediate and pressing obligations to NAB were effectively put on hold and converted to a joint venture obligation that simultaneously exploited [his] ownership, and the development potential, of the mortgaged land was an opportunity that quintessentially had some value. The need in proceedings such as the present for [Mr Lindsay-Owen] to establish the quantum of the damages incurred by the loss of that opportunity should not be permitted to disguise the existence of the value of the loss of that opportunity.” 

Justice Harrison is yet to make a ruling on damages for Mr Lindsay-Owen and Dairycorp — but the plaintiffs estimated the loss to be approximately $130 million.