Beeck v Kohlen - [2013] WASC 166

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL

CITATION: BEECK -v- KOHLEN [2013] WASC 166

CORAM: ALLANSON J

HEARD: 12-15 FEBRUARY 2013

DELIVERED : 9 MAY 2013

FILE NO/S: CIV 1467 of 2011

BETWEEN: MARTIN HARRY BEECK
Plaintiff
AND
PETER JOSEPH KOHLEN
First Defendant
SUSAN KAY FLEMING
Second Defendant

Catchwords:

Contract for the sale of land - Offer and acceptance - Whether finance clause applicable - What constitutes a reasonable time - Turns on own facts

Contract for sale of land - Specific performance

Contract for sale of land not a lot - Clause 13 of REIWA General Conditions - Election, waiver and estoppel - Turns on own facts

Fiduciary relationship - Architectural designer and client - Agent for limited purposes - Turns on own facts

Legislation:

Strata Titles Act 1985 (WA)
Town Planning and Development Act 1928 (WA)

Result:

Application for specific performance dismissed

Category: B

Representation:

Counsel:

Plaintiff:     Mr G J Carter
First Defendant            :     Mr A J Musikanth
Second Defendant        :     Mr A J Musikanth

Solicitors:

Plaintiff:     Optima Legal
First Defendant            :     Macdonald Rudder
Second Defendant        :     Macdonald Rudder

Case(s) referred to in judgment(s):

Aequitas Ltd v Sparad No 100 Pty Ltd (formerly Australian European Finance Corp Ltd) [2001] NSWSC 14; (2001) 19 ACLC 1006
Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99
Birtchnell v Equity Trustees, Executors and Agency Co Ltd [1929] HCA 24; (1929) 42 CLR 384
Breen v Williams [1996] HCA 57; (1996) 186 CLR 71
Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337
Commonwealth Bank of Australia v Smith [1991] FCA 375; (1991) 42 FCR 390
Commonwealth of Australia v Spotless Catering Services Ltd [2000] WASCA 302
Daly v Sydney Stock Exchange Ltd [1986] HCA 25; (1986) 160 CLR 371
Grundt v Great Boulder Pty Gold Mines Ltd [1937] HCA 58; (1937) 59 CLR 641
Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41
John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd [2010] HCA 19; (2010) 241 CLR 1
Khoury v Government Insurance Office of New South Wales [1984] HCA 55; (1984) 165 CLR 622
Legione v Hateley [1983] HCA 11; (1983) 152 CLR 406
Perri v Coolangatta Investments Pty Ltd [1982] HCA 29; (1982) 149 CLR 537
Pilmer v The Duke Group Ltd (in liq) [2001] HCA 31; (2001) 207 CLR 165
Sargent v ASL Developments Ltd [1974] HCA 40; (1974) 131 CLR 634
Sequel Drill & Blast Pty Ltd v Whitsunday Crushers Pty Ltd [2009] QCA 218
Thompson v Palmer [1933] HCA 61; (1933) 49 CLR 507
United Dominions Corporation Ltd v Brian Pty Ltd [1985] HCA 49; (1985) 157 CLR 1

ALLANSON J: In February 2006, Peter Joseph Kohlen and Susan Kay Fleming agreed to sell a commercial unit on land they owned to Martin Harry Beeck. The unit was part of a development that had not yet been constructed. The land was not then a lot. In August 2010, Mr Kohlen and Ms Fleming sent a notice to Mr Beeck advising him that the contract had been terminated because he had failed to comply with a condition relating to finance approval. Mr Beeck did not accept termination, and asks for an order specifically enforcing the contract. In defending the claim, Mr Kohlen and Ms Fleming have not confined their case to the ground on which they based the notice in 2010.
For the reasons which follow, I find that the contract was properly terminated for failure to meet the finance condition. None of the other matters raised by the defendants have been established.

Background

The following matters are not in dispute and provide the essential factual background. The defendants owned an area of land at 44 Barnfield Road, Claremont, on which Mr Kohlen conducted a joinery business. In 2002 they applied to the Town of Claremont to rezone the land to increase the zoning density and thereby the number of houses that could be constructed on it. The Town of Claremont rejected that application.
In late 2002 or early 2003, Mr Beeck approached the defendants with a proposal to enable the defendants to develop the land by renovating the existing structure on it to create four residential town houses and four commercial units, within the land subdivided into separate lots under the Strata Titles Act 1985 (WA) (the project).
On or about 30 May 2005, the parties made an agreement under which Mr Beeck would provide services to the defendants for a total fee of $90,000. The parties do not agree about aspects of that agreement, and I will need to return to it. In short, Mr Beeck says it was agreed only that he would provide architectural design services. The defendants say it was agreed that Mr Beeck would design and finalise the plans for and supervise the project.
Mr Beeck completed the plans for the project in about September 2005. In February 2006, Mr Beeck entered into a contract with the defendants to purchase unit 3, one of the commercial units that was to be constructed on the land. Mr Beeck signed the offer on 10 February 2006. The defendants signed, accepting his offer, on 13 February.
Construction of the project began in about February 2007 and was completed in 2009, although separate titles did not issue until after August 2010.
By a letter dated 17 August 2010, sent by their solicitor on their behalf, the defendants gave notice that they terminated the contract for the sale of commercial unit 3.
Mr Beeck does not accept that termination. He says that the defendants repudiated the contract but he did not accept the repudiation. He pleads that he was at all material times, and is now, ready, willing and able to perform the contract for the purchase of commercial unit 3 and seeks specific performance of the contract (subject to rectification of the description of the land).
The defendants say that the contract was validly terminated. They rely for that termination on two discrete matters. First, Mr Beeck failed to comply with the requirements of the contract regarding finance approval. Second, the land was not a lot, and the contract was subject to cl 13 of the Joint Form of General Conditions for the Sale of Land (the General Conditions). That is, it was conditional upon an application for subdivision of the land being lodged with the Western Australian Planning Commission (the Commission), the Commission granting approval, the Commission endorsing approval on the subdivision plan, and the subdivision plan being in order for dealing, within the times specified in cl 13.2 and cl 13.3 of the General Conditions. Those times were not met.
As a quite separate matter, the defendants say that Mr Beeck owed them an ongoing fiduciary duty and, in breach of that duty, he obtained a benefit by entering into the contract without their fully informed consent. The defendants also say there was a real or substantial possibility of a conflict arising between Mr Beeck's interests and their interests in his offer to purchase commercial unit 3.
Finally, the defendants allege that Mr Beeck, in the course of performing his duties, caused certain improvements to be made to commercial unit 3 without their prior knowledge and consent.

The issues

The first issue is whether, on its proper construction, the contract was subject to a finance condition and if so, whether the defendants were entitled to terminate in August 2010.
Second, did the contract come to an end by force of cl 13 of the General Conditions. Mr Beeck also pleads, in his reply and defence to counterclaim, a number of 'defences' to the claim based on cl 13 of the General Conditions. The issues raised by Mr Beeck are:
1.Did the defendants affirm the contract despite the non‑compliance with cl 13 and after non‑compliance?
2.Are the defendants disentitled from relying on cl 13 due to their failure to comply with cl 13.4?
3.Did the defendants waive the benefit of cl 13?
4.Did the defendants elect not to terminate the contract for non‑compliance with cl 13?
5.Are the defendants estopped from denying the correctness of Mr Beeck's reasonable assumption and expectation that the contract was on foot at all times until its purported termination and that he would obtain title to the land?
Third, what was the nature of Mr Beeck's engagement? In particular, did he owe fiduciary duties to the defendants, and breach those duties in the purchase of commercial unit 3?
Fourth, did Mr Beeck cause improvements to be made to commercial unit 3 in breach of his fiduciary duty and without the defendants' knowledge and consent?

Is the contract subject to finance

The contract is on a standard form 'Contract for Sale of Land or Strata Title by Offer and Acceptance'. It contains an offer by Mr Beeck, or nominees, for the purchase of commercial unit 3, being lot 2 on strata plan 5993. Mr Beeck specified three nominees: Catherine Biederman, Jacqueline Jenkins (Mr Beeck's wife), and Bradley Cottle (the builder who carried out the project). The offer is for a purchase price of $285,000. It provides for a deposit of $30,000 and states that $30,000 is 'paid herewith'. The settlement date is 30 days after the issue of title.
Clause 1 is headed Finance. In the margin, there are the words 'delete if finance approval is not required'. The clause is not deleted. Clause 1 states:
1.1This Contract is conditional upon Finance Approval being obtained before the Latest Time.
1.2The Buyer shall:
(a)make an application for Finance Approval to at least one Lender using, if required by the Lender, the Property as security;
(b)use best endeavours to obtain Finance Approval and if required in writing by the Seller or the Seller's Agent provide evidence in writing of the making of an application in good faith for Finance Approval, any loan offer made, and the reasons for the Buyer not accepting any loan offer made;
(c)on receipt of the Finance Approval immediately notify in writing the Seller or the Seller's Agent whereupon the condition in paragraph 1.1 will then be satisfied.
1.3If on or before the Latest Time:
(a)the Buyer is notified by the Lender that the application for Finance Approval is rejected; or
(b)no finance Approval is obtained
then the Buyer shall immediately in writing notify the Seller or the Seller's Agent of such rejection or non receipt as the case may be, and provide evidence in writing of the rejection.
1.4UNLESS the Buyer has waived this condition and communicated such waiver in writing to the Seller or the Seller's Agent prior to the Latest Time, then if:
(a)the condition in paragraph 1.1 is not satisfied; and
(b)the Buyer has complied with paragraphs 1.2(a), 1.2(b), and 1.3
THEN this Contract shall be deemed to have come to an end without the necessity of either party giving to the other notice to that effect. The Deposit and all other monies (if any) paid pursuant to this Contract shall then be refunded to the Buyer (less all bank and government charges) and there shall be no further claim under this Contract by either party in law or in equity against the other.
1.5If the Buyer fails to notify the Seller or Seller's Agent in accordance with paragraphs 1.2(c) or 1.3 the Buyer shall be in default and the Seller may without prejudice to any other remedies and rights available immediately terminate the Contract by notice in writing to the buyer.
1.6This clause shall operate for the benefit of both the Seller and the Buyer except that the Buyer by waving the Buyer's rights pursuant to this clause at any time before the Latest Time shall be deemed to have received Finance Approval.
Clause 1.7 contains definitions of 'Finance Approval' and 'Lender'. 'Lender' is defined to mean either 'the Lender nominated below (if any)' or any other Lender acceptable to the buyer. 'Latest Time' is not a defined term. The apparent intent of the standard form is that the parties specify the Latest Time.
Immediately below cl 1.7, the form provides space to insert the name of the Lender, Latest Time, Amount of Loan, and Initials of Buyer. The space for Lender was filled in with 'TBA'. The Latest Time, Amount of Loan, and Initials of Buyer were left blank.
By cl 3, the 2002 General Conditions were incorporated into the contract insofar as they were not varied by or inconsistent with the express terms of the contract. Those conditions include that time is of the essence: cl 22.
The contract contained one special condition, inserted by Mr Beeck: 'subject to completion of constructions'.
There is no dispute that 'TBA' means 'to be advised'. Mr Beeck argued, however, that the contract is patently ambiguous, and that having regard to the circumstances and context in which it was made, the contract when properly construed is not subject to finance.
Mr Beeck referred to three matters to establish ambiguity or uncertainty of meaning:
(a)except for the insertion of 'TBA' no other part of the finance approval clause was completed;
(b)the finance approval clause relied for its operation on the specification of a Latest Time and Amount of Loan, and on the initials of the buyer being inserted; and
(c)the finance approval clause was not deleted, despite the words in the margin.
The plaintiff relied on these relevant surrounding circumstances. First, the purpose of the contract was to provide sales evidence to Suncorp, a prospective provider of finance, in order to assist the defendants to obtain finance to progress the development. Second, the date of settlement was not specified, but settlement was to take place 30 days after the issue of title. At the date of the contract, the date of settlement was uncertain because the contract was subject to the special condition as to the completion of construction. Third, at the date of the contract, it was uncertain whether settlement would occur at all because it was not certain that development finance would be obtained. The date of issue of strata title was also uncertain. Having regard to those circumstances, Mr Beeck submitted that the parties did not intend that the contract would be conditional upon the purchaser obtaining finance approval. It was conditional only on the completion of construction and the issue of title.
Where the language of a written contract is ambiguous or susceptible of more than one meaning, evidence of surrounding circumstances is admissible to assist in its interpretation. It is then appropriate to have regard to more than internal linguistic considerations and to consider the surrounding circumstances known to the parties, with reference to which the words in question were used and, from those circumstances, to discern the objective which the parties had in view: Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337, 352.
Assuming there is a relevant ambiguity, and the court may be assisted by evidence of surrounding circumstances, it remains the task of the court to construe the text in which the parties have expressed their agreement. The circumstances on which Mr Beeck relies do not suggest that any meaning can be given to the finance clause, with the insertion of 'TBA', other than the literal meaning that the contract is conditional on finance approval being obtained and Mr Beeck will advise the name of the lender.
First I am satisfied that when the contract was made, the defendants required evidence of presales for the purpose of a finance application to Suncorp. At least one of the purposes of making the contract then was to establish a presale. For example, Mr Beeck's note that accompanied the offer and acceptance form included the comment, 'I have included Catherine's K30 in the deposit and agents fees etc to make it look better for the bank'. Neither party suggests that the signed offer and acceptance was a sham to deceive Suncorp. The contract was intended as evidence for the purposes of development finance, and it was prepared in a way that would look better for the bank. But those circumstances do not detract from the literal meaning of the finance clause or point to any other construction.
The failure to specify the latest time, is consistent with an intention that finance was to be obtained within a reasonable time. The failure to specify the amount of the loan leaves Mr Beeck, as purchaser, unconstrained as to the amount of finance he seeks. Neither omission evidences an intention that the contract was to be, in this respect, unconditional.
Mr Beeck also refers to the special condition that the contract was subject to completion of construction, and to the fact that, at the date of the contract, the date of settlement was uncertain. The special condition specifies a contingency which is a precondition to the parties' obligation to complete the sale. That precondition, and the uncertainty regarding the date of settlement affect when the finance approval must be obtained, no Latest Time being specified. But I can see no practical or logical connection between those matters and whether the contract is conditional on the purchaser obtaining finance approval, or waiving that condition.

The Latest Time

Both parties agreed that, if the contract was subject to the finance clause, there being no Latest Time specified, there is an implied term that Mr Beeck must satisfy the requirements of the clause within a reasonable time. Mr Beeck submitted that the time chosen by the defendants, of no later than 1 August 2010, was simply arbitrary. Mr Beeck submitted that what is a reasonable time, for the purposes of the contract, cannot be determined simply by reference to the date on which the contract was made but, in the words of Brennan J in Perri v Coolangatta Investments Pty Ltd [1982] HCA 29; (1982) 149 CLR 537, 'is a question of fact and depends upon the circumstances. Its limit is determined by reference to what is fair to both parties' (567 - 568).
The facts relevant to this issue are generally not contentious.
Construction of the project was complete by mid‑2009: Mr Beeck pleads that the construction was completed in or about April 2009. The defendants plead it was completed in about June, and the builder gave them possession then. The difference between April and June 2009 is, in this context, immaterial.
On 10 June 2010, the strata plan was lodged with Landgate. By a letter dated 17 August 2010, sent by their solicitor on their behalf, the defendants gave notice as follows:
It is an express term of the agreement in effect:
a.By clause 1.1 that the agreement is conditional upon you obtaining finance approval (as defined in the agreement) for the whole of the purchase price within a reasonable time of 13 February 2006, a reasonable time being no later than 1 August 2010;
b.By clause 1.2(c) that if you receive finance approval you must immediately notify my clients of that fact;
c.by clause 1.3 that if on or before 1 August 2010 (or such earlier time as is found to be a reasonable time to obtain finance approval) you are notified that your application for finance approval is rejected or no finance approval is obtained, you must immediately notify my clients in writing of such rejection or non receipt as the case may be;
d.By clause 1.5 if you fail to notify my clients as set out above my clients may without prejudice to their other rights and remedies immediately terminate the agreement by notice in writing to you.
3.You failed to give notice under either clause 1.2(c) or clause 1.3 of the agreement by 1 August 2010 or at all. Accordingly I give notice on behalf of my clients that they hereby terminate the said agreement.
4.Please direct the deposit holder to release the deposit to my clients.
The defendants, in this letter, were not relying on the non‑fulfilment of a condition precedent to the obligation to complete the contract, but on breach of the promissory condition in cl 1.5 to give notice that finance approval had not been received. No warning of termination or notice of default was given before the letter of 17 August 2010. The questions of whether notice was required before termination, and whether there was a delay in issuing the notice of termination, were not pursued as issues at trial.

In a late amendment to the defence, the defendants pleaded 'further and alternatively' that Mr Beeck failed to obtain finance approval at any time before 17 August 2010. That is, they relied on the non‑fulfilment of a contingency, rather than the breach of Mr Beeck's obligation under cl 1.5 to give notice. The consequences of this alternative plea were not explored at trial: in particular, whether it affects forfeiture of the deposit.
On 7 September 2010, the Town of Claremont certified that the buildings covered by the strata plan were of sufficient standard to be brought under the Strata Titles Act, and that conditions imposed by the Commission had been complied with. On 22 September 2010, the Registrar of Titles endorsed the plan as 'in order for dealing'; and on 27 October 2010, the strata plan was registered.
In effect, Mr Beeck argued that the implied term requiring compliance within a reasonable time must operate harmoniously with the other terms of the contract, including the special condition and the condition that settlement was to be 30 days after the issue of title. On that basis, the time for compliance did not arise until the middle or latter half of November 2010, after construction had been completed, and the strata plan had been endorsed as in order for dealing and had been registered. It was only at that time that the conditions precedent to the obligation to complete the contract had been fulfilled and the contract could proceed to settlement. Mr Beeck submitted that, in August 2010, the bargain was just about to bear fruit, and the defendants purported to determine it at the last possible time. The notice, at that time, was neither fair nor reasonable.
The defendants alleged that Mr Beeck's obligation to comply with the conditions regarding finance approval was due before 1 August 2010, and the date is merely an outer limit. The two particular matters on which they relied are that the contract had then been in force for more than four years, and construction had been completed in mid‑2009.
If the contract contained an implied term that Mr Beeck must obtain finance approval within a reasonable time, the time for compliance with that obligation must be fair and reasonable to both parties: Perri v Coolangatta. The critical question is what is a reasonable time? What constitutes a reasonable time is a question of fact which falls for determination at the time when the performance is alleged to have been due rather than at the time the contract is entered into: see Commonwealth of Australia v Spotless Catering Services Ltd [2000] WASCA 302 [71] (Kennedy J); Sequel Drill & Blast Pty Ltd v Whitsunday Crushers Pty Ltd [2009] QCA 218 [17].
The contract must be read as a whole: Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99. The special condition and the requirement for title to issue (including the various steps in obtaining approval) before the contract can proceed to settlement must all be taken into account in determining what is a reasonable time. Further, the purchaser could not determine the steps which precede the issue of title. They lay in the hands of the seller and various government authorities.
In my opinion, the agreement between the parties that Mr Beeck give notice under cl 1, or waive the finance condition, within a reasonable time required Mr Beeck to act well before August 2010. The condition that the contract was subject to the completion of construction must be satisfied before the other obligations of the parties arose. That is, in my opinion, the latest time for obtaining finance was after the completion of construction in 2009. But I can see no reason why separate title must issue before the obligation to obtain or waive finance approval arose. In cl 13 of the General Conditions the contract contained its own mechanism for resolving the consequences of failure or delay in obtaining separate title.
The defendants were carrying out a substantial project. Their contract with the builder was for more than $1.5 million. Both parties were aware that the defendants were borrowing to fund the project. Mr Beeck was receiving a substantial benefit in contracting at the price estimated in 2005. It is not fair and reasonable in these circumstances, in the context of the finance clause, for the defendants to not know whether their contract with Mr Beeck was unconditional until settlement was imminent.
In my opinion, the defendants were entitled to act within a reasonable time of the satisfaction of the special condition, that is, after the completion of construction in 2009. Mr Beeck had not given notice as required by cl 1.5, and they were entitled to terminate the agreement.
The defendants raised an additional plea that, if the latest time for Mr Beeck to obtain finance approval was not within a reasonable time of the date of the contract, then the contract was void for uncertainty. On the findings I have made, it is not necessary to determine this issue.

The effect of cl 13 of the General Conditions

The defendants plead, as an alternative defence, that the contract came to an end on 13 May 2006, alternatively on 13 August 2006, alternatively on 16 June 2009 by force of cl 13 of the General Conditions.
Clause 13 generally applies if the land is not a lot at the contract date: cl 13.1. Its effect is to overcome the prohibition in s 20 of the Town Planning and Development Act 1928 (WA) under which a person shall not sell land unless the land is dealt with as a lot or lots.
By cl 13:
13.2Contract conditional
The Contract is conditional on the following.
(a)An application for the subdivision of the Lot from the Original Land being lodged with the Planning Commission within 3 months after the Contract Date.
(b)The Planning Commission granting approval for the subdivision of the Lot from the Original Land within 6 months after the Contract Date, or any longer period as specified in:
(1)the Contract; or
(2)a subsequent agreement in writing between the Parties.
13.3Further condition for subdivision
(a)The Contract is also conditional on the following.
(1)The Planning Commission endorsing approval on a Subdivision Plan within 6 months after approval for subdivision by the Planning Commission.
(2)The Subdivision Plan being In Order for Dealing within 3 months after the date of endorsement of approval by the Planning Commission in accordance with subclause (1).
(b)Each period specified in subclause (a) will, if applicable, be extended as specified in:
(1)the Contract; or
(2)a subsequent agreement in writing between the Parties.
13.4Application and Subdivision Plan
(a)The Seller must, if the Seller has not already done so, lodge an application with the Planning Commission for the subdivision of the Subdivision Lot, from the Original Land, within 15 Business Days after the Contract Date.
(b)Following the lodgement of the application in accordance with subclause (a), the Seller must use best endeavours to:
(1)obtain the approval of the Planning Commission, to the subdivision of the Subdivision Lot from the Original Land; and
(2)subject to the approval of the Planning Commission to the subdivision, arrange for preparation of a Subdivision Plan including the Subdivision Lot, and for the Subdivision Plan to be:
(A)lodged at DOLA; and
(B)endorsed as In Order for Dealing,
as soon as practicable.
Clause 13.7 provides for termination of the contract. There is some difference of opinion in the authorities whether the effect of cl 13.7 is to automatically terminate the contract on any condition specified in cl 13 not being satisfied within the time specified, or whether the failure of the seller to carry out the steps required by cl 13.2, 13.3 and 13.4 within the specified time makes the contract voidable at the option of the buyer.
Again, the relevant facts are not contentious. The defendants did not take the steps required by cl 13.4, and none of the time limits in cl 13.3 and 13.4 were met. Some time before construction commenced in February 2007, Mr Beeck advised Mr Kohlen that it would be quicker and easier to strata title after the walls had been built. In mid to late 2008, Mr Beeck referred Mr Kohlen to AJ Marsh Pty Ltd, a surveyor, to prepare the subdivision application. The defendants engaged AJ Marsh Pty Ltd in around September 2008. The subdivision application was only lodged with the Commission in October 2008.
There can be no doubt, however, that both parties acted on the basis that the contract remained in force until the defendants' termination of it in August 2010, notwithstanding the apparent effect of cl 13.
In February 2008, the defendants served notice of default under the contract requiring that, within 48 hours after the service of the notice, Mr Beeck pay the deposit as required in the contract, or the defendants might exercise their rights and remedies under the contract without further notice. Mr Beeck complied with the notice by paying the deposit of $30,000 by bank cheque on 7 February 2008.
Mr Beeck also says that he undertook architectural design services for the project at a discounted fee, and continued to do so, on the basis that the defendants agreed to sell the unit to him. The defendants dispute that assertion. It is not necessary to decide it.
Finally, in August 2010, the defendants gave notice of termination.

Waiver, election and estoppel

Mr Beeck pleads, in the alternative, that the defendants elected to affirm the contract, alternatively waived the benefit of the conditions in cl 13, or alternatively are estopped from contending that the contract was terminated for failure to comply with cl 13.
I doubt that either party in fact turned their mind to the provisions of cl 13 at any time before the defendants pleaded it as an alternative defence in this litigation. Initially the defendants relied solely on the failure of Mr Beeck to comply with the finance clause. A party to a contract will, however, be taken to know of the rights which it confers: Sargent v ASL Developments Ltd [1974] HCA 40; (1974) 131 CLR 634, 645, 658; Khoury v Government Insurance Office of New South Wales [1984] HCA 55; (1984) 165 CLR 622, 633 ‑ 634.
At least by the demand for payment of the deposit, and its payment, both parties affirmed the existence of the contract in February 2008. Neither party argues that they did not regard their relationship as governed by the contract right up to the termination letter of August 2010. There is no evidence to suggest that they did not assume the contract was in force. For example, Mr Kohlen testified that he only gave the notice in August 2010 because he thought that Mr Beeck would be unable to settle.
I am not satisfied that there was anything which can be properly characterised as an election by the defendants.
The plea that the defendants waived the benefit of the conditions in cl 13 is also, in my opinion, not established. The relevant parts of cl 13 (cl 13.2, 13.3 and 13.4) are not either wholly or substantially for the benefit of the seller. It is not for the defendants to waive the benefit of those conditions. There is an additional difficulty in that the acts said to amount to waiver occurred after the non‑fulfilment of the conditions and the apparent breach by the defendants of cl 13.4. The defendants would be waiving the consequence of their own breach.
But both parties continued for some years on the common basis that the contract remained in place. Mr Beeck pleads that the defendants induced in him a reasonable assumption or expectation that the contract was on foot at all times up to the termination in August 2010. The defendants' conduct included the demand for a deposit and acceptance of it, and the continuing receipt of Mr Beeck's services. Mr Beeck says he continued to provide services for a reduced fee. That is contentious. But it is not in dispute that in reliance on the contract the defendants demanded, and Mr Beeck paid, the deposit of $30,000 after the time limited for compliance with cl 13. If I am wrong regarding the effectiveness of the termination by the defendants for failure to obtain and give notice of finance approval, there could be no doubt that Mr Beeck would suffer detriment by the defendants now asserting that the contract came to an early end by reason of cl 13. It would be unjust to allow the defendants to depart from assumptions which they caused Mr Beeck to adopt or accept for the purpose of their legal relations: see Thompson v Palmer [1933] HCA 61; (1933) 49 CLR 507, 547; Grundt v Great Boulder Pty Gold Mines Ltd [1937] HCA 58; (1937) 59 CLR 641, 674 ‑ 675; Legione v Hateley [1983] HCA 11; (1983) 152 CLR 406, 432 ‑ 433.
Accordingly, in my opinion, the defendants would be estopped from now asserting that the contract had been determined by force of cl 13 at any of the alternative times they have pleaded.

The nature of Mr Beeck's engagement

The pleadings

Finally, the defendants plead that Mr Beeck owed them an ongoing fiduciary duty. They rely on a combination of matters giving rise to that duty.
In effect, the defendants relied on all of the facts material to their relationship with Mr Beeck, both before and after the contract for the purchase of unit 3. Those facts included his advice in 2003, when he estimated how long the project might take, and his later advice on alternative ways to proceed to bring the units under strata title.
The defendants allege that Mr Beeck breached his fiduciary duty.
First, he obtained a benefit by entering into the contract to purchase commercial unit 3 without the fully informed consent of the defendants. The substance of this plea is that there was a real or substantial possibility of a conflict arising between Mr Beeck's interests and the defendants' interests because, at the time the contract for the sale of commercial unit 3 was due to settle, the unit was worth substantially more than the purchase price under the contract. Mr Beeck either knew, or ought to have known that there was the prospect that he would benefit from capital appreciation, and could not contract without the defendants fully informed consent. He was required to disclose matters relevant to how long it would take to complete the project.
Second, Mr Beeck caused 'unauthorised improvements' to be made to commercial unit 3 in the course of construction, including:
(a)full height wall tiles in the bathroom;
(b)upgrade of a shower area, shower screen and tapware;
(c)render to an internal wall (smooth rather than sand finish);
(d)a corrugated profile metal ceiling rather than gyprock ceiling;
(e)an increased mezzanine level storage area;
(f)replacement of a timber door with aluminium door and window;
(g)replacement of glass blocks with louvre windows.
The defendants initially sought equitable compensation. They gave up this claim, relying on the alleged breach of duty as a reason to deny specific performance of the contract for the sale of commercial unit 3.
Mr Beeck denies the allegations. His primary position is that his only obligation was to provide architectural design services, and he did not supervise the project. Mr Beeck denies the plea regarding unauthorised improvements. In evidence, the fact that those improvements were made was not in issue. Mr Beeck denied that he caused them to be made and asserted that Mr Kohlen was aware of them at or about the time they were made.
The contract for the sale of commercial unit 3 was made in February 2006. It is necessary to determine what the relationship between Mr Beeck and the defendants was then. But I should also consider the evidence relating to the construction of the project, on the basis that it may throw light on what the position was in early 2006.

The nature of Mr Beeck's engagement

There is some uncertainty about just what Mr Beeck's services were and what he said they would be.
Some time in 2002, Mr Beeck approached the defendants and offered his services in obtaining planning approval and in providing architectural design services. Mr Kohlen said that Mr Beeck offered to obtain the approval without charge, but in return wanted to be given the architectural work.
In August 2003, Mr Beeck prepared a document, addressed 'To whom it may concern', regarding renovation of 44 Barnfield Road into four residential and four commercial units. The document appears to have been prepared for submission to lenders. In it, Mr Beeck stated that he did not propose to draw fees from the project during construction, but to take equity in one of the units on completion. Mr Kohlen said that he had discussed that proposal with Mr Beeck and he was happy with it.
The Town of Claremont granted development approval in July 2003. On behalf of the defendants, Mr Beeck lodged an appeal against a condition of the approval. The appeal was resolved in the defendants favour by December 2003.
On 15 December 2003, Mr Beeck wrote to the defendants and advised them of the cost breakdown for the project, and gave a suggested timeframe. The timeframe included a construction period of approximately 12 months, and assumed the obtaining of a building licence and tendering in the period May to June 2004. The letter also included:
As discussed previously, I am prepared to not draw architectural fees (approx 85% total fees) during the course of the project and to retain equivalent equity in commercial floor area at the conclusion of the project.
On 1 June 2005 Mr Beeck sent another letter to Mr Kohlen regarding the relationship between Mr Beeck and the defendants. It differs significantly from what had been proposed 18 months before. Mr Beeck no longer proposed leaving his fee as equity in the project. He referred to a conversation two days earlier, and continued:
I confirm that my agreed fee for the project (renovation of the joinery works to 3 townhouses and 4 commercial units) is fixed at $90,000 (this is based on percentage of approx 8% of 1.1m or 6% of 1.5m) and that at this stage we are approx 50% through the project from a documentation point of view and that I agree to not draw that first part of the fee ($40,000) leaving it in until the project is completed or until at least the project is under way. However, as discussed, I will need to draw the remainder 50% of the fee monthly over the remainder of the project …
An appraisal by the real estate firm, Mack Hall & Associates, was done in August 2005 to ascertain prices likely to be achieved on the sale of the units. Mr Beeck agreed that he met a representative from Mack Hall and provided him or her with some information to assist in preparing the appraisal.
Mr Beeck introduced Bradley Cottle, the principal of Character Timber Design, to the defendants as a builder for the project. Mr Cottle and Mr Beeck had previously worked together. The defendants contracted with Character Timber Design. The contract was in a standard form of contract published by the Housing Industry Association Limited, and headed 'Medium Works Commercial Contract Conditions'. The version used was also headed with the statement 'plain language version for use without an architect or superintendent'. The defendants and the builder first contracted in this form on 7 December 2005, for a contract sum of $1,333,116. No work was done under that contract because the development approval lapsed. In September 2006 a second contract was made in substantially the same terms, except that the contract sum increased and was now $1,553,876.
Mr Beeck and the defendants did not make a written contract regarding their own relationship, and there is no document which sets out the services that would be provided by Mr Beeck. Perhaps the most detailed document is the letter of 1 June 2005.

The defendants say that this letter reflects an agreement made on or about 30 May 2005 that Mr Beeck would design and finalise the plans and supervise the project for a total fee of $90,000. Mr Beeck denies this, and says that he provided architectural design services, including ongoing design advice, but did not supervise construction, Mr Kohlen supervised construction. The letter says nothing about whether Mr Beeck would supervise the project.
Mr Beeck says that on or before 30 May he advised the defendants that he was prepared to undertake architectural design services for the project for a discounted rate of between 6% and 8% of construction cost if the defendants agreed to sell to him one of the commercial units in the project. He says that he reduced fees on the basis of an oral agreement with Mr Kohlen to that effect. Mr Kohlen said he could not at first remember the meeting of 30 May (until his memory was refreshed by seeing Mr Beeck's letter of 1 June 2005), but has no recollection of any agreement regarding a discounted fee. Indeed, Mr Kohlen believed that there was an alternative agreement, that Mr Beeck would defer half of his fees until the completion of the project. The letter of 1 June 2005 refers to neither agreement.
The defendants sought, in cross‑examination of Mr Beeck, to show that the fees agreed were not discounted, by comparing Mr Beeck's rates with rates recommended in a practice note published by the Royal Australian Institute of Architects. The exercise was not helpful. First, the practice note described itself as a reference or guideline document only. Second, it was offering guidelines on fees for 'continuous service consisting of schematic design, design development, contract documentation, tendering and negotiating and contract administration'. Third, the different rates in the practice note relied on the classification of different types of work. On the evidence presented (there was no expert evidence) I cannot say into which classification the work done by Mr Beeck fell. Fourth, the fees charged or recommended by architects do not show what fee Mr Beeck was accustomed to charge, and whether he gave a discount. The rates charged by Mr Beeck may have exceeded those charged by registered architects, but he may simply have been expensive.
The one matter that did appear to be agreed was that Mr Beeck would defer taking some of his fees. The parties' different interpretation of the offer to leave fees in the project until it was completed or 'underway' was a significant factor in souring the relationship between the parties. Mr Beeck requested payment considerably earlier than the defendants expected.
The line between providing ongoing design advice and supervising the project was never clearly defined. The terminology is probably not important. There is no doubt that Mr Beeck had a continuing role and remained on site at Barnfield Road daily until about October 2008. But it was not made entirely clear what Mr Beeck agreed to do, or what he in fact continued to do.
There is evidence that he arranged meetings, and acted as a go‑between for Mr Cottle and the defendants. He discussed matters with Mr Cottle. Mr Beeck described his role in this way:
The nature of the project was of extreme complexity in that required a considerable number of construction details of all natures: subground, ground, walls, floors, ceilings, roof, a myriad of continual construction issues. To detail these beforehand was an impossibility. To work from the site, be available to the builder on site daily, made the work of the builder infinitely simpler and provided the opportunity to solve construction problems as they came up which they did daily, often a number of times daily, that I could prepare a solution to or a modification to or suggestions to the builder in each case, and also to check on the quality of construction on a day to day basis on behalf of …
Mr Beeck was then interrupted by his own counsel. I find that Mr Beeck's role included acting on behalf of the defendants in supervising quality of construction.
Despite the lack of clear definition of roles, the project appears to have proceeded relatively smoothly until early February 2008. A couple of things emerged at this time. First, a meeting was held on 21 January 2008 which included, as Mr Beeck noted in informal minutes, 'extensive discussion relating to obligations of the signatories of the construction contract and documents relating to that contract'. In particular, friction had arisen between the defendants and Mr Cottle over the right of the defendants to enter the site. Mr Cottle insisted on having total control of and responsibility for the site. This did not sit well with the defendants. The minutes also include reference to discussions about variations to the works, recording that all variations, both reductions and additions, require approval before commencement of construction.
In an exchange of email in early February, Mr Beeck gave a brief explanation of matters which he had recorded in his minutes of the meeting of 21 January. He wrote:
1.Everyone, including yourself requires authorization from Brad to enter the site. This is a serious matter according to 'worksafe' as they regard unauthorised entry, especially after hours as trespassing. This is due to the onerous insurance requirements of Bradleys' policies.
2.If you wish to vary the design or details from the contract you will need to provide a request in writing to me, I will discuss it with Brad from viability, design, structural and cost aspects and then ask him to provide a variation to costing and forward a copy to you within 14 days for approval, then the variation can be implemented.
Mr Kohlen responded:
1.We as owners of the site and the project reserve the right to enter onto the site to inspect the progress of the project as per the contract.
2.Similarly should you wish to vary the design of the building it to [sic] would require our approval. As the drawings show very little detail to things like cabinetwork, tiling, windows & doors etc and there is no specifications for materials and finishes to be used there may be some problem with what is a variation on what is not. For example we would assume that all ceilings are to be Gyprock ceilings and any variation from this would need our approval or be requested by us. Another example would be the French doors shown in the mezzanine we would expect these to be included in the building as shown on the stamped drawings if you wish to change these doors then it would have to be with our approval.
3.We have engaged Rebecca Warburton to advise us on the interior design and finishes and we are in the process of making up a schedule of finishes and materials which we shall forward to you in due course.
On 7 February, Mr Kohlen wrote again to Mr Cottle, with a copy sent to Mr Beeck, suggesting a meeting every Friday to discuss progress and other issues. Over the following weeks, the defendants were constantly involved, at least to the extent of providing criticism and suggestions. Mr Kohlen also advised that he intended to obtain a 'blue card' which would enable him to obtain access to the site at any time. The evidence does not show what became of that.
A further dispute arose in about August between Mr Cottle and Mr Kohlen, regarding the replacement of roof material on commercial unit 3. Mr Beeck was aware the roof was being replaced, but the dispute appears to have been between owner and builder. The defendants do not include the roof replacement in their claim of unauthorised additions.
From about October 2008, Mr Beeck was no longer on site.

Was there a fiduciary relationship in February 2006?

Whether there was a fiduciary relationship cannot be considered in isolation from the scope and content of the duties that arise. A person may be a fiduciary in some activities and not in others, depending on the particular relationship and all the circumstances: Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41, 98, 102; Breen v Williams [1996] HCA 57; (1996) 186 CLR 71, 107 ‑ 108. A limited fiduciary obligation in some matters is not inconsistent with the power to act in one's own interests in other matters: Hospital Products (98).
The critical feature of a fiduciary relationship is 'that the fiduciary undertakes or agrees to act for or on behalf of or in the interests of another person in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense': Hospital Products (96 ‑ 97); Pilmer v The Duke Group Ltd (in liq) [2001] HCA 31; (2001) 207 CLR 165, 196 ‑ 197 [70] ‑ [71]. From this power or discretion comes the duty to exercise it in the interests of the person to whom it is owed: Hospital Products (97); John Alexander's Clubs Pty Ltdv White City Tennis Club Ltd [2010] HCA 19; (2010) 241 CLR 1 [87].
Where a contract provides the foundation for the fiduciary relationship, the first step is to consider the rights and liabilities arising under the contract. It is the contract that regulates the basic rights and liabilities of the parties. The fiduciary relationship cannot be superimposed upon the contract in such a way as to alter the operation which the contract was intended to have according to its true construction; see, for example, Hospital Products (97) and John Alexander's Clubs [90] ‑ [91].
A fiduciary relationship can also arise without the parties having reached agreement on the terms to govern their relationship: United Dominions Corporation Ltd v Brian Pty Ltd [1985] HCA 49; (1985) 157 CLR 1, 11 - 12.
The existence and scope of the duty may derive from a course of dealing: the subject matter over which the fiduciary obligations extend 'is to be ascertained, not merely from the express agreement of the parties, whether embodied in written instruments or not, but also from the course of dealing actually pursued': Birtchnell v Equity Trustees, Executors and Agency Co Ltd [1929] HCA 24; (1929) 42 CLR 384, 408
The relationship between the plaintiff and the defendants may have included fiduciary obligations in relation to the dealings that Mr Beeck conducted with the Town of Claremont on the defendants' behalf. In those dealings, Mr Beeck was apparently acting as the defendants' agent. But that was a limited, self‑contained aspect of their relationship. In other aspects of his dealings with the defendants, the evidence does not show either an agreement that he would act on their behalf or in their interests, in the relevant sense, or a course of conduct in which he did so act. It is not enough that he was in a professional relationship with them in which he was providing services, including advice. Nor is it sufficient that they relied on his advice. There are many relationships where professional services include advice but which are not traditionally regarded as giving rise to fiduciary obligations. The relationship between architect and client is not one which falls within the recognised group of fiduciary relationships.
It is possible that within the context of a relationship not commonly regarded as creating fiduciary obligations, one party may undertake or agree to act in a manner which, because of the relationship of confidence which exists between the parties, requires that party to subordinate his or her interests to the interests of the other. This may occur where one party is advising the other: in relation to banks and financial advisers see, for example, Commonwealth Bank of Australia v Smith [1991] FCA 375; (1991) 42 FCR 390, 391. See also Daly v Sydney Stock Exchange Ltd [1986] HCA 25; (1986) 160 CLR 371; Aequitas Ltd v Sparad No 100 Pty Ltd (formerly Australian European Finance Corp Ltd) [2001] NSWSC 14; (2001) 19 ACLC 1006, 1026 ‑ 1027. I can identify no special feature in the relationship between Mr Beeck and the defendants which would give it this character.
First, while there was initially a suggestion that he would have equity in the project, that had fallen away by 2005. In his letter of 1 June 2005, Mr Beeck proposed only to defer taking fees until the project was underway. Even if there was an agreement that he would discount his fees, that would not amount to an undertaking to put the defendants' interests over his own. The defendants do not, in any case, rely on any such agreement.
Second, the matters relied on by the defendants do not go to the essential elements that give rise to fiduciary obligations. Mr Beeck had acted as the defendants' agent in obtaining approval from the Town of Claremont, and he did provide advice on various matters from time to time. But I am satisfied that his agency was limited. He had in December 2003 given some estimates of anticipated times for various steps in the project, but not in circumstances where he could be regarded as advising in relation to the sale of the units in the project. He had not undertaken to advise with regard to the sale of the units generally, or commercial unit 3 specifically, and the defendants had not asked him to. His limited role in assisting in obtaining the appraisals by Mack Hall is irrelevant. None of the matters relied on by the defendants arising out of the course of their dealings with Mr Beeck fettered his freedom to contract in his own interests in buying commercial unit 3.
Later dealings and conduct may assist, but only if it is relevant to the nature of the relationship in February 2006, when the alleged breach of fiduciary duty occurred. The advice regarding possible ways to carry out the strata titling is not shown to be anything other than normal professional advice in the relationship of architect and client. Mr Beeck's involvement in the unauthorised improvements will be dealt with in more detail below. For the present, I will simply record my conclusion that it has not been shown that Mr Beeck had assumed a role where he was making decisions or giving instructions on behalf of the defendants. Rather, as the email exchange of February 2008 in particular shows, the defendants retained, and insisted on, the power to approve any variations. I cannot infer, from the later events, that by February 2006 Mr Beeck had assumed or been given a role attended by fiduciary duties, in relation to the sale of the units.

The improvements to commercial unit 3

The defendants also rely on breach of an ongoing fiduciary relationship by Mr Beeck in using his position to cause the builder to make improvements to commercial unit 3. The defendants say that Mr Beeck caused those improvements to be made without their prior knowledge or consent. Mr Beeck says that Mr Kohlen supervised the construction of the project, and was aware of the improvements 'at or about the time they were made'.
The evidence regarding Mr Beeck's ongoing role is inconclusive. Mr Beeck's evidence is that, while he did 'from time to time discuss with the builder elements of unit 3 which were different to the specifications of the other units in the development', he at no time instructed the builder to construct unit 3 in a manner different from specifications. In relation to the specific items which are the subject of the defendants' allegations, Mr Beeck agreed that he discussed various items with the builder, including the increased space in the mezzanine storage area, the use of corrugated ceiling rather than gyprock, and louvre windows rather than glass block. Mr Beeck said that he had many discussions with the builder about different design solutions, not confined to commercial unit 3, but it was not up to him to instruct the builder what to do and what not to do. He did not discuss the design changes with the defendants or seek their consent. He maintained that these were 'only suggestions, only discussion, informal discussion with the builder'. The matters had no design consequences of significance that required him to contact Mr Kohlen for specific approval and he did not discuss them with the defendants. But in each case he denied that he instructed Mr Cottle to vary the works.
Mr Cottle said that some of the variations, such as the change to corrugated ceilings and the increase in the space of the mezzanine level, were at Mr Beeck's request 'approved by Kohlen'. He said that Mr Beeck instructed him that he (Mr Beeck) believed commercial unit 3 was to be his, and that he would like a couple of variations done to the works. Mr Cottle said that he discussed the request with Mr Kohlen, and that Mr Beeck would be paying for any additional improvements to commercial unit 3.
Mr Cottle maintained that the request for the variations to the original works was 'subject to Mr Kohlen's permission'. The evidence of approval or permission is not clear. The discussion or discussions between Mr Cottle and Mr Kohlen appear to have been very general. Mr Cottle said: 'I don't believe we would have gone over every single item but it was made very clear that any items that were in any sort of variance from the contract would be submitted to Mr Kohlen and paid for by Mr Beeck'.
Mr Kohlen denied that he authorised any of the variations or that they were ever discussed with him. He said that he only found out about them after they had been completed or were substantially underway. He said that he was only aware that additional work had been carried out to the mezzanine storage area in or about October 2008, after Mr Beeck had left the site.
There is one contemporaneous document that refers to some of these issues. On 26 August 2008, Mr Beeck wrote to Mr Cottle by email, copied to the defendants, as follows:
Further to our discussions last week could you please give us some indications of the following additional works to U3 over and above the original drawings.
1.additional floor and balustrading to the first floor storage area.
2.additional walls and window the same area. (roof content is unchanged I believe)
3.additional hot water system.
4.I understand that replacement of roof sheeting was always included in your costings, however could you please provide an indication of the cost of the replacement sheeting, not including gutters. (a sq m rate will be sufficient).
5.Could you also ask the cabinet maker to provide a cost of each of the kitchen island benches please.
We also need to discuss the entrance walls etc with Susan and Peter on Thursday.
The email is in such vague terms that it is not possible to say whether it refers to work to be done or already completed. It is, however, about the time of Mr Kohlen raising the question of the new roof material. It also refers to changes to the storage area, although not specifically to the louvre windows or corrugated ceiling. The defendants received a copy of this email, but did not respond to it, or take any action. Despite the email, Mr Kohlen said he was only aware of additional work to the storage area after Mr Beeck had left the site.
The defendants did not make any complaint to Mr Beeck until after he brought this action in 2011.
I am satisfied that none of the witnesses was giving evidence that he knew was untrue. The disparity between the witnesses reflects the way in which the project proceeded. On the evidence, it appears likely that the project went ahead with a very informal decision‑making structure. Mr Cottle looked to Mr Beeck for advice on matters of design, on an ongoing basis. Mr Beeck had not been given actual authority to authorise variations, Mr Kohlen insisted on that power. But the line between what is a variation and what is not is not always readily drawn.
There was an attempt, in February 2008, to introduce more structure. Mr Beeck suggested a process for variations to be discussed between himself and the builder, before being presented to Mr Kohlen for approval. Mr Kohlen insisted that variations be approved or requested by the defendants. He proposed weekly site meetings.

When it came to commercial unit 3, Mr Cottle assumed that Mr Beeck could suggest changes to that unit on the basis that he would pay for them himself. He said he had some discussions about this with Mr Kohlen. This assumption would have been reinforced by the email of 26 August 2008, and the fact that Mr Kohlen did not respond to it. Mr Kohlen said that he was waiting for the costings from Mr Cottle before responding. I am satisfied that Mr Cottle was truthful, and, as he said, would not have done something to put the contract principal off side. But I can make no findings about when the relevant discussions between Mr Cottle and Mr Kohlen took place, and cannot make any precise finding about what was said.
In any event, it would be wrong in principle to work back from a finding that Mr Beeck may have acted in a manner that promoted his own interests, to a conclusion that he owed the defendants fiduciary obligations. Mr Beeck was in a position where, factually, he could influence the builder. The most important factor enabling him to do so appears to be that, at least from February 2008, Mr Cottle knew that Mr Beeck had a contract to buy commercial unit 3 and thought that Mr Kohlen had no objections as long as Mr Beeck paid for any extras. But examining the arrangements entered into by the parties, and the role undertaken by Mr Beeck, I am not satisfied that he could make the decisions about the variations, or that, as part of his relationship to the defendants, he undertook to do so.
Further, even if Mr Kohlen did not approve each variation to unit 3, that does not establish that Mr Beeck caused or instructed Mr Cottle to make them without approval of the defendants. I am not satisfied that I should draw an inference that Mr Beeck did so ‑ in essence, a finding that he acted dishonestly ‑ without more clear and cogent evidence of what he said to Mr Cottle or asked him to do.

Conclusion

I am satisfied that the defendants lawfully terminated the contract for the sale of commercial unit 3. I am not required to make any other findings about their conduct in doing so. The estoppel pleaded by Mr Beeck was limited to the effect of General Condition 13.
The application for specific performance is dismissed.

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL

CITATION: BEECK -v- KOHLEN [2013] WASC 166 (S)

CORAM: ALLANSON J

HEARD: 21 MAY 2013

DELIVERED : 2 AUGUST 2013

FILE NO/S: CIV 1467 of 2011

BETWEEN: MARTIN HARRY BEECK
Plaintiff
AND
PETER JOSEPH KOHLEN
First Defendant
SUSAN KAY FLEMING
Second Defendant

Catchwords:

Costs - Separate issues - Separate causes of action - Apportionment of costs

Costs - Claim for indemnity costs - Refusal to agree to conduct trial of preliminary issue - Not unreasonable

Legislation:

Rules of the Supreme Court 1971 (WA), O 32 r 4, O 66 r 2
Transfer of Land Act 1893 (WA), s 138B

Result:

Costs apportioned
Defendants to have 75% of the costs of the action

Category: B

Representation:

Counsel:

Plaintiff:     Mr G J Carter
First Defendant            :     Mr S Macdonald
Second Defendant        :     Mr S Macdonald

Solicitors:

Plaintiff:     Optima Legal
First Defendant            :     Macdonald Rudder
Second Defendant        :     Macdonald Rudder

Case(s) referred to in judgment(s):

Adamson v The Pharmacy Board of Tasmania (No 4) [2004] TASSC 112
Cretazzo v Lombardi (1975) 13 SASR 4
Keet v Ward [2011] WASCA 139
Kimpura Pty Ltd v JWH Group Pty Ltd [2004] WASCA 134
Landsdale Pty Ltd v Moore [2009] WASCA 176
S v State of New South Wales (No 2) [2008] NSWSC 1116

ALLANSON J: To resolve the issue of who should pay costs in this matter, it is necessary to chart its comparatively short but quite complicated history. The facts are found in detail in the primary judgment.
The proceedings in this court began on 11 March 2011 in the related action CIV 1394 of 2011, where the plaintiff applied for an order under s 138B of the Transfer of Land Act 1893 (WA), extending the operation of a caveat. On 15 March, the court granted the extension but a condition of the order was that the plaintiff commenced proceedings on his claim for specific performance.
The plaintiff commenced this action on 22 March. In a writ with an endorsement of claim, he claimed that the defendant had repudiated and refused to settle on a contract for sale of land. He claimed relief including:
1.rectification of the description of the land in the contract – an issue which did not prove controversial;
2.a declaration that the defendants held the property on trusts for him;
3.specific performance of the contract; and
4.damages;
5.interest compounded at commercial rates on the damages.
The statement of claim was filed on 21 April 2011. The defence and counterclaim was filed on 20 May 2011. The defendants denied breach of contract. They specifically pleaded that the contract was conditional on the finance condition, which had been the stated ground in their notice of termination. In addition, the defendants pleaded:
1.The contract was conditional on satisfaction of the requirements of cl 13 of the general conditions of contract, within the times prescribed in that clause (this clause relates to the sale of land that is not a lot at the time of contract).
2.Alternatively, the contract was void for uncertainty if it did contain the finance condition alleged.
3.The plaintiff owed to them a fiduciary duty and breached this duty in various ways. The defendants, by counterclaim, claimed equitable compensation for breach of fiduciary duty.
A reply and defence to counterclaim was filed on 17 June 2011. The plaintiff pleaded that on its proper construction, the contract was not subject to the finance condition. Alternatively, the plaintiff pleaded that the defendants affirmed the contract and were estopped from contending that they were entitled to terminate the contract. Alternatively, the plaintiff pleaded an election by the defendants to keep the contract on foot.
The plaintiff pleaded that cl 13 did not apply, alternatively that there was an estoppel by affirmation, or an election by the defendants to keep the contract on foot notwithstanding non‑compliance with cl 13. The plaintiff denied the allegation regarding breach of fiduciary duty.
The allegation of breach of fiduciary duty was a serious one, relating to the plaintiff's performance in his professional role and alleging conduct which, essentially, was dishonest.
A substituted reply and defence to counterclaim was filed on 5 October 2011. On 31 October 2011, on the defendants' application, I struck out that part of the reply and defence to counterclaim pleading estoppel, but gave leave to re‑plead.
On 25 November 2011, the defendants proposed that the following issue be tried as a preliminary issue in the action:
(a)Was the contract, upon a proper construction, subject to terms to the effect of those pleaded by the defendants, that is, that the contract was subject to a finance condition requiring the plaintiff to both obtain finance, approval and notify the defendants that he had either obtained or failed to obtain that finance?
(b)If yes to question one,
(i)was the contract validly terminated by the defendants by a notice in August 2010 and
(ii)is the contract now at an end?
(c)If no to question one, is the contract void for uncertainty?
The plaintiff opposed a separate trial of a preliminary issue. The matter was discussed in correspondence between the solicitors for the parties. The plaintiff's position was that the facts relating to other agreements between the parties, and whether there was a fiduciary relationship between them, may be relevant to the construction of the finance clause.
On 25 November 2011, the plaintiff filed an amended reply and defence to counterclaim. In this pleading the plaintiff contended, in effect, that, if the finance condition applied, on its proper construction it obliged him to obtain finance approval within three months after the date of the contract. The defendants were obliged to terminate the contract by notice no later than 14 days after that three months. The plaintiff pleaded that the defendants failed to exercise the right to terminate within the required time, alternatively failed to give a default notice requiring the plaintiff to remedy the default before purporting to terminate. None of these pleas were ultimately pursued at trial. The defendants did not press the question of a preliminary issue.
Because of the timetabling with interlocutory steps regarding pleading, the matter had moved slowly. Discovery was only given in February and March 2012. Witness statements were filed in July and August. On 28 September 2012, I listed the matter for trial for three days beginning on 12 February 2013.
On 19 December 2012, the defendants filed an amended defence and counterclaim, although the amendments were limited in scope.
On 6 February 2013, the plaintiff filed an amended statement of claim and an amended reply and defence to counterclaim. The plaintiff's amendments reduced the scope of the issues for trial. In particular, the issue regarding the finance clause was now confined to a question of construction, and, if the clause did apply, when was a reasonable time within which the plaintiff was to comply. The plaintiff no longer pleaded an obligation on the defendants to give notice of default.
The defendants at trial abandoned their claim for equitable compensation for breach of fiduciary duty. They relied on that breach, however, as a ground for resisting specific performance.
The trial took four days, between 12 and 15 February 2013. On 9 May, I delivered judgment dismissing the plaintiff's claim. I also dismissed the defendants' counterclaim, to the extent that the defendant claimed breach of fiduciary duty. The issue regarding the effect of cl 13 of the general conditions did not affect the result, but in making findings I determined that question in favour of the plaintiff.
In short, the defendants succeeded on the issue of the construction regarding whether the contract was subject to a finance clause and the effect of that clause. That issue entitled them to judgment.

The defendants' position on costs

The defendants ask for an order that the plaintiff pay their costs on the basis that they were successful. They also submit that the evidence on the issues on which they did not succeed was required by the plaintiff's position on the issue of construction. The defendants recognise that there may be an exception to this general proposition: the evidence about whether the plaintiff caused unauthorised improvements to be made would not have been required but for the counterclaim. But otherwise, the evidence was either asserted by the plaintiff to be relevant to construction, or in fact relevant to determining the 'latest time' for the plaintiff to comply with the finance condition, an issue on which the defendants succeeded.
The defendants rely, in particular, on two letters from the plaintiff's solicitors, dated 21 November 2011 and 23 November 2011, opposing the defendants' proposal for the trial of a preliminary issue. In those letters, the plaintiff asserted that evidence of surrounding circumstances, including the circumstances relied upon by the defendants in claiming the plaintiff was under a fiduciary duty, was relevant to the construction of the contract and to determining the 'latest time' for the plaintiff to comply with the finance condition.
Accordingly, the defendants submit that any apportionment of costs in favour of the plaintiff should be very limited.
The defendants also request an order that the plaintiff pay their costs on an indemnity basis from 25 November 2011, when they proposed and the plaintiff did not agree to a preliminary trial of the issue of construction. The defendants say that the plaintiff's conduct in opposing the trial of the preliminary issue was, in the circumstances, so unreasonable that it warrants a special order for costs.
I am not satisfied that at the time when the proposal was put forward, the plaintiff did act unreasonably.
First, the authorities urge caution upon the court in deciding whether or not a question should be set aside for preliminary determination under O 32 r 4 of the Rules of the Supreme Court 1971 (WA): see Landsdale Pty Ltd v Moore [2009] WASCA 176 [19] ‑ [21].
Second, the issue of construction, decided favourably to the defendants, would not in itself have determined the action. It was also necessary to determine the latest time at which the plaintiff could obtain finance and give notice, no time being specified. That question required consideration of all of the circumstances at the time when performance was alleged to have been due. The proposed question, whether the contract had been validly terminated in August 2010, was not solely a question of construction.
Third, at the time the defendants proposed the separate determination of the construction issue, the plaintiff relied on matters other than construction. It was only in February 2013 that the plaintiff abandoned the plea that the defendant had not exercised the right to terminate in accordance with the contract. While that plea was maintained, it would not have been appropriate to try the proposed preliminary question.
Fourth, it was only in their eleventh hour amendments that the defendants pleaded, as an alternative, that the plaintiff had failed to obtain finance approval before 17 August 2010. Until that amendment on 19 December 2012, the defendants had pleaded a failure to give notice required by the contract. There is, in my opinion, a potentially significant difference between non‑fulfilment of a contingency, and breach by the plaintiff as purchaser to meet his obligation to give notice. While this was not pursued at trial, it bears on the reasonableness of the plaintiff's conduct in November 2011.
Fifth, the defendants had, by counterclaim, alleged breach of fiduciary duty and claimed compensation. The separate determination of the construction issue would split, but not necessarily shorten, the trial or lead to any significant savings.
Finally, while I held in favour of the defendants I do not consider the plaintiff's case on construction and the latest time to be so obviously wrong that it was unreasonable to maintain it.
Accordingly, while the defendants are entitled to costs (subject to what I say below), this is not a case where a special order is justified.

The plaintiff's application for part of the costs

The plaintiff asks for an order that he be entitled to part of the costs of trial. He submits that the issues raised by the defendants upon which they were not successful, and in particular the fiduciary duty issue, contributed substantially to the time taken at trial and the costs of trial.
The court has a wide discretion in relation to costs. Ordinarily the court does not attempt to differentiate the issues upon which each party was successful or unsuccessful and to apportion costs according to success or failure on the various issues of fact or law that arise in the course of a trial: see Cretazzo v Lombardi (1975) 13 SASR 4, 16. But if an issue is clearly separate or readily distinguishable from the grounds or basis of the ultimate determination of the action, it may be appropriate to make a separate costs order: see Adamson v The Pharmacy Board of Tasmania (No 4) [2004] TASSC 112; S v State of New South Wales (No 2) [2008] NSWSC 1116.
Reference must also be made to O 66 r 2, under which, in the absence of any special order, where a statement of claim contains more than one cause of action and the plaintiff succeeds on one or more causes of action and the defendant succeeds on another or others, costs shall be allowed to the plaintiff on the cause or causes of action on which he succeeds and to the defendant on that or those on which he succeeds, in the same manner as if separate actions had been brought. The application of this rule was discussed in Keet v Ward [2011] WASCA 139, where at [24] the court set out a series of propositions from the cases. Relevantly, the court said that the rule does not prescribe a mandatory approach to the awarding of costs where there are multiple causes of action, but retains the discretion to make a special order departing from the rule: see also Kimpura Pty Ltd v JWH Group Pty Ltd [2004] WASCA 134 [12] ‑ [15]. The court should always attempt to do substantial justice in the circumstances.
In the present matter I first take into account that the plea of breach of fiduciary duty was a substantial matter raised by the defendants and pleaded by them from the outset. It was only at trial that the defendants abandoned the claim to equitable compensation and limited their reliance on the fiduciary duty point to it being a reason for refusing specific performance.
Second, the evidence of the builder (Mr Cottle) was required solely for the purpose of this issue. While the defendants did not call expert evidence on the value of the improvements, they exchanged expert evidence on the issue.
Third, the defendants alleged a serious breach of the plaintiff's professional obligations and conduct that was, in essence, dishonest.
For these reasons I am satisfied that the proper exercise of my discretion requires an order that the plaintiff have his costs on this issue. It is not satisfactory to make an adjustment simply by looking at the time spent on particular issues at the hearing and arriving at a proportion. While the evidence going to breach of fiduciary duty was largely discrete, the evidence about the parties' relationship leading up to the making of the contract was relied on by both parties more generally.
I am not satisfied that I can compartmentalise the evidence on each issue, or carry out a detailed assessment of where each party has succeeded or failed. I must make a more broad brush assessment. The defendants have substantially succeeded, and I have refused to order specific performance. They should have 75% of the costs of the action.