ACN 115 918 959 Pty Ltd v Hoeys Lawyers Pty Ltd - [2021] VSC 79

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE
COMMON LAW DIVISION
PROFESSIONAL LIABILITY LIST

S CI 2015 02476

ACN 115 918 959 PTY LTD (FORMERLY KNOWN AS PEARL HILL PTY LTD)	Plaintiff
v
HOEYS LAWYERS PTY LTD (ACN 102 409 263)	First Defendant
KENNETH OLIVER	Second Defendant
GEOFFREY JOHN DIGBY	Third Defendant

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JUDGE:	BLUE AJ (sitting as a Judge of the Supreme Court of Victoria)
WHERE HELD:	Melbourne
DATE OF HEARING:	11 February– 1 March 2019, 9–10 May 2019 and 15 December 2020
DATE OF JUDGMENT:	26 February 2021
CASE MAY BE CITED AS:	ACN 115 918 959 Pty Ltd v Hoeys Lawyers Pty Ltd
MEDIUM NEUTRAL CITATION:	[2021] VSC 79

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NEGLIGENCE – Professional negligence – Legal practitioners – Advice in relation to contract – Advice to terminate agreement for purchase of land – Consequences of termination.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr J Twigg QC with Mr T Mitchell	GPZ Legal
For the First Defendant	Mr P Santamaria QC with Ms A Golding	Minter Ellison
For the Second Defendant	Ms C Pierce	Moray & Agnew
For the Third Defendant	Mr D Collins QC with Mr E Batrouney	DLA Piper

TABLE OF CONTENTS

A. .... BACKGROUND
Parties
Pearl Hill
The defendants
Marina Cove

The Martha Cove development
Stage 1
Stage 4
Stage 2A

The Construction Contract
Terms
Performance

Retainer of Hoeys
Heads of Agreement
Negotiation
Retainer of Mr Oliver
Subsequent events
Terms of Heads of Agreement

Subsequent events
Retainer of Mr Digby QC
Subsequent events
Termination of Heads of Agreement
Subsequent events
B. .... THE TRIAL
Evidence
Assessment of witnesses
Mr Mimmo
18 December 2008
Other matters
Mr Hoey and Mr Berrill
Mr Oliver
Mr Digby QC
Mr Axarlis and Mr Newman

C. .... NEGLIGENCE
Legal principles
Mr Digby QC
Advice
Advantages and disadvantages of termination of Heads of Agreement
Disadvantages of termination
Advantages of termination
Weighing advantages and disadvantages
Advantages and disadvantages of termination of Construction Contract
Advantages and disadvantages
Possibility of termination of Construction Contract alone
Advantages and disadvantages of termination of both contracts
Disadvantages of termination
Advantages of termination
Weighing advantages and disadvantages
Mr Digby QC’s evidence
Assessment of negligence
Conclusion

Hoeys
Advice
Mr Hoey’s evidence
Evidence
Findings
Assessment of negligence
Advice to terminate
Warning about consequences
Conclusion

Mr Oliver
Mr Oliver’s evidence
Findings
Assessment of negligence
Merits of termination
Consequence of termination
Conclusion

Conclusion on negligence of defendants
D. .... ADVOCATE’S IMMUNITY
Criterion for immunity
Mr Digby QC
Hoeys
E. .... CAUSATION
Legal principles
Causation
Causation and loss of opportunity
Drawing the line

Did negligence cause termination?
Knowledge of consequence of sending letter
Sending letter absent negligent advice
Conclusion

Did termination cause loss of a valuable opportunity?
Is Pearl Hill’s case pleaded?
Would Pearl Hill have agreed to Marina Cove’s terms
Had the HOA already been validly terminated by Marina Cove
Clause 15 condition
Actual satisfaction
Conventional estoppel
Mutual adoption of assumption: first three elements
The last three elements
Validity of termination
Repudiation: Contracts of Sale
Onus of proof
Identity of purchaser
Monies due
Breach and repudiation over time
Repudiation: performance of building work
Houses on lots 52, 54, 55 and 56
Lot 56
Lot 54
Lot 52
Lot 55
Holistic consideration
Other houses
Invoices 1384 and 1385
Conclusion on termination by Marina Cove
Was a valuable opportunity lost
Was the opportunity lost?
Is the opportunity valuable?

Conclusion
F. ..... QUANTUM OF LOSS
Value of the lots
Relevant date and basis of valuation
Relevant date of valuation
Basis of valuation
Qualifications and experience of Mr Kilby and Mr Way
Retail value
Comparable sales
Movement in the market
Assessment
Wholesale value
Sale costs
Rate of sales
Marketing costs
Rates & taxes
Loan establishment fee
Interest expense
Stamp duty
Conveyancing costs on purchase
Profit and risk
GST on purchase price
Conclusion on wholesale value
Gross loss before contingencies

Contingencies
Attitude of Commonwealth Bank, CPL and Marina Cove
Commonwealth Bank
CPL....
Marina Cove
Commonwealth Bank and Marina Cove and collectively
Payment for subdivision registration
Applicable standard of proof
Combined prospects of Marina Cove or Pearl Hill paying fee
Finance for acquisition
Evidence of Mr Triantos
Evidence of Ms Panagiotas
Evidence of Mr Mimmo
Applicable standard of proof
Prospects of obtaining finance via EMS
Prospect of obtaining finance from Westpac
Combined prospects of obtaining finance via EMS or Westpac
Conclusion

G. .... CONCLUSION
Proportionate liability
Liability cap
Conclusion

HIS HONOUR:

The plaintiff ACN 115 918 959 Pty Ltd, formerly named Pearl Hill Pty Ltd, (Pearl Hill) sues its former solicitor and barristers in negligence in respect of advice to terminate an agreement for the purchase of land on the ground of repudiation by the vendor.

The first defendant, Hoeys Lawyers Pty Ltd, (Hoeys) was an incorporated legal practice. The second defendant, Kenneth Oliver, is and was a barrister. The third defendant, Justice Digby, was at the material times a Queen’s Counsel. Justice Digby is now a Justice of this Court. I refer to him as Mr Digby QC to reflect the capacity in which he is sued without disrespect to his position as a Justice of this Court.

Pearl Hill entered into a construction contract with Marina Cove Pty Ltd (Marina Cove) in or after September 2005 to construct 69 houses on 69 allotments at Safety Beach on the Mornington Peninsula. Disputes arose in relation to performance of the contract. The disputes were resolved by a Heads of Agreement in October 2008. The Heads of Agreement provided, amongst other things, for the sale by Marina Cove to Pearl Hill of 33 vacant allotments at Safety Beach for $15 million (plus GST)[1] in return for the release of any liability of Marina Cove the subject of the disputes. It also addressed outstanding payments by Marina Cove to Pearl Hill and completion dates for construction of the remaining houses under the construction contract.
[1]All dollar figures are GST exclusive, unless otherwise indicated.

Disputes arose in relation to performance of the Heads of Agreement. On 13 May 2009 Marina Cove purported to terminate it on the ground of repudiation. Hoeys sought advice from Mr Digby QC and Mr Oliver whether Pearl Hill should itself terminate the Heads of Agreement on the ground of repudiation. Mr Digby QC advised that Pearl Hill should do so and settled letters from Pearl Hill to Marina Cove for that purpose. Hoeys advised Pearl Hill that it should send the settled letters to Pearl Hill to be sent to Marina Cove. Mr Oliver was a recipient (often by way of cc) of the emails in relation to termination but did not express an opinion concerning the question.

In August 2009 receivers and managers were appointed over the assets of Marina Cove. Administrators were appointed to administer its affairs. In November 2009 it was wound up.

Pearl Hill contends that advice by Hoeys and Mr Digby QC to terminate the Heads of Agreement was given in circumstances in which it was appreciated that there was a substantial risk that Marina Cove was in financial difficulties and that monetary remedies might have no practical value. Pearl Hill contends that the advice was negligent because it resulted in Pearl Hill losing its proprietary interest, or prospective proprietary interest, in the 33 lots. Pearl Hill contends that it should have been warned of the consequences of termination but it was not. Pearl Hill contends that Mr Oliver owed to it a duty to advise against termination but failed to do so.

Pearl Hill contends that, as a result of the negligence of each of the defendants, it lost the opportunity to complete the purchase of the 33 lots the subject of the Heads of Agreement and make a profit as a result of doing so.

The defendants deny that they were negligent. Mr Digby QC and Hoeys claim that they are protected by advocate’s immunity. The defendants deny any causation of loss or any loss.

A. BACKGROUND
Parties
Pearl Hill

Pearl Hill was incorporated in August 2005. Its sole director and shareholder is and was Carmen Mimmo. It carried on business as a builder.

Mr Mimmo left school at the age of 16 or 17 after completing year 11 in about 1981. Ultimately he undertook an apprenticeship in the building industry and obtained a builder’s licence. He was employed as a builder and then commenced business on his own account. At some stage he formed a company to undertake his building business. I infer that the predecessor to Pearl Hill was another company called Pearl Hill Developments Pty Ltd.

In 2005, when Pearl Hill entered into the construction contract, it had about 12 employees and 300 full-time subcontractors. Its employees included Anthony Morello, a contract administrator, and Mario Delosa, a site supervisor.

Mr Mimmo, his wife and/or family owned and controlled several companies that acted as trustees of family trusts and undertook property development. Those companies included A1 Paint Pty Ltd (A1 Paint); Black Ace Pty Ltd (Black Ace); Black Scorpion Pty Ltd (Black Scorpion); Carmen Rose Pty Ltd (Carmen Rose); Coastal Group Properties Pty Ltd (Coastal Group Properties); Hassa Holdings Pty Ltd (Hassa Holdings) and Manhatten Investments Pty Ltd (Manhatten Investments).

The defendants

Hoeys was formed by John Hoey in 2002. It carried on business as an incorporated legal practice until 2017. Mr Hoey was the principal of Hoeys throughout that time. He retired from practice in 2017.

Mr Hoey was admitted to practice in 1995 or 1996. He undertook articles at Wainwright Ryan, a boutique building and construction firm. In 1996 he commenced employment as a solicitor at Maddock Lonie & Chisholm, where he practiced in building and construction law and local government law and practice. He left Maddocks in 2002 to form Hoeys. In his professional career, he practised predominantly in building and construction law and local government law.

Paul Berrill was employed by Hoeys as a solicitor from late 2008 to mid 2009. He had been admitted to practice in November 2006.

Mr Digby QC was admitted to practice in 1979 and signed the Bar Roll in that year. He was appointed Queen’s Counsel in 1993. A large component of his practice related to building and construction law. He was appointed as a Judge of this Court in 2012.

Mr Oliver was admitted to practice in 1987 and signed the Bar Roll in 1991. His principal area of practice was (and is) building and construction law, predominantly in relation to domestic building work but he also occasionally dealt with commercial work.

Marina Cove

Marina Cove was incorporated in September 2001. Philip Sullivan was at all material times a director of Marina Cove. Between July 2005 and October 2008 there were one or two other directors and thereafter Mr Sullivan was the sole director. It appears that Mr Sullivan also held positions at CP1 Limited and City Pacific Ltd.

By July 2005 Marina Cove was a wholly owned subsidiary of CP1 Limited (CP1). CP1 was a property developer whose shares were listed on the Australian Stock Exchange.

City Pacific Ltd (CPL) was a substantial shareholder of CP1. CPL was the responsible entity of the City Pacific First Mortgage Fund (the CP Mortgage Fund or the Mortgage Fund). CPL as responsible entity of the Mortgage Fund provided finance to CP1. CPL’s shares were also listed on the Australian Stock Exchange.

City Pacific Project Management Pty Ltd (CPM) was a member of the City Pacific Limited Group. It undertook project management for CP1, amongst other things, in relation to the Martha Cove development.

Rob Donaldson was a Project Executive at CPM from not later than July 2005.

Theodore Axarlis commenced employment with CPL in March 2008. In June 2008 he was appointed chief operations officer of CPL. In November 2008 he was appointed chief executive officer of CP1 instead. His background was as a lawyer.

David Newman was engaged by CP1 in 2003 as a consultant to manage the Martha Cove development. Upon Mr Axarlis’ appointment as chief operations officer of CPL, Mr Newman reported to him.

I refer to the companies in the City Pacific Limited Group (including CP1, CPL, CPM and Marina Cove) collectively as City Pacific.

The Commonwealth Bank was a principal financier of City Pacific. In particular it was the principal financier of Marina Cove’s Martha Cove project and of the CP Mortgage Fund. Relevant officers at the Commonwealth Bank included Bryan Roberts and Mark Sutton.

By December 2008 the Commonwealth Bank had engaged PPB to advise it in relation to City Pacific and PPB was engaging in communications directly with City Pacific. Relevant officers of PPB included Alan Titterton and Campbell Jaski.

The Martha Cove development

By June 2005 Marina Cove had commenced a development known as Martha Cove on vacant land extending inland of Safety Beach and west of Marine Drive. The development involved converting and extending an existing creek into a constructed waterway (the Martha Cove Waterway) running west from Port Phillip Bay (the main arm) and then turning south (the south arm) with five branches (the eastern arms). The development was to include:

· waterfront dwellings with attached berths or dedicated berths on shared jetties;

· waterfront dwellings and apartments;

· non-waterfront dwellings;

· shopping and dining precincts;

· harbour berths; and

· residential land.

Stage 1

The Martha Cove development was intended to be constructed in stages. Stage 1 comprised 79 houses, 60 apartments and 120 berths. A Plan of Division, comprising three sets of plans designated ‘Stage No 1’, ‘Stage No 2’ and ‘Stage —‘ (collectively the Stage 1 division plans) was prepared by Watsons Pty Ltd (Watsons). Watsons was a civil engineer, surveyor and town planner. The Stage 1 division plans were allocated Plan of Division number PS 435310J. They created 79 housing allotments and 120 berths and created or recognised a superlot or superlots on which it was intended to construct the apartments.

The housing allotments in Stage 1 included the following 69 allotments (the 69 allotments):

· allotments 1 to 6 on the north side of the main arm having frontages to Sharpley Avenue and the Martha Cove Waterway (lots 1 to 6);

· allotments 7 to 17 on the north side of the main arm having frontages to Admiralty Court and the Martha Cove Waterway (lots 7 to 17);

· allotments 18 to 39 on the south side of the main arm having frontages to Seaspray Close and in some cases also to the Martha Cove Waterway (lots 18 to 39);

· allotments 40 to 51 on the south side of the main arm having frontages to Evans Street and the Martha Cove Waterway (lots 42 to 51); and

· allotments 52 to 69 on the south side of the main arm having frontages to Clipper Quay and the Martha Cove Waterway (lots 52 to 69).

Marina Cove intended to construct a house on each of the 69 allotments. It commissioned the preparation of plans and specifications for four types of houses, designated Beach House 1 to Beach House 4 (BH1 to BH4) on lots 18 to 27 and 51. It commissioned the preparation of plans and specifications for 10 types of houses, designated Water Front 1 to Water Front 10 (WF1 to WF10) on the balance of the 69 allotments. It also commissioned the preparation of three alternative Schedules of Finishes designated Coastal, Classic and Contemporary.

Marina Cove sold house and land packages in Stage 1 to various purchasers. A purchaser could, depending on location, select one of the four Beach House designs or one of the 10 Water Front designs and one of the three Schedules of Finishes. The selection impacted the price payable for the house and land package. A purchaser entered into a contract to purchase an allotment and for Marina Cove to construct a house in accordance with the applicable plans and specifications. The sales were effectively sales ‘off the plan’. Marina Cove had not sold a house and land package for at least two of the 69 lots at the material times but had done so for the vast majority.

Stage 4

Stage 4 may have been created after June 2005. By February 2007 it comprised Stages 4A to 4C. Stage 4 included proposed allotments 600 to 632 on the western side of the south arm having a frontage to Clipper Quay to the west and the Martha Cove Waterway to the east (Stage 4 Clipper Quay). This land was at that time comprised within three superlots designated S29 (intended to encompass lots 600 to 612) (superlot A), S31 (intended to encompass lots 613 to 622) (superlot B) and S33 (intended to encompass lots 623 to 632) (superlot C). I refer to superlots A, B and C collectively as the 3 superlots and the 33 proposed lots collectively as the 33 lots.

Each of the 33 lots was to have a frontage to Clipper Quay of 15 metres to the east and a rear boundary adjoining the south arm 15 metres wide. Each lot was to have a depth of 44.39 metres. The area of each lot was to be 665.85 square metres. Each lot was to have the rights to an adjacent berth (jetty or pontoon) 12 metres wide and 6 metres deep some distance off the shore.

Stage 2A

Stage 2A included seven allotments numbered 666 to 672 on the western side of the south arm having a frontage to Clipper Quay to the west and the Martha Cove Waterway to the east (the Barton allotments). These allotments lay immediately to the north of the 33 lots. According to Mr Way, each of the seven allotments had the same dimensions as the 33 lots. According to Mr Kilby, each of the seven allotments had the same width of 15 metres but had a very slightly greater depth of 44.65 metres. Because allotments 632 and 672 appear to have a common boundary, I accept Mr Way’s dimensions in preference to those of Mr Kilby. In any event, the difference is only four square metres and is immaterial.

Each of the Barton allotments had the rights to an associated berth (jetty or pontoon) 15 metres wide. Evidence was not adduced of their depth. Although they had a greater width than the berths associated with the 33 lots, they were closer to shore and therefore not in such deep water. Mr Kilby and Mr Way treated the berths associated with the Barton allotments as being similar in value to the berths associated with the 33 lots.

The Barton allotments were sold by Marina Cove to Barton Developments Pty Ltd in June 2006 for $800,000 each. Mr Way’s report shows the sale of five of the allotments for $800,000 each in June 2006. It shows the remaining two allotments later being sold by Barton Developments to individual purchasers. I infer that Barton Developments purchased these two allotments at the same time and for the same price as the five allotments addressed directly by Mr Way.

The Construction Contract

In July 2005 Mr Donaldson, a Project Executive at CPM, had a conversation with Mr Mimmo concerning Mr Mimmo providing an estimated cost per square metre to construct 69 houses on the 69 allotments.

On 28 July 2005 Mr Donaldson sent a letter to Mr Mimmo attaching the plans and specifications for a Beach Front house and a Water Front house. He requested an estimated price per square metre for construction of the houses (including landscaping, hardscape and fencing). He said that City Pacific had been advised that there were several issues with respect to the structural specification that could be re-engineered and said that they were working on it.

In August 2005 Mr Mimmo provided an estimated price per square metre for construction of the houses on the 69 allotments. I infer that this price was $1,300[2] per square metre and may have been subject to qualifications.[3]
[2]All dollar figures are rounded to the nearest whole dollar and are GST exclusive, unless otherwise indicated.
[3]Mr Mimmo’s letter was not tendered. However, its contents can be inferred to some extent from Mr Donaldson's letter dated 31 August 2005.

On 31 August 2005 Mr Donaldson sent a letter to Mr Mimmo stating that Marina Cove intended to enter into a contract with Pearl Hill Developments Pty Ltd to construct one house on each of the 69 lots in accordance with the supplied schedule of plans and specifications. He said that the construction price would be $1,300 per square metre subject to four specified adjustments. He said that client-requested variations would be charged at cost plus 10% and payment would be made on completion of the variation with the claim submitted with the corresponding progress payment claim.

Mr Donaldson’s letter said that payment would be made in the following stages for each house:

· 5% at the execution of the contracts (deposit);

· 10% at Base Stage;

· 15% at Frame Stage;

· 30% at Lock Up Stage;

· 25% at Fixing Stage;

· 12.5% upon Completion; and

· 2.5% Retention held for 60 days or until defects have been completed.

Mr Donaldson said that payments would be made within 14 days of the payment certificate, to be issued by Watsons who were to act as the independent certifier. Mr Donaldson envisaged that work may commence before finalisation and execution of a formal construction contract.

In due course, a formal construction contract was drafted by Marina Cove’s solicitors, Gadens Lawyers. A version of that contract entitled ‘Pearl Hill New Homes Contract’ designated ‘final’ in the footer was tendered (the Construction Contract). The Construction Contract included the following documents (amongst others):

· Formal Instrument of Agreement;

· General Conditions of Contract AS 4000 – 1997 amended in specific respects;

· Annexure Part A (Annexure A) specifying the variables referred to in the General Conditions;

· Annexure Parts F and H being schedules of drawings and specifications for the 14 house types and three Schedules of Finishes;

· Annexure Part I being the Stage 1 division plans prepared by Watsons referred to above.

The Formal Instrument of Agreement provided that Pearl Hill would undertake the work under the Contract and Marina Cove would pay the Contract Sum to it on the terms and conditions contained in the Contract which comprised the General Conditions and other documents incorporated into the Contract.

The Formal Instrument of Agreement tendered is not dated or executed. Recital A to the Heads of Agreement (extracted below) recites that the written contract was not entered into until some months after the commencement of works. I infer that the documents comprising the Construction Contract were finalised in late 2005 or early 2006.

Given the wording of Recital A to the Heads of Agreement, it is likely that the documents comprising the Construction Contract were not actually executed by the parties. However, Pearl Hill and Marina Cove dealt with each other on the basis that a contract came into existence between them on the terms of the Construction Contract and indeed that is the effect of the recital to the Heads of Agreement. In addition, it is common ground that a contract came into existence between Pearl Hill and Marina Cove on the terms of the Construction Contract. I proceed on that basis.

Terms

Clause 21 of the General Conditions empowered the Superintendent to delegate functions to a Superintendent’s Representative.

Clause 36.1 empowered the Superintendent to direct the contractor to vary the work under the contract to, amongst other things, increase, decrease or omit any part of the work; change the character, quality or dimensions of the work; or carry out additional work. This was subject to the proviso that the variation was nevertheless of the character and extent contemplated by, and capable of being carried out under, the provisions of the contract. It also empowered the Superintendent to exercise the power to decrease or omit works, and engage another contractor to undertake the deleted works, if the contractor failed to progress the work under the contract at an adequate rate.

Clause 36.2 empowered the Superintendent to give notice to the contractor of a proposed variation, in which case the contractor was required as soon as practicable to notify the Superintendent whether the variation could be effected and, if so, its estimate of the cost and effect on the construction program if any.

Clause 36.4 required the Superintendent to price each variation by reference to prior agreement, applicable contract rates or reasonable rates and the price was to be added to or deducted from the contract sum.

Clause 36.5 provided that, if the contractor considered that any instruction amounted to a variation that was not so described, the contractor must within seven days notify the Superintendent accordingly and provide details of the anticipated cost of the instruction. If the contractor failed to do so, the contractor would not be entitled to any adjustment of the contract sum.

Clause 37.1 provided for the contractor to claim payment progressively for each separable portion in accordance with item 28 in Annexure A. Item 28 provided for progress claims ‘for each Dwelling’ to be paid by reference to prescribed percentages by reference to the stage of the works reached for each dwelling.

Clause 37.2 required the Superintendent on behalf of the principal to issue a progress certificate for the amount of a claim or such lesser amount as was reasonably payable. It required the principal to pay the balance of the progress certificate to the contractor within 30 days after receipt of the progress claim.

Clause 37.5 provided that interest at 8% per annum was due and payable after the date of default in payment.

Clauses 39.2 and 39.3 entitled the principal to give to the contractor written notice to show cause within not less than seven clear days after receipt of the notice if the contractor committed a substantial breach of the contract. Clauses 39.4(a), 39.5 and 39.6 entitled the principal, if the contractor failed to show reasonable cause by the date and time stated in the notice, to take out of the contractor’s hands the whole or part of the work remaining to be completed and suspend payment until the superintendent assessed the cost of completion by the principal and certified as monies due and payable the difference between that cost and the amount otherwise payable to the contractor if it had completed the work. Clause 39.4(b) entitled the principal, in the alternative, to terminate the contract if the contractor failed to show reasonable cause.

Clauses 39.7 and 39.8 entitled the contractor to give to the principal written notice to show cause within not less than seven clear days after receipt of the notice if the principal committed a substantial breach of the contract. Clause 39.9 entitled the contractor, if the principal failed to show reasonable cause by the date and time stated in the notice, to suspend the whole or part of the work under the contract. If the principal remedied the breach, the contractor was required to remove the suspension. If the breach was not remedied within 28 days of the date of suspension, the contractor was entitled to terminate the contract by written notice.

Annexure A specified variables referred to in the General Conditions including the following:

· the superintendent was specified to be CPM (item 5);

· the rate for liquidated damages under subclause 34.7 was $1,000 per week per dwelling, but such total was not to exceed $15,000 per week (item 24);

· progress payments under clause 37 were by reference to stages and percentages of completion for each house (item 28);

· a separable portion Annexure forming part of Annexure A (the Separable Portion Schedule).

The stages and percentages of completion for each house were:

· 5% at the execution of the contracts;

· 10% at Base Stage;

· 15% at Frame Stage;

· 30% at Lock Up Stage;

· 25% at Fixing Stage; and

· 15% upon Completion.

The Separable Portion Schedule set out the house type, selected Schedule of Finishes, price, period of practical completion and liquidated damages for each house on each lot. The period of practical completion was always 16 months from Site Handover. The liquidated damages were always $1,000 per calendar week. By way of example, in respect of lot 1, the house type was shown as WF7r; the selected Schedule of Finishes was shown as Contemporary; and the price was shown as $468,390.

The total of the prices of construction of the 69 lots was $34,595,340.

The Separable Portion Schedule divided the 69 lots into five groups as follows:

Separable Portion 1 lots 18 to 36;

Separable Portion 2 lots 37 to 51;

Separable Portion 3 lots 1 to 6;

Separable Portion 4 lots 7 to 17;

Separable Portion 5 lots 52 to 69.

Clause 1 of the General Conditions defined a ‘separable portion’ to mean a portion of the Works identified as such in the Contract or by the Superintendent pursuant to clause 4. Clause 4 empowered the Superintendent to direct and delineate separable portions.

Although the Separable Portion Schedule referred only to five separable portions, in substance it provided for a separate price, separate specifications, separate date for practical completion, separate liquidated damages and separate payments for each separate house on each separate lot. Pearl Hill and Marina Cove both acted on the basis that there were 69 separable portions rather than five separable portions. This was either the result of the proper construction of the contract, a direction issued by the Superintendent under clause 4 or the mutual agreement and conduct of the parties. This was also effectively confirmed by clause 11 of the Heads of Agreement.

Performance

In late 2005 Pearl Hill commenced work at Martha Cove.

Mr Mimmo gave evidence that, after commencement, he observed problems with the design of the houses relating, amongst other things, to the concrete footings, steel beams and architectural drawings not matching structural drawings; Marina Cove made changes to the design of the houses which caused delays to the building works; and he had ongoing discussions with Marina Cove about Pearl Hill being compensated for this.

Pearl Hill rendered invoices to Marina Cove for progress payments under the Construction Contract and also for additional work requested by Marina Cove. These invoices were not tendered. However, invoices rendered between 3 March and 7 May 2008 that were unpaid as at the date of the Heads of Agreement were referred to in Annexure B to the Heads of Agreement and are summarised below.

On 8 May 2007 Mr Donaldson sent an email to Mr Mimmo attaching a plan showing the location of the 33 lots. He quoted wholesale prices for superlot A (13 lots) of $15.94 million,[4] superlot B (10 lots) of $12.26 million and superlot C (10 lots) of $12.26 million. This translates to a price per lot of $1,226,182. No evidence was adduced about the context in which this email was sent but I infer that it was a result of interest expressed by Mr Mimmo to Mr Donaldson about purchasing one or more of the superlots.
[4]All dollar figures in millions of dollars are rounded to the nearest $10,000 and are GST exclusive, unless otherwise indicated.

On 3 and 5 March 2008 Pearl Hill rendered eight invoices to Marina Cove for a total of $476,824 for additional work requested by Marina Cove.

On 3 and 11 March 2008 Pearl Hill rendered invoices 1385 and 1384 respectively to Marina Cove for $72,817 for solar energy and insulation upgrades and for $739,571 for various variations (invoices 1385 and 1384).

On 5 March and 2 April 2008 Pearl Hill rendered eight invoices to Marina Cove for a total of $1,023,027 for progress payments to the fix or lock up stage for eight lots.

None of the above invoices were tendered but they are identified in Annexure B to the Heads of Agreement.

Retainer of Hoeys

In April 2008 Mr Mimmo met with Mr Hoey about retaining Hoeys to advise and act for Pearl Hill in relation to invoices rendered by Pearl Hill to Marina Cove totalling $5,301,759. Mr Mimmo asked Mr Hoey whether he had building and construction experience. Mr Hoey said that he did.

In April 2008 Pearl Hill retained Hoeys to advise and act for it in relation to disputes with Marina Cove.

On 18 April 2008 Mr Hoey sent an email to Mr Mimmo advising that Marina Cove appeared to be in substantial breach of the Construction Contract; Pearl Hill could serve a notice of default requiring Marina Cove to show cause within a specified period of at least seven days why work should not be suspended; Pearl Hill could suspend work if cause were not shown; and Pearl Hill could terminate the contract if the default was not rectified within 28 days. Mr Hoey attached a draft Notice of Default.

On 21 April 2008 Mr Hoey sent an email to Mr Mimmo enclosing a final version of the Notice of Default requiring payment of invoices totalling $3,116,143 and requiring Marina Cove to show cause by 2 May 2008. Mr Mimmo signed the Notice of Default and it was served on Marina Cove.

On 6 May 2008 Mr Hoey drafted a notice of suspension. This was not tendered but was referred to in Hoeys’ invoice dated 27 May 2008.

On 8 May 2008 Mr Mimmo signed a second Notice of Default requiring payment of invoices totalling $4,329,278 and requiring Marina Cove to show cause by 19 May 2008. It was served on Marina Cove. It was drafted by Mr Hoey.

In late May 2008 Pearl Hill served a notice of suspension on Marina Cove and suspended work on the ground that Marina Cove had not shown cause. The notice of suspension was not tendered but was referred to in subsequent correspondence from Marina Cove, Mr Mimmo and Mr Hoey.

By this point Marina Cove had completed the houses on lots 1 to 51 except for lots 40 to 43. The house on lot 40 had been completed to lock up stage. The houses on lots 52, 55, 56, 65 and 68 had been completed to the fix stage. There is no direct evidence of the stage to which the remaining uncompleted houses had been completed.

Heads of Agreement
Negotiation

In June 2008 Mr Axarlis was appointed Chief Operations Officer of CPL.

Between June and October 2008 there were several meetings between Mr Mimmo on behalf of Pearl Hill and Mr Axarlis and Mr Newman on behalf of Marina Cove. The subject of the meetings included outstanding invoices issued by Pearl Hill to Marina Cove. The subject of the meetings included claims by Pearl Hill that errors in and changes to architectural and engineering plans caused additional costs and delays. In the course of those meetings, Pearl Hill formulated a claim for $21,865,567.

Between 9 and 12 September 2008, Pearl Hill issued to Marina Cove invoices for variations as a result of Marina Cove’s customers’ requests totalling $458,451.

On 16 September 2008 Mr Axarlis sent to Mr Mimmo a Discussion Paper. The Discussion Paper was not tendered but Mr Axarlis’ subsequent emails of 22 and 24 September evidence that it listed the issues that needed to be resolved and proposed a resolution on a basis that included Marina Cove selling to Pearl Hill the 33 lots at a discounted purchase price of $15 million plus GST in settlement of Pearl Hill’s variation and escalation claims.

On 22 September 2008 Mr Axarlis sent an email to Mr Mimmo attaching ‘Draft 1 Proposed Terms of Settlement’. On the following day, Mr Mimmo forwarded the draft to Mr Hoey. This draft was not tendered.

On 24 September 2008 Mr Mimmo sent an email to Mr Sullivan complaining of continual broken promises and lack of action in respect of payment to Pearl Hill. He said that he was assured at a meeting in April that all matters relating to variations would be resolved. Pearl Hill only issued a suspension of works notice after Marina Cove failed to offer any resolution to Pearl Hill’s claims despite numerous meetings and promises. He now had no option but to lodge a claim with the Victorian Civil and Administrative Tribunal. Pearl Hill was entitled to cease work and terminate the contract and, if it did so, the purchasers would not be able to finish their homes. He responded to the discussion paper including stating that the contract was based on a different set of plans and costings and work was undertaken on the guarantee that all variations would be paid for.

On 24 September 2008 Mr Axarlis sent an email to Mr Mimmo responding to Mr Mimmo’s email to Mr Sullivan. Mr Mimmo copied it to Mr Hoey.

On 25 September 2008 Mr Hoey sent an email to Mr Mimmo advising that the Draft Proposed Terms of Settlement was to be a settlement of all outstanding claims (and imposing new conditions) in return for the discount offered in respect of the proposed purchase. He said that this was not what Mr Mimmo had told him he would accept. He suggested a conference on 30 September.

Retainer of Mr Oliver

On 26 September 2008 Mr Hoey briefed Mr Oliver to advise on the Proposed Terms of Settlement and attend the conference on 30 September.

On 26 September 2008 Mr Mimmo and Mr Newman discussed the wording of the Proposed Terms of Settlement. Mr Newman sent an email to Mr Mimmo and Mr Axarlis attaching ‘Draft 2 Proposed Terms of Settlement’.

By this stage, it had been agreed between Pearl Hill and Marina Cove that any further construction work on lots 40, 66 and 69 would be removed from the Construction Contract and be arranged by Marina Cove independently of Pearl Hill. It was agreed that no further payments were due to Marina Cove in respect of those three lots other than an unpaid April 2008 invoice for the lock up stage in respect of Lot 40.

On 26 September 2008 Mr Newman sent an email to Mr Mimmo asking, amongst other things, for proposed dates for completing the uncompleted homes. Mr Mimmo responded providing a range from one month (lots 54 and 56) to 12 months (lot 43).

On 29 September 2008 Mr Mimmo sent emails to Mr Hoey attaching Draft 2 and a marked up revised version of Draft 2 (Amended Draft 2).

On 30 September 2008 there was a conference between Mr Hoey, Mr Oliver and Mr Mimmo. No notes of the conference were tendered.

Subsequent events

On 3 October Mr Hoey sent an email to Mr Mimmo attaching an amended marked up version of Mr Oliver’s revised version of Amended Draft 2. This version removed references to completion of the work so that it dealt exclusively with releases and the purchase of the 33 lots.

On 6 October 2008 Mr Newman sent an email to Mr Mimmo and Mr Axarlis attaching ‘Final 3 Proposed Terms of Settlement’. This version was not tendered.

On 7 October 2008 Mr Newman sent an email to Mr Mimmo and Mr Axarlis attaching a revised version of ‘Final 3 Proposed Terms of Settlement’. Annexure A comprised a list of the contract price, amount paid and amount remaining to be paid for uncompleted lots still the subject of the Construction Contract (lots 41 to 43, 52 to 65 and 67 to 68) plus lot 40. Annexure B comprised a list of unpaid invoices agreed to be paid.

On 9 October 2008 Mr Mimmo sent an email to Mr Hoey attaching the revised version of Final 3.

On 15 October 2008 Mr Hoey sent an email to Mr Mimmo attaching a further amended version of Final 3. This version made several changes to Mr Newman’s revised Final 3 version of 7 October.

On 20 October 2008 Mr Mimmo sent an email to Mr Axarlis attaching Mr Hoey’s amended version of Final 3. He said that he was coming to Melbourne tomorrow to see if they had an agreement. He was fed up with the runaround. He asked if Marina Cove was trading insolvent.

On 21 October 2008 Mr Mimmo met with Mr Axarlis and Mr Newman. They agreed on terms of a final version of the ‘Terms of Settlement’. This version differed from Mr Hoey’s amended version of Final 3 in several respects.

Mr Newman also omitted from the document the words ‘Without Prejudice’, which had appeared on the drafts of the document; omitted the word ‘Proposed’ before the words ‘Terms of Settlement’; gave the document a main title ‘Heads of Agreement’ above what became a subtitle ‘Terms of Settlement’; and dated it 21 October 2008. Mr Axarlis executed it on behalf of Marina Cove. Mr Newman sent it by email to Mr Mimmo.

On 21 October 2008 Mr Mimmo telephoned Mr Hoey. No direct evidence of the content of the discussion was adduced. I infer that Mr Mimmo told Mr Hoey that he had agreed to execute, or had executed, a final version of the Heads of Agreement which contained some changes from Mr Hoey’s 15 October version.

On 21 October 2008 Mr Mimmo executed the final version of the Heads of Agreement on behalf of Pearl Hill and returned it to Mr Newman (the Heads of Agreement).

Terms of Heads of Agreement

The document bore the titles ‘Heads of Agreement’ and ‘Terms of Settlement’. However, within the document itself, the document was variously referred to as ‘the Deed of Settlement’ (clause 3), ‘this Deed’ (clauses 6 and 16), ‘this deed’ (clause 11), ‘the signed agreement’ (clause 9), ‘this document’ (clause 16(a) and (b)) and ‘these Heads of Agreement’ (clause 17). In light of the various descriptions and the fact that the document contains no provision for the parties to enter into a separate deed of settlement, the references to a ‘Deed of Settlement’ or ‘Deed’ are manifestly references to the Heads of Agreement.

The Background to the Heads of Agreement was as follows:

A.Pearl Hill Pty Ltd (‘Pearl Hill’) has entered into a Construction Contract with Marina Cove Pty Ltd (‘Marina Cove’) in or about September 2005 to build a number of dwellings at the Martha Cove Development Safety Beach in Victoria for an agreed rate of $1300 per square metre plus adjustments as set out in a Letter of Intent from Marina Cove dated 31 August 2005. A written contract was subsequently entered into some months after the commencement of works identifying each dwelling as a separable portion.
B.Pearl Hill has claimed an entitlement to variations and escalations to the contract price as a result of certain purported variations to the contract works (other than the variations referred to in tax invoices 1384 and 1385), errors in the architectural and engineering plans and due to the length of time taken to complete the homes as a result of those variations and errors. Pearl Hill claims that the amounts due to it for carrying out those variations and for the increased costs (the escalation) exceeds $21,865,567.00.
C.Marina Cove contends that the contract does not provide for escalation claims and alleges that any variations undertaken (other than the variations referred to in tax invoices 1384 and 1385) have not been established pursuant to the terms of the Contract in that they have not been properly quantified, described and approved under the Contract (the dispute).
D.Marina Cove disputes the monies outstanding and alleges that sums do not become due and payable until such time as the works have been certified independently by Watsons.
E.Marina Cove alleges that Pearl Hill has issued a defective works suspension notice and has failed refused and/ or neglected to proceed with the works in a timely and diligent manner and in consequence thereof has repudiated the contact and or breached the Contract.
F.In order to avoid litigation Pearl Hill and Marina Cove have agreed to settle the dispute on the following terms.

Clauses 1 and 3 of the Heads of Agreement provided for the sale of the 33 lots for $15 million (plus GST) in the following terms:

1.Marina Cove agrees to sell and Pearl Hill agrees to purchase Lots 600 to 632 inclusive (on an individual lot basis) for the total sum of $16,500,000.00 (inclusive of GST) (‘the settlement sum’).
3.Pearlhill agrees to pay the settlement sum of $16,500,000 (inclusive of GST) by way of 10% deposit on the signing of the Contracts of Sale and the Deed of Settlement, and the balance on the day of settlement being 60 days from the day of signing the Contracts of Sale and Deed of Settlement (or earlier by agreement).

Clause 13 confirmed the removal from the Construction Contract of lots 40, 66 and 69.

Clause 2 provided that the parties agreed that the outstanding Contract Value (excluding Purchaser Variations) in respect of the 20 homes yet to be completed by Pearl Hill plus lot 40 (excluding amounts already invoiced to April 2008 the subject of Annexure B) was $3,121,694 as referred to in Annexure A. The homes yet to be completed were on lots 41 to 43, 52 to 65, 67 and 68. Eight homes had been 90 or 92.5% completed; one home had been 75% completed; six homes had been 65% completed; three homes had been 25% completed; and one home had not yet reached base stage.

Clause 2 also provided that the parties agreed that the balance of the agreed outstanding amount of unpaid invoices was $1,466,978 as referred to in Annexure B. Annexure B included references to invoices 1384 and 1385 in respect of which it was agreed that $0 would be paid.

Clause 11 provided that, upon receiving certification from Watsons verifying a progress claim, Marina Cove would pay that amount to Pearl Hill within 14 days and otherwise Pearl Hill would be entitled to suspend the works under clause 39 of the Construction Contract in respect of the relevant home.

Clauses 4 and 5 provided that, in consideration of the purchase price, Pearl Hill agreed to complete the incomplete homes in accordance with a regime ranging from one month (lots 54 and 56) to 12 months (lots 43 and 58) from date of signed agreement (clause 4.1). These dates were subject to extension due to prescribed events, including causes beyond the control of Pearl Hill (clause 4.2). Pearl Hill was entitled to liquidated damages of $150 per day per home for each day’s extension under clause 4.2 (clause 4.3) and Marina Cove was entitled to liquidated damages of $150 per day per home for each day’s delay under clause 4.1 (clause 5).

Clauses 6 and 7 required Pearl Hill to rectify currently logged defects in respect of homes for which it had been paid in full within two months from execution of the Contracts of Sale (referred to in clause 3) and future defects within two months of receipt of a defects list.

Clause 10.3 provided for the payment by Marina Cove to Pearl Hill of $68,040 for driveways to lots 40 to 43 and 52 to 68. Clause 12 provided that, if the parties subsequently agreed that Pearl Hill was to complete the streetscape works to lots 40 to 43 and 52 to 69, they would be completed for $234,116.

Clause 10 provided that (subject to clause 10.3 and 12):

10.The only further monies to be paid to Pearl Hill are:
10.1The outstanding Contract Amounts for each home not already paid to Pearl Hill [excluding lots 40, 66 and 69 as no further monies are to be paid on these homes save for any current unpaid invoices] as listed in Annexure A and the current agreed outstanding amounts on unpaid invoices as listed in Annexure B;
10.2Purchaser generated variations which have been agreed to in writing by the Purchaser to be undertaken directly by the Builder and paid for by the Purchaser;
…

Clauses 15 to 17 provided:

15.The terms of settlement are subject to the approval and consent of Marina Cove’s Financiers, being Commonwealth Bank of Australia and City Pacific First Mortgage Fund, and the Board of Directors of CP1 Limited.
16.Upon entering into this Deed and the Contracts of Sale pursuant to Clauses 1 and 3 herein with the written consent of the Commonwealth Bank of Australia and City Pacific First Mortgage Fund, then:
(a)Pearl Hill releases and forever discharges Marina Cove from all actions, suits, claims, demands, costs and other liabilities of any nature which Pearl Hill now has or at any time may have or, but for the execution of this document, might have had against Marina Cove in connection with or incidental to the Works (including but not limited to variations, errors and escalation costs associated with the subject variations and errors, relating to the Works); and
(b)Marina Cove releases and forever discharges Pearl Hill from all actions, suits, claims, demands, costs and other liabilities of any nature which Marina Cove now or at any time may have or, but for the execution of this document, could or might have had against Pearl Hill relating to the Works (including but not limited to any claims for delay or liquidated damages or any claims arising from the delays incurred as a result of the subject variations and errors relating to the Works).

17.Subject to Clause 15 hereof, these Heads of Agreement are intended to be binding on the parties hereto and the parties will do all things necessary to enter into all Contracts necessary to give effect to these Heads of Agreement.

Subsequent events

Clause 1 of the Heads of Agreement provided for the sale of the 33 lots on an individual lot basis. At that time, the land was contained within superlots A, B and C. It was necessary for Marina Cove to lodge a plan of division subdividing the 3 superlots into 33 individual lots before settlement of the sale and purchase could occur.

Marina Cove instructed Gadens solicitors (Yael Furstenberg and Ruth Smith) to draft Contracts of Sale and undertake the conveyancing on its behalf. Pearl Hill instructed Maddocks solicitors (Anthony Leggiero) to act in relation to the Contracts of Sale and undertake the conveyancing on its behalf.

On 24 October 2008 Mr Morello sent an email to Ms Smith at Gadens saying that Mr Axarlis had requested that he provide her with the purchaser details for the 33 lots. He said that the purchaser was Coastal Group Properties and/or nominee and no charge for the nomination was to apply. He requested that she prepare contracts for the sale of lots 618 to 632 with a purchase price of $1 million (plus GST) and the remaining lots 600 to 617 at no consideration.

On 30 October 2008 Pearl Hill rendered to Marina Cove invoices for $75,000 and $13,745 for streetscape works and driveway works respectively in relation to specified allotments.

On 11 November 2008 Ms Smith sent an email to Mr Leggiero attaching a template contract of sale in response to Mr Leggiero’s request. The attached template was not tendered.

On 12 November 2008 Mr Leggiero sent an email to Ms Furstenberg agreeing to the template contract of sale, except that settlement was to be on the later of 60 days after the day of sale (date of signing the contracts of sale) or 14 days after notification of registration of the relevant plan of division, or earlier by mutual agreement. He requested that Ms Furstenberg hold off preparing the contracts of sale until he provided the name of the purchaser of each lot or group of lots. Ms Furstenberg replied agreeing to the amendment and looking forward to confirmation of the purchasing entities.

On 12 November 2008 Mr Leggiero sent an email to Ms Furstenberg attaching a listing of the nominated purchasing entities (the nominated entities). It showed that Coastal Group Properties was to be the purchaser of lots 608 to 632; Black Scorpion was to be the purchaser of lots 600 and 602; Manhatten Investments was to be the purchaser of lot 605 and 606; Carmen Rose was to be the purchaser of lot 601; Hassa Holdings was to be the purchaser of lot 603, Black Ace was to be the purchaser of lot 604 and A1 Paint was to be the purchaser of lot 607.

On 12 November 2008 Mr Axarlis was appointed chief executive officer of CP1.

On 14 November 2008 Ms Furstenberg sent an email to Mr Axarlis saying that Gadens had now received the contracts of sale back from the printers and would replace the pages in the vendor statements and contracts of sale that were specific to each lot and the particular purchaser. She suggested that Mr Axarlis attend at Gadens’ office on 17 or 18 November to execute the vendor statements so that they could be delivered to Maddocks on 18 November. Mr Axarlis forwarded the email to Mr Mimmo.

Gadens bound one set of standalone vendor statements (the vendor statements or standalone vendor statements), and two sets of a Contract of Sale (the individual contracts or Contracts of Sale), for each of the 33 lots. The purchase price and purchasers were the nominated entities in accordance with Mr Leggiero’s requests made on 24 October and 12 November respectively.

Each individual contract comprised:

· a first page encompassing a cooling off notice, operative clause and a date (page 1);

· General Conditions (pages 2-4);

· Dispute Resolution Guidelines (page 5);

· an execution page (page 6);

· Particulars of Sale and a Schedule of variables (pages 7-9);

· Special Conditions (pages 10-35);

· annexures, including as annexure M a copy of the vendor statement.

On 18 November 2008 Mr Axarlis dated and signed the vendor statements.

On 18 November 2008, 33 vendor statements and 33 individual contracts (two copies of each) were conveyed from Gadens to Maddocks.

On 26 November 2008 Mr Mimmo sent a letter to Mr Axarlis. He said that, since the Heads of Agreement was executed on 21 October 2008, no payments had been made of the outstanding invoices contained in Annexure B. As a result, he was reinstating invoices 1384 and 1385 and he intended to charge interest on outstanding invoices. No further work would be undertaken pending payment of the outstanding invoices. The nominated completion dates in the Heads of Agreement could not be fulfilled.

On 28 November 2008 Blake Dawson, acting on behalf of Marina Cove and its parent CP1, sent by facsimile a detailed letter to the Commonwealth Bank advocating consent to the proposed settlement with Pearl Hill the subject of the Heads of Agreement.

On 28 November 2008 Mr Mimmo sent an email to Mr Axarlis and Mr Newman, copied to Mr Hoey, asking them to sort themselves out ‘pretty quick’ as he had sent Hoeys instructions to recover monies and damages. It may be that Mr Mimmo’s letter dated 26 November 2008 was attached to that email.

On 28 November 2008 Mr Axarlis spoke to Mr Mimmo. Mr Axarlis then sent an email to Mr Mimmo, copied to Mr Hoey, saying that the Heads of Agreement was subject to the financier’s consent, that Marina Cove was using its best endeavours to obtain the consent to bring the agreement to fruition, and confirming Mr Mimmo’s agreement not to proceed for seven days pending the Commonwealth Bank’s response.

On 29 November 2008 Mr Mimmo sent an email to Mr Axarlis saying that he had not yet agreed not to proceed for seven days but was awaiting Marina Cove’s solicitors’ correspondence to the Bank which Mr Axarlis said he would show to him.

On 1 December 2008 Alan Titterton of PPB sent an email to Mr Axarlis seeking information for the purpose of a valuation being undertaken by David Way of Knight Frank.

On 1 December 2008 Mr Axarlis forwarded Mr Titterton’s email to Mr Mimmo, referred to their discussion on 28 November and sought confirmation that no action would be taken pending the Commonwealth Bank’s review.

On 2 December 2008 Mr Mimmo sent a responding email to Mr Axarlis asking for the letter from the Commonwealth Bank requesting this information. Mr Axarlis responded that he would ask PPB to confirm this.

On 2 December 2008 Mr Way sent a letter of valuation to Mr Titterton at PPB. He valued the 33 lots if sold individually at $30.7 million. He deducted various costs and profit totalling $15.7 million to give a value ‘in one line’ of $15 million (exclusive of GST).

On 3 December 2008 Mr Titterton sent an email to Mr Axarlis and Mr Mimmo confirming that PPB acted on behalf of the Commonwealth Bank in relation to the matter and that, on receipt of advice from Knight Frank, the Bank would confirm whether it would release its mortgages over the 33 lots in the event that the proposed sale to Pearl Hill completed.

On 10 December 2008 Mr Titterton sent an email to Mr Axarlis stating amongst other things:[5]
[5]Although not necessarily present in this email, many of the emails extracted in this judgment contain typographical and/or grammatical errors. In general terms, I have not identified all errors with the word ‘sic’.

Subject to the following, I confirm that CBA consents to the proposed sale of the 33 ‘Western lots’ in Stage 4 for the price of $15m (excluding any applicable GST):
– PPB/CBA receiving confirmation:
oof the settlement date;
othat Pearl Hill has recommenced works on Stage 1 housing;
othat Pearl Hill has ceased/withdrawn any litigation against CP1 and/or Marina Cove (as outlined in Pearl Hill’s letter to [sic] 26 November 2008);

– satisfactory review of sale documents by PPB/CBA; and
- unconditional contracts of sale being executed by both parties prior to 24 December 2008.

On 10 December 2008 Mr Axarlis sent a letter to Mr Mimmo stating amongst other things:

Our financier, the CBA, have advised that, subject to the following, CBA consents to the proposed sale of the 33 “Western lots” (i.e. Lots 600 to 632 inclusive) in Stage 4 for the price of $16.5m (inclusive of GST):
1.        CBA receiving confirmation:
1.1      of the settlement date;
1.2      that Pearl Hill has recommenced works on Stage 1 housing; and
1.3that Pearl Hill has ceases/withdraws any litigation against CP1 and/or Marina Cove (as outlined in Pearl Hill’s letter to [sic] 26 November 2008); and

2. satisfactory review of sale documents by CBA; and
3.unconditional contracts of sale being executed by both parties prior to 24 December 2008.

Mr Axarlis referred to the settlement date being defined as the later of 60 days from the day of sale or 14 days from the registration of the plan of subdivision or earlier by mutual agreement. He requested that Pearl Hill confirm that works had now recommenced on site and that it would comply with the terms of the Heads of Agreement (which therefore covered the mutual release by the parties in relation to litigation and the dispute).

On 11 December 2008 Mr Axarlis forwarded to Mr Mimmo the email from Mr Titterton of 10 December. He asked for the requested information to be provided immediately by return.

On 12 December 2008 Mr Axarlis sent an email to Mr Mimmo forwarding an email from the purchasers of lots 18 and 24 complaining of defects. He said that the Bank had consented to the Heads of Agreement. These matters needed to be resolved and they needed to sit down now that the deal had been agreed by the Bank and agree the action plan one home at a time.

On 12 December 2008 Mr Axarlis sent an email to Mr Titterton of PPB, Bryan Roberts of the Commonwealth Bank and others attaching a copy of an individual contract (lot 618). I infer that by 18 December the Bank had satisfactorily reviewed the terms of the document pursuant to condition 2 of Mr Titterton’s email because Mr Axarlis attended at Pearl Hill’s office on that date intending to execute the individual contracts.

On 15 December 2008 Mr Axarlis sent an email to Mr Mimmo asking him to telephone him to finalise settlement, sign contracts and finish the matter. He said that it had been one week since the Bank first confirmed consent to the terms of the Heads of Agreement.

On 16 December 2008 Mr Morello sent an email to Mr Hoey attaching, amongst other things, the Heads of Agreement and Mr Titterton’s 10 December email. He sought advice whether the PPB email was sufficient evidence of CBA’s consent or whether further evidence was required. Mr Hoey replied advising amongst other things that, if Pearl Hill was concerned about the consent, it might want the consent signed by PPB and something from the Bank confirming that PPB was authorised to act on its behalf.

On 16 December 2008 Mr Axarlis sent an email to Mr Mimmo asking him to telephone Mr Roberts of the Commonwealth Bank. Mr Mimmo gave evidence that he does not recall speaking to Mr Roberts.

On 18 December 2008 Mr Axarlis and Mr Newman attended at Pearl Hill’s office in Mornington for the purpose of the parties executing the 33 individual contracts. Some of the events on that day are common ground. Others are the subject of conflicting evidence. I summarise at this point the events that are common ground.

Mr Axarlis and Mr Newman were taken upstairs to Pearl Hill’s boardroom. Present in the boardroom were at least one set of 33 bound standalone vendor statements and two sets of 33 bound individual contracts previously sent to Pearl Hill. Each standalone vendor statement and each vendor statement comprising Annexure M to each individual contract was dated 18 November 2008, signed by Mr Axarlis and stamped with his printed name. It does not matter at this point whether this was done on 18 November or 18 December (but I find that the standalone vendor statements were signed on 18 November). Each page 1 of each individual contract was dated 18 December 2008 by Mr Axarlis and/or Mr Newman.

Mr Axarlis asked Mr Morello for a letter confirming the matters set out in paragraphs 1.2 and 1.3 of his 10 December letter. Mr Morello went away and later returned with a draft letter. Mr Axarlis asked Mr Morello to make changes to it, which he did. The letter contained provision for signature by Mr Mimmo and copies to Mr Roberts at the Commonwealth Bank and Mr Titterton at PPB. When Mr Axarlis was content with the wording of the letter, it was placed on a Pearl Hill letterhead and signed by Mr Mimmo (the 18 December confirmation letter).

Mr Axarlis asked Mr Morello to send the 18 December confirmation letter by email to Mr Roberts and Mr Titterton. Mr Morello sent a copy of the letter by email to Mr Axarlis, Mr Roberts, Mr Titterton and others at 2:07pm.

There is a conflict on the evidence whether Mr Axarlis signed the individual contracts in respect of lots 600 to 617, which I address below. It is common ground that the individual contracts in respect of lots 618 to 632 were not signed.

There was a discussion about the deposit of 10% payable in respect of lots 618 to 632 (totalling $1.5 million plus GST). Mr Mimmo said that he was not prepared to pay the deposit because Marina Cove owed money to Pearl Hill that had not been paid. Mr Mimmo suggested that the individual contracts in respect of lots 618 to 632 be amended to delete reference to payment of a deposit. Mr Axarlis attempted to telephone Mr Roberts to ask him whether the Commonwealth Bank would agree to this. He was unable to reach him. He telephoned Campbell Jaski of PPB. He then told Mr Mimmo that he was unable to proceed further on that day and departed.

On 19 December 2008 Mr Morello sent an email to Mr Axarlis asking for an update on the amendments of the Contracts of Sale discussed the previous day. Mr Axarlis sent an email in response to Mr Morello, copied amongst others to Mr Mimmo and Mr Roberts. He said that the Commonwealth Bank’s representative advised that it would consider the request to amend the Contracts of Sale to provide for no deposit and settlement within 21 days of registration of the plan of subdivision after Pearl Hill produced evidence from its financier that it had obtained finance to settle. He requested a letter of approval from Pearl Hill’s financier.

On 19 December 2008 Mr Morello replied to Mr Axarlis. He said that Pearl Hill’s previous approval from BankWest was no longer valid due to BankWest withdrawing because of the negative press associated with City Pacific. He was back to ‘square one’ with obtaining finance. Pearl Hill would have approval in the New Year, so they may have to wait until that happened. Mr Axarlis forwarded the email to Mr Roberts and others.

In December 2008 or January 2009 Mr Mimmo approached Jerry Triantos of Express Money Service Pty Ltd (Express Money Service), a finance broker, seeking approval of finance for purchase of the 33 lots. On 8 January 2009 Mr Triantos issued a letter of offer by Express Money Service to Coastal Group Properties offering to advance $22.8 million or 65% of valuation, whichever was lesser, on the security of the 33 lots for a maximum term of 12 months. The offer was subject to conditions and was effectively non-binding.

Mr Mimmo decided then or subsequently also to approach the National Australia Bank, Australia and New Zealand Bank and Westpac Bank with a view to possibly spreading the finance across two or three banks. At that stage, he had not decided which finance option or options he would pursue.

On 20 January 2009 Mr Newman sent an email to Mr Mimmo attaching a document showing fees of $122,495 required to be paid to the Council for issue of plans of subdivision of the 3 superlots into 33 lots. He asked Mr Mimmo to bring a cheque for the fees so that it could be lodged with the Council to enable release of the plans of subdivision.

On 23 January 2009 the National Australia Bank wrote a letter to Pearl Hill referring to finance of 18 lots proposed to be purchased by Coastal Group Properties (lots 608 to 619, 621 to 624, 626 and 627) and setting out indicative terms. The letter said that a valuation report would need to be undertaken by Charter Keck Cramer.

On 27 January 2009 Mr Morello sent an email to Mr Axarlis attaching the NAB letter.

On 27 January 2009 Mr Axarlis forwarded Mr Morello’s email to Mr Roberts and Mr Titterton, enquiring whether the Bank wished to await a firm letter of offer from the NAB or would consent to Marina Cove entering into contracts on a ‘subject to finance’ basis. Mr Titterton replied that the Bank would not consider any further offer for the 33 lots from Pearl Hill until Pearl Hill submitted a new offer supported by an unconditional letter of finance.

On 28 January 2009 Mr Axarlis sent an email to Mr Morello thanking him for the ‘conditional’ letter of approval and saying that the Commonwealth Bank had requested an unconditional letter of approval.

In February 2009 Mr Mimmo approached Anastasia Panagiotas, relationship manager in the commercial division at Westpac’s Laverton Business Centre, seeking finance for the acquisition of the 33 lots. Ms Panagiotas told him that Westpac would be prepared to provide an interest only short-term loan to enable him to complete the acquisition on the Bank’s usual terms, subject to fulfilling the usual criteria and on the basis that the amount advanced would not exceed 65% of the value of property provided by way of security.

On 13 February 2009 the ANZ Bank wrote a letter of approval of an application for a loan by Mr Mimmo, subject to conditions including a signed contract of sale and a valuation. The amount of the loan is redacted on the version tendered.

On 18 February 2009 Mr Axarlis sent an email to Mr Mimmo attaching a letter asking him to confirm agreement to amending the proposed date of settlement under the individual contracts to the later of ‘30 days from the day of sale or seven days from registration of the plan of subdivision’ and asking to be advised upon receiving confirmation from Pearl Hill’s financier that its loan had been approved.

On 19 February 2009 Mr Morello replied to Mr Axarlis attaching a letter from Mr Mimmo agreeing to the amendment. The letter said that, on signing of the Contracts of Sale, plans of subdivision must be registered within seven days to avoid further delays. It said that Annexure B to the Heads of Agreement needed to be amended to include invoices 1384 and 1385.

On 19 February 2009 Mr Axarlis sent an email to Mr Morello. He rejected the claim in relation to invoices 1384 and 1385. He asserted that Pearl Hill was in breach of clause 3 and clause 2 of the Heads of Agreement. He requested confirmation that Pearl Hill would comply with the Heads of Agreement in all respects (save for payment of the 10% deposit), failing which Marina Cove would take all necessary action to protect its interests.

On 20 February 2009 Craig Kilby of Charter Keck Cramer provided a valuation report to the NAB in respect of the 18 lots the subject of the NAB letter dated 23 January. He valued the 18 lots at $19.8 million (apportioned at $1.1 million each) and on a forced sale at $17.1 million (apportioned at $0.95 million each).

On 23 February 2009 Mr Axarlis sent an email to Mr Mimmo, copied to Mr Morello, asking if the NAB had received Charter Keck Cramer’s valuation of the 33 lots.

On 24 February 2009 Mr Morello replied saying that the valuation had been received. Mr Axarlis sent a responding email asking for an unconditional letter of finance that he may forward to the Commonwealth Bank seeking consent to amend the Contracts of Sale to remove the requirement for the deposit.

On 5 March 2009 Mr Morello sent an email to Mr Axarlis setting out contact details for the NAB manager who was dealing with Pearl Hill’s loan application in response to a request from Mr Axarlis to provide the details to pass on to the Commonwealth Bank. Mr Axarlis forwarded the email to Mr Roberts and Mark Sutton at the Commonwealth Bank, saying that Pearl Hill had consented to Mr Roberts speaking to the NAB manager. He enquired whether Mr Roberts consented to entry into the Contracts of Sale at that stage, subject to removing the deposit and shortening the settlement date.

On 5 March 2009 Mr Sutton replied to Mr Axarlis’ email saying that the Commonwealth Bank did not think it would be appropriate to contact NAB and reiterating that the Bank did not consent to entering into Contracts of Sale until they could be unconditional with an appropriate deposit being paid.

On 10 March 2009 CPL lodged a second mortgage over the titles to the 3 superlots.

On 11 March 2009 Mr Axarlis sent a letter to Pearl Hill contending that works required to achieve an occupancy permit for lot 54 were required under the Heads of Agreement to be undertaken by Pearl Hill without further charge. He said that the Heads of Agreement was premised on no further money other than that described in the Schedule being paid by Marina Cove and hence the discount of $16.5 million to Pearl Hill on the transfer of the land. He contended that Pearl Hill would not be successful for a claim anywhere near $16.5 million.

Retainer of Mr Digby QC

In March 2009 Mr Mimmo sought advice from Mr Hoey about Pearl Hill’s legal position under the Heads of Agreement and the Construction Contract. Mr Hoey recommended seeking advice from Mr Digby QC and Mr Oliver concerning the action that Pearl Hill should take in relation to the contracts. Mr Hoey said that Mr Digby QC was a top building and construction barrister and had been involved in a lot of similar cases. Mr Hoey and Mr Berrill prepared a brief for that purpose.

Mr Mimmo told Mr Hoey that he wanted to know whether the Heads of Agreement was enforceable in order to know if he could proceed with the Contracts of Sale. He expressed concern about the financial viability of Marina Cove. He said that the price for the 33 lots under the Heads of Agreement was very good. He told Mr Hoey that Marina Cove owed money to Pearl Hill and he did not want to pay the deposit that Pearl Hill was otherwise required to pay because Marina Cove might not pay that money to Pearl Hill. He said that he wanted to deduct from the purchase price monies owing to Pearl Hill under the Heads of Agreement. Mr Hoey characterised this legally as a set off.

Mr Hoey considered that Marina Cove might terminate the Heads of Agreement for breach by Pearl Hill if it was not entitled to a set off, and that it was therefore imperative to obtain senior counsel’s advice before acting. He decided to seek advice from counsel on the enforceability of the Heads of Agreement and the ability to set off money owed by Marina Cove against the purchase price of the 33 lots. Mr Mimmo told Mr Hoey that he believed that Marina Cove would be open to conceding a set off given that Pearl Hill could impose financial pressure on Marina Cove which was in debt to its financiers.

On 16 March 2009 Mr Hoey attended a conference with Mr Mimmo and Mr Oliver for two and a half hours. No evidence was adduced about the content of the conference.

On 21 March 2009 Mr Hoey sent an email to Mr Mimmo, copied to Mr Digby QC, attaching a draft Outline of Facts for Brief. Mr Hoey set out potential claims that Pearl Hill had against Marina Cove prior to the Heads of Agreement. He said in the Outline of Facts for Brief that a prolongation claim, estimated on a very approximate basis at $11 million, was unlikely to succeed due to the contractual bars contained in clauses 34.4 and 34.10 of the Construction Contract. Pearl Hill had claimed that design changes made by Marina Cove resulted in a more appropriate rate per square metre of $1,950 rather than the rate of $1,300 used in calculating the contract prices, resulting in a difference of approximately $17 million. Pearl Hill had served a notice of suspension of work and suspended work in May 2008 after issuing a notice of default in respect of outstanding progress claims exceeding $3.1 million.

Mr Hoey said in the Outline of Facts for Brief that key terms of the Heads of Agreement included the purchase of the 33 lots at a price considerably lower than their value, with a 10% deposit payable on signing the Contracts of Sale. Pearl Hill believed that, if it took action against Marina Cove, Marina Cove would be forced into liquidation. Pearl Hill considered that it would exchange its claims for a discount in the purchase price of the 33 lots. Marina Cove was refusing to sign the Contracts of Sale unless Pearl Hill produced a 10% deposit but Pearl Hill had informed Marina Cove that it wished to set off the deposit against monies owed to it under the Heads of Agreement. Pearl Hill now wished to resolve these issues in the most practical way possible.

Mr Mimmo telephoned Mr Hoey and said that the Outline of Facts for Brief was good.

On 23 March 2009 Mr Hoey sent an email to Mr Oliver attaching a Memorandum to Counsel. The Memorandum to Counsel contained essentially the same material as the Outline of Facts for Brief but re-ordered and with some relatively small wording changes. The Memorandum to Counsel was also sent to Mr Digby QC at about the same time.

The Memorandum to Counsel asked for advice on the practical resolution of the issues and sought advice specifically in the following terms:

Pearl Hill seeks advice, therefore, as to:
(a)       whether the Heads of Agreement are enforceable; and
(b)       if they are
(i)        the appropriate enforcement steps Pearl Hill should take;
(ii)whether Pearl Hill can set off the amount owed to it under the Heads of Agreement against the 10% deposits due for the sale of land; and
(iii)whether Pearl Hill can claim variations for the uncompleted works which Pearl Hill has agreed to complete.

The last question posed by Mr Hoey related to a modification to shower screens required by the building surveyor in circumstances in which Pearl Hill had constructed the shower screens in accordance with the plans. It was relatively inconsequential.

On 25 March 2009 Mr Hoey and Mr Berrill attended a conference with Mr Digby QC and Mr Oliver for 45 minutes. No evidence was adduced about the content of the conference. A conference with Mr Mimmo for 31 March was arranged.

Subsequent events

On 30 March 2009 Andrew Denehy of Gadens sent a letter to Mr Mimmo responding to his letter dated 13 March. He said that the Heads of Agreement was subject to financier, mortgage fund and board of directors approval in accordance with clause 15 and that consent was obtained on terms that should have been expected by Pearl Hill. He said that Pearl Hill had failed to comply with the requirements of the consent of the financier and had thereby repudiated the Heads of Agreement. He reserved Marina Cove’s rights and required a response advising what steps Pearl Hill intended to take in performance of the obligations arising under the Heads of Agreement. He also alleged that Pearl Hill was in breach of the Construction Contract by suspending work and failing to proceed in a diligent manner and required under clause 39.3 that Pearl Hill show cause by 3 April 2009 why Marina Cove should not take work out of the contractor’s hands or terminate the contract due to breaches by Pearl Hill. The letter was not a valid show cause notice because it only gave Pearl Hill four days in which to respond.

On 31 March 2009 there was a conference between Mr Digby QC, Mr Oliver, Mr Hoey and Mr Mimmo for one hour. No notes of the conference were tendered. Mr Mimmo gave evidence that there were discussions about the best way to lock Marina Cove into the Heads of Agreement so that Pearl Hill would not lose anything if Marina Cove went into liquidation. Mr Mimmo said that he wanted to ensure that Pearl Hill still received what had been promised if Marina Cove ‘went broke’. Mr Mimmo’s evidence in this respect was not challenged in cross-examination. Mr Digby QC, Mr Oliver and Mr Hoey did not in their evidence take issue with this evidence, which I accept.

On 1 April 2009 Mr Hoey sent an email to Mr Mimmo and Mr Morello seeking the numbers of the titles to the 3 superlots so that he could put caveats on them. Mr Morello responded providing the title numbers. Mr Hoey responded saying that he thought that the Heads of Agreement should be sufficient to enable a caveat to be placed on the property on the basis of Pearl Hill being a purchaser.

On 1 April 2009 Peter Smith of Westpac’s 360 Collins Street office issued a letter to Coastal Group Properties confirming Westpac’s expression of interest to assist with finance for blocks of land considered for purchase and stating that this was subject to formal valuation of the land. He requested copies of the contracts.

On 1 April 2009 Mr Mimmo sent an email to Mr Hoey saying that he had approval for finance for the 33 lots but could not get an unconditional letter of approval because all banks wanted to see signed contracts. He attached the NAB 23 January letter, the ANZ 13 February letter and the Westpac 1 April letter.

On 1 April 2009 Mr Mimmo sent an email to Mr Axarlis, copied to Mr Hoey, saying that he needed an answer on signing the individual contracts by close of business on the following day. He attached the ANZ letter and the Westpac letter.

On 1 April 2009 Mr Axarlis sent a responding email to Mr Mimmo, copied to Mr Hoey, saying amongst other things that, after Mr Mimmo denied on 18 December 2008 his agreement to pay the 10% deposit, Mr Axarlis spoke to the Commonwealth Bank seeking a waiver of that condition and they reserved their rights and sought an unconditional letter of finance from Pearl Hill’s financier. He said that the NAB and Westpac letters did not constitute unconditional letters of finance. He sought Mr Mimmo’s urgent advice as to how Marina Cove would derive the necessary comfort that Pearl Hill would complete the homes given that other entities had been nominated as purchasers of the 33 lots.

On 1 April 2009 Mr Hoey forwarded Mr Axarlis’ email to Mr Digby QC and Mr Oliver. He said that there was a ‘catch-22’ because Marina Cove would not accept letters from Pearl Hill’s banks and the banks would not give unconditional finance approval without signed contracts. He said that a second mortgage had been registered over the 3 superlots in favour of CPL three weeks ago which made it very suspicious as to what their intentions were.

On 1 April 2009 Pearl Hill rendered to Marina Cove invoices for $178,133 for the lock-up stage of lot 57 and $174,629 for the lock-up stage of lot 58, together with invoices for interest on overdue invoices.

On 2 April 2009 Pearl Hill sent an email to Mr Hoey forwarding Mr Morello’s email to Gadens dated 24 October 2008 concerning the nomination of Coastal Group Properties as the purchaser of the 33 lots. Mr Mimmo also sent an email to Mr Hoey forwarding Mr Axarlis’ email dated 14 November 2008 concerning different purchaser entities. Mr Hoey forwarded the emails to Mr Digby QC and Mr Oliver.

On 2 April 2009 Mr Hoey sent an email to Mr Mimmo, copied to Mr Digby QC and Mr Oliver, attaching a draft letter to Marina Cove putting it on notice that time was now of the essence and it had seven days to sign individual contracts under the Heads of Agreement. Mr Mimmo responded saying that the draft letter was fine.

On 2 April 2009 Mr Axarlis sent an email to Mr Mimmo saying that the Commonwealth Bank wanted to meet him on 6 April regarding the matter, he would see what they had to say and he would phone Mr Mimmo afterwards. Mr Mimmo forwarded the email to Mr Hoey.

On 2 April 2009 Mr Newman issued SI No 3 directing Pearl Hill that he had removed any further works in respect of lot 54. Mr Mimmo sent a responding email on 3 April taking issue. On 6 April Mr Newman sent a responding letter taking issue. His original letter and Mr Mimmo’s reply were not tendered.

On 3 April 2009 Mr Digby QC on behalf of Mr Oliver and himself sent an email to Mr Hoey and Mr Morello, copied to Mr Oliver, attaching a settled version of Mr Hoey’s 2 April draft letter.

Mr Triantos gave evidence that, before issuing the letter of offer, he spoke to Banner personnel, identified the property and the valuation that had been obtained and asked them ‘are you right to go on this one?’ and they said ‘Yes, we are. When you’re ready.’

Mr Triantos gave evidence that he had a pool of private investors who had between them approximately $300 million available to lend. He intended that, if Mr Mimmo wished to proceed, and Mr Triantos did not obtain the funds from Banner, he would obtain the funds from several private investors. His private investors had informed him of the amount they were willing to lend and their criteria. For example, an investor might say that they had $20 million to lend against any investment in land. Provided a given loan fell within a private investor’s criteria and a valuation was obtained showing that the loan to value ratio was achieved and the mortgage documents were prepared by accepted solicitors, his private investors would lend money and it was effectively his call to make the decision whether to lend money on behalf of those investors.

Mr Triantos gave evidence that, before issuing the letter of offer, he spoke to a group of five private investors and asked them the same question that he asked of Banner and they said that they were happy to proceed.

Mr Triantos gave evidence that, if Mr Mimmo had signed the letter of offer dated 8 January 2009, it would have taken a week and a half to obtain a re-addressing of the valuation (if the valuer was willing to do so) and one or two weeks after that to settle.

There is no challenge to the honesty of Mr Triantos’ evidence. With one exception, there is no challenge to the reliability of his evidence. The exception is his evidence that he saw a valuation before sending his letter of offer of 8 January 2009.

The defendants invite me to find that that Mr Triantos did not see a valuation before 8 January 2009. It is clear that Mr Triantos could not have seen Mr Kilby’s valuation because it had not yet been prepared. However, on 19 December 2008 Mr Morello sent an email to Mr Axarlis referring to an approval of finance that Pearl Hill had previously obtained from BankWest. The valuation to which Mr Triantos referred could have been a valuation obtained by or for BankWest. No other evidence was adduced concerning the BankWest approval.

Mr Triantos’ evidence that he saw a valuation before 8 January 2009 was not challenged in cross-examination. Mr Mimmo did not give evidence about the approach to BankWest for finance or about a valuation being shown to Mr Triantos and his evidence is therefore effectively neutral on this topic.

In his evidence in chief, Mr Triantos said that, after he was approached by Mr Mimmo and before he provided the letter of offer, a valuation had been done for Mr Mimmo by one of the valuers for the large corporate commercial lenders which was a lot better and stronger than the valuation that EMS would have obtained and being a valuation that he would take at face value. The valuation was for about twice the amount that Mr Mimmo was seeking. When he issued his letter of offer, everything had been done that had to be done except re-addressing the valuation to EMS. He had been given the okay for the deal by Banner and his group of five private investors based on the valuation.

In cross-examination, Mr Triantos said that he had a valuation and that he had been told about it by Mr Mimmo. It was put that he had not yet seen or read it and he said ‘not at that stage’. The defendants contend that, by this answer, Mr Triantos meant that he had not seen the valuation as at 8 January 2009. I reject that construction of his evidence. Immediately after giving that answer, Mr Triantos said that he wanted to clarify the answer and said that he did see a copy of the valuation, which was from one of the top valuers in Melbourne whose identity he could not now recall, and he saw a copy of the valuation and based his funding decision on it. When Mr Triantos’ evidence (including his evidence in chief) is considered as a whole, it is clear that his reference to not having seen the valuation ‘at that stage’ was a reference to the stage when he was first approached by Mr Mimmo and not the stage when he issued the letter of offer on 8 January 2009.

Mr Triantos had said in his written witness statement that, if Mr Mimmo had wished to proceed with the finance transaction, ‘the amount of the loan advance would have reflected 65% of the anticipated valuation of the property’. The defendants contend that this implies that Mr Triantos had not seen any valuation as at 8 January 2009. However, Mr Triantos explained in his evidence that, if the transaction proceeded, he would have had to have the valuation re-addressed to EMS, it would have been the amount of the re-addressed valuation that governed the amount of the loan and this is what he meant by ‘the anticipated valuation’ or a valuation from another valuer if the first valuer would not re-address it.

I found Mr Triantos to be a straightforward witness who had a clear understanding of his business, his credit providers and his customers. I have no reason to reject his evidence that he saw a valuation before 8 January 2009. I accept Mr Triantos’ evidence in this respect. I also accept his evidence more generally.

The parties make submissions about what Mr Triantos’ evidence does or does not prove, which I address below.

Evidence of Ms Panagiotas

Ms Panagiotas gave evidence that in 2009 she was employed by Westpac Bank in its commercial division at its Laverton Business Centre at Laverton in the Melbourne metropolitan area. She specialised in commercial lending, including for property development and construction. The Laverton Business Centre made loans to customers, and for projects, throughout Victoria; it was not confined to lending in a specific geographical area.

Ms Panagiotas was employed by Westpac as Relationship Manager between 2002 and 2009. She had previously been employed by BankWest between 1996 and 2002 and before that she had been employed by Westpac between 1991 and 1996 during which time she became an Assistant Manager.

After leaving Westpac in 2009, Ms Panagiotas was employed by Delphi Bank, then by MW Lomax as a loan mortgage broker and then by Assetline Capital Pty Ltd as Business Development Manager.

Ms Panagiotas gave evidence about Westpac’s practices and procedures in relation to lending for property development in 2009. She had authority to make a decision on behalf of Westpac to lend up to $2 million.

In relation to loans of amounts in excess of $2 million, a decision to lend required the concurrence of a relationship manager and a credit officer. There were two credit managers at Laverton Business Centre who made the lending decisions on the credit side. As relationship manager, Ms Panagiotas made the decision whether to submit a loan application to a credit officer. If she decided to do so, she prepared a credit memorandum recommending the loan. The loan would only be made if the credit officer agreed.

Ms Panagiotas said that the Bank required a valuation to be undertaken by one of the valuers on its panel, which included Carter Keck Cramer, Savills and CBRE. If a valuation had already been undertaken by a panel valuer, Westpac would rely on that valuation provided that it was assigned to Westpac. Westpac regarded valuations as valid for three months. A valuation more than three months old would have to be refreshed by the valuer. For lending against land security, Westpac lent up to 65% of the valuation. Provided that there was adequate security to achieve this loan to valuation ratio, Westpac was prepared to include capitalised interest over the term of the loan and/or the establishment fee.

Ms Panagiotas said that, for a property development of the type proposed by Pearl Hill, Westpac lent on an interest only basis for one or two years. Westpac required the customer to identify a takeout, or exit, strategy whereby the loan would be paid out after two years. An exit strategy might comprise onselling the property, construction finance or other finance. Westpac did not require formal documentation of the exit strategy but rather an understanding of the client’s strategy.

When a customer approached Westpac at the Laverton Business Centre, Ms Panagiotas obtained an understanding of the transaction, comprising the level of debt required, whether interest was to be capitalised, the level of security required and the customer’s exit strategy.

Ms Panagiotas had a practice of providing an indicative offer to a customer when appropriate. For this purpose, she obtained from the customer the necessary details, made enquiries, prepared a short form credit memorandum and obtained an indicative approval from one of the credit managers. I infer that an indicative offer was not legally binding and was subject to the issue of a formal letter of approval and a satisfactory valuation. No fee was payable by the customer at this stage. There was no bank template for an indicative offer, which might be in the form of a letter or an email or might even be verbal.

If the customer wished to proceed, the customer made a formal application for the loan. Ms Panagiotas then prepared a full credit memorandum. At this stage, she required a copy of the contract for the purchase of the land and the section 32 vendor statement. She looked at the vendor statement for title details including the name of the vendor/owner and any encumbrances such as unpaid land tax. She went through the credit policy and ensured that the transaction met all of the criteria. The criteria included not only the loan to value ratio but also that the customer had a clean credit history, the capacity to repay the loan and identification of an exit strategy.

After submitting the credit memorandum, Ms Panagiotas obtained an approval from the credit manager (when appropriate). She then prepared a formal letter of approval. If the customer accepted the approval, the customer would be required to pay fees (including a valuation fee) and the Bank commissioned a valuation from a panel valuer. After receipt of a formal application from the customer, it took about two weeks to obtain a formal approval and the valuation and a further two weeks to settle.

Ms Panagiotas gave evidence that she recalls Mr Mimmo being referred to her by another builder. Mr Mimmo came to see her in around February 2009. He was seeking a loan for the acquisition by Pearl Hill of 33 lots within the Martha Cove development at Safety Beach. She recalls the development and Mr Mimmo’s involvement in it because his arrangement for the acquisition of the property made an impression on her at the time.

Ms Panagiotas gave evidence that Mr Mimmo told her that the reason he was buying the lots was because the original developer was struggling financially and had issues, owed Pearl Hill money and was going to liquidate the lots. He told her that the purchaser was his company Pearl Hill Pty Ltd. He offered first mortgage security over the 33 lots and, if necessary, a mortgage over other unencumbered property at Safety Beach and a second mortgage over a shopping centre at Barkly Street Mornington.

Ms Panagiotas gave evidence that she obtained financial statements for Pearl Hill and undertook a credit check. She prepared a short form credit memorandum and obtained indicative approval from the credit manager.

Ms Panagiotas gave evidence that she issued an indicative offer to Mr Mimmo for a loan to Pearl Hill by way of a commercial bill facility with an interest margin of 2.5% per annum initially for one year with a capacity of being rolled over. Ms Panagiotas said that she made the indicative offer by email but did not have access to her Westpac emails from 10 years ago. She accepted that there was a possibility that she conveyed the indicative offer to Mr Mimmo verbally. The indicative offer was mainly subject to receipt of a satisfactory valuation and achieving a 65% loan to valuation ratio. The Bank would also have required the submission of the purchase contracts and the submission of a formal loan application as described above.

Ms Panagiotas gave evidence that Mr Mimmo told her that he was shopping around to various banks and she left the indicative offer in his hands. Some time later, he told her that he did not proceed with the purchase.

Ms Panagiotas was asked in cross-examination about the letter from Peter Smith of Westpac addressed to Coastal Group Properties dated 1 April 2009. Mr Smith described himself as a Business Banking Manager at relationship sales in Westpac’s office at 360 Collins Street Melbourne. In the letter, he confirmed Westpac’s expression of interest to assist with finance for the blocks of land being considered for purchase at Safety Beach. He said that, once Mr Mimmo had copies of the contracts, he should forward them to Mr Smith together with the additional information requested from Mr Morello. He said that the expression of interest was subject to formal valuation by bank panel valuer.

Ms Panagiotas said that she and those at the Laverton Business Centre did not use terms such as ‘expression of interest’. She did not know Mr Smith. She had not previously seen the letter or known anything of it.

There is no challenge to the honesty or general reliability of Ms Panagiotas’ evidence.

I find that Ms Panagiotas was a careful witness with a thorough knowledge of finance matters relevant to the contemplated loan by Westpac to Pearl Hill and of Westpac’s practices and procedures in relation to such lending. I accept her evidence generally.

The parties make submissions about what Ms Panagiotas’ evidence does or does not prove, which I address below.

Evidence of Mr Mimmo

Mr Mimmo gave evidence in chief that he ‘had no concerns that the residential finance I was seeking would satisfy the bank’s loan to value ratios requirements’ and ‘on the basis of my discussions with Jerry Triantos, Stacey Panagiotas and the letters I had received from NAB and ANZ, I was confident that I had a number of options available to me to finance the whole of the purchase price, including GST, costs of the loan and if necessary, capitalised interest’. On its face, this does not purport to be objective evidence as to the prospect of Pearl Hill obtaining finance but only evidence of Mr Mimmo’s state of mind. Pearl Hill does not contend otherwise.

Mr Mimmo gave brief evidence in chief of his dealings with Mr Triantos and Ms Panagiotas. His evidence was consistent with the more detailed evidence given by Mr Triantos and Ms Panagiotas and was not challenged in cross-examination.

Mr Mimmo gave little other evidence in chief concerning seeking finance and was not significantly cross-examined on this topic.

Applicable standard of proof

Pearl Hill contends that the question whether it would have obtained finance to complete the acquisition of the 33 lots is a contingency on which the valuation of loss depends and is therefore to be assessed by reference to degree of probability rather than forming part of causation of loss which must be proved on the balance of probabilities.

The defendants contend that the question whether Pearl Hill would have obtained finance depends partly on the hypothetical conduct of third party financiers and partly on the hypothetical conduct of Pearl Hill and that, at least insofar as it depends on the hypothetical conduct of Pearl Hill, it must be proved on the balance of probabilities.

I accept Pearl Hill’s contention. Pearl Hill could not itself decide whether it would be granted finance. The grant of finance was an action that only a lender could take, not a borrower. While it is of course true that a borrower must cooperate with the lender in the sense of providing information or documents required by the lender to make a decision or provide finance, the borrower’s role is very much a subsidiary one compared to the lender’s decision-making role. It is not practicable or possible to attempt to separate out the borrower’s minor role from the lender’s major role in this respect.

I assess the prospects of Pearl Hill obtaining finance via EMS or from Westpac by reference to degree of probability.

Prospects of obtaining finance via EMS

I accept Mr Triantos’ evidence that he, and hence EMS, was in favour of lending up to $22.88 million or 65% of valuation for the purchase of the 33 lots. Although EMS was only a finance broker and its willingness to lend was only a step towards the willingness of its lenders, I accept his evidence that his views carried great weight with his lenders (Banner and his private investors) due to their relationship.

I accept Mr Triantos’ evidence that, subject to obtaining a valuation addressed to EMS in the requisite amount, Banner had agreed to act as lender in respect of the proposed lending transaction set out in Mr Triantos’ 8 January 2009 letter and so had the requisite number of EMS’s private investors.

Mr Triantos did not give evidence of the period for which a valuation was considered current. Ms Panagiotas gave evidence that at Westpac a valuation was regarded as current for three months. If hypothetically Mr Mimmo had informed Mr Triantos in the second half of May 2009 that he wished to proceed with finance, the valuation Mr Triantos had seen would have been over four months old. I infer that, before EMS and its lenders would have relied on that valuation, it would not only have to be re-addressed to EMS but it also would have to be refreshed or an alternative valuation would have to be obtained.

In the absence of tender, or further details, of the valuation that Mr Triantos saw, the best evidence of the valuation that would have been obtained and relied on by EMS is Mr Kilby’s valuation as at May 2009 of $31.35 million. At a 65% loan to value ratio, this would have enabled lending of $20.38 million, which would have been sufficient to cover the purchase price of $15 million, GST of $1.5 million that would have been recovered in the short term by Pearl Hill from the Australian Taxation Office, borrowing fees and more than one year of capitalised interest.

Mr Triantos said that there would have been a need to identify the relevant corporate entities and obtain personal identification from Mr Mimmo. This would have been a straightforward process. It is evident from Mr Triantos’ evidence that, although his 8 January 2009 letter was addressed to Coastal Group Properties, he would have been amenable to the borrower being Pearl Hill provided that the mortgage security was adequate. The defendants do not submit otherwise in closing address.

In the case of EMS’ private investors, there would have been a need for the solicitors used by EMS to produce acceptable mortgage documentation. This would have been a straightforward process.

The defendants observe that Pearl Hill did not call anyone from Banner or any of EMS’s private investors. The evidence given by Mr Triantos is not inadmissible hearsay because it comprises evidence of communications to EMS of the prospective lenders’ (non-legally binding) agreement to participate in the lending transaction. It is unlikely that they could have given any useful evidence given the passage of 10 years since the events in question. Evidence from EMS’ lenders confirming their (non-legally binding) agreement to participate in the lending transaction would have given me additional confidence in assessing the degree of probability of Pearl Hill obtaining finance. However, its absence is not fatal to Pearl Hill’s case.

On the one hand, based on Mr Triantos’ evidence, there was a very high prospect that Banner or EMS’ private investors would have provided the requisite finance to Pearl Hill. On the other hand, given the hypothetical nature of the question and the difficulty of obtaining conclusive evidence, there are various contingencies that need to be taken into account in determining the prospect of such finance being provided. EMS’ lenders were not legally committed to provide the finance and might have decided not to proceed on being provided with further details. There are risks that a finance transaction would not have proceeded for various other reasons.

I defer further consideration of the prospects of finance being provided by EMS’ lenders until considering the prospect of finance being provided by Westpac.

Prospect of obtaining finance from Westpac

Ms Panagiotas gave evidence, which I accept, that in about February 2009 she issued an indicative offer to Mr Mimmo for a loan to Pearl Hill by way of a commercial bill facility initially for one year with a capacity of being rolled over. For this purpose, she had obtained financial statements of Pearl Hill, undertaken a credit reference check, prepared a short form credit memorandum and obtained indicative approval from a credit manager.

The indicative offer was not legally binding and Westpac was free to disclaim it without cause. However, in practice it provides a reasonably sound indication of the prospect of Westpac approving the loan, subject to the contingencies identified by Ms Panagiotas. I accept Ms Panagiotas’ evidence that the most important contingency was obtaining a satisfactory valuation from a Westpac panel valuer.

The defendants observe that, because the proposed loan was for more than $2 million, Ms Panagiotas did not have authority to approve it and it required approval by one of the credit managers at the Laverton Business Centre. However, I accept Ms Panagiotas’ evidence that she obtained indicative approval from one of those credit managers. I also accept her evidence that her knowledge and experience was such that she was in a position confidently to predict whether a credit manager would approve a loan.

It is unlikely that the credit manager at the Laverton Business Centre could have given any useful evidence given the passage of 10 years since the events in question and it is unlikely that Westpac now retains documents relating to the matter. Evidence from the credit manager would have given me additional confidence in assessing the degree of probability of Pearl Hill obtaining finance. However, its absence is not fatal to Pearl Hill’s case. I accept Ms Panagiotas’ evidence that, subject to the contingencies she identified, if Mr Mimmo had wished to proceed, it is likely that his application would have been approved.

In relation to the contingency of valuation, I proceed on the same basis as in respect of EMS that a hypothetical valuation in May 2009 would have valued the 33 lots at $31.35 million.

In relation to the contingency of Westpac sighting the Contracts of Sale, Ms Panagiotas said that, aside from the issue of encumbrances disclosed in the section 32 vendor statement, Westpac would ordinarily rely on the valuer to identify any issues arising from the terms of the sale contract. The evidence given by Mr Kilby indicates that the terms of the Contracts of Sale would not have adversely affected the value of the land because the obligation to construct a house within three years was not unusual in relation to such estates.

The defendants observe that Pearl Hill did not tender its financial statements which Ms Panagiotas said were required to assess an application for finance. No evidence was given by Mr Mimmo concerning Pearl Hill’s financial statements and he was not cross-examined in relation to them. However, I accept Ms Panagiotas’ evidence that she saw the financial statements at the time and the indicative approval was given on the basis of them.

In relation to other contingencies, the position is similar to that in respect of EMS.

The defendants observe that Ms Panagiotas was not involved, and had never seen, the letter from Peter Smith of Westpac dated 1 April 2009. However, that letter is irrelevant to her assessment whether Pearl Hill would have been granted finance because it involved a separate approach by Pearl Hill (presumably Mr Morello) to a different office of Westpac. Mr Smith’s letter was in fact deployed by Pearl Hill simply to show the necessity of obtaining signed contracts before the banks would consider issuing unconditional approval.

The defendants refer to the conditions referred to in Mr Smith’s letter and the fact that they were not fulfilled. This is irrelevant in itself for the same reason. Insofar as Mr Smith referred to receipt of a satisfactory valuation and a satisfactory review of the sale contracts, I have addressed that above.

Combined prospects of obtaining finance via EMS or Westpac

The relevant contingency is whether Pearl Hill would have obtained finance either via EMS or from Westpac to purchase the 33 lots.

The prospects of Pearl Hill obtaining such finance fall to be determined primarily on the basis of the evidence given by Mr Triantos and Ms Panagiotas and such objective circumstances as were established referred to above.

The defendants point to the fact that Mr Mimmo was aware from 28 January 2009 to 9 April 2009 that Marina Cove’s financiers required Pearl Hill to obtain an unconditional offer of finance as the price of dispensing with a deposit. They observe that the only offers of finance that were tendered over the period between 9 January and 1 April 2009 were preliminary and conditional. They contend that no adequate evidence was adduced why Mr Mimmo did not take steps with any of those financiers to secure unconditional finance. They submit that an adverse (Jones v Dunkel) inference should be drawn from the absence of such evidence in respect of the period up to 9 April 2009.

The defendants observe that Pearl Hill did not adduce any evidence of Mr Mimmo’s attempts to secure unconditional finance after 1 April 2009. They submit that an adverse (Jones v Dunkel) inference should be drawn from the absence of such evidence in respect of the period after 1 April 2009.

However, Mr Mimmo sent an email to Mr Hoey on 1 April 2009 saying that he had approval for finance for the 33 lots but could not get an unconditional letter of approval because all banks wanted to see signed contracts. He attached the NAB letter dated 23 January, the ANZ letter dated 13 February and the Westpac letter dated 1 April 2009. He was not challenged in cross-examination in relation to this explanation for his not being able to obtain unconditional finance. This explanation is corroborated by the evidence given by Ms Panagiotas about the sequence of events whereby the Bank required production of the contract before issuing a letter of approval.

In respect of the period after 9 April 2009, the Commonwealth Bank was no longer seeking that Pearl Hill obtain an unconditional offer of finance.

No adverse inference should be drawn from the fact that Pearl Hill did not obtain unconditional approval for finance between January and May 2009.

I assess the prospects of Pearl Hill obtaining finance via EMS as being somewhat higher than its prospects of obtaining finance from Westpac. However, it is necessary to assess the prospects of obtaining finance from either source because either source would have been sufficient. Taking into account the contingencies to which the provision of finance was still subject and the uncertainties associated with the provision of finance, I assess the relevant prospects of obtaining finance at 60%.

Conclusion

The gross loss is $4,990,000. I apply the successive contingencies of the Commonwealth Bank and Marina Cove agreeing to proceed (40%) and Pearl Hill obtaining the necessary finance (60%) to give a net loss of $1,197,600.

G. CONCLUSION
Proportionate liability

It is common ground that Pearl Hill’s claims against the defendants are ‘apportionable claims’ within the meaning of Part IVAA of the Wrongs Act; the defendants, if liable, are ‘concurrent wrongdoers’ within the meaning of that Part; and that Part IVAA applies to Pearl Hill’s claims. It follows that it is necessary to apportion responsibility pursuant to section 24AI for Pearl Hill’s loss as between Hoeys and Mr Digby QC.

I ruled during closing addresses at trial that I would hear submissions on the apportionment of responsibility after delivering my reasons for judgment on all other issues. I will hear counsel on that question.

Liability cap

Mr Digby QC pleads that his liability is capped at $2 million pursuant to the Professional Standards Act 2003 (Vic) because he was in May 2009 a member of the Victorian Bar Incorporated Professional Standards Scheme, the applicable monetary ceiling of which was $2 million. It is common ground that Mr Digby QC’s liability is so capped. However, in view of my assessment of loss, that is irrelevant.

Conclusion

Pearl Hill is entitled to judgment against Hoeys and Mr Digby QC for damages provisionally assessed at $1,185,000 (subject only to hearing the parties on arithmetical aspects of the calculation of wholesale value). I will hear those parties as to interest and costs.

Pearl Hill’s action against Mr Oliver is dismissed. I will hear those parties as to costs.

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CERTIFICATE

I certify that this and the 305 preceding pages are a true copy of the reasons for judgment of Blue AJ of the Supreme Court of Victoria delivered on 26 February 2021.
DATED this 26^th day of February 2021.

Associate