Civoken Pty Ltd v Madden Grove Developments Pty Ltd
[2006] VSC 283
•3 August 2006
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL LIST
No. 2058 of 2004
| CIVOKEN PTY LTD (ACN 091 264 667) and STONES SHARP FINANCIAL SERVICES PTY LTD (ACN 005 383 666) | Plaintiffs |
| v | |
| MADDEN GROVE DEVELOPMENTS PTY LTD (ACN 091 587 209) and PRIMELIFE CORPORATION LTD (ACN 010 622 901) and MARK ANDREW SUDHOLZ | Defendants |
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JUDGE: | Whelan, J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 7-9, 13-16, 20-23, 27 February 2006, 19, 20, 24, 26-28 April 2006 and 3-4 May 2006 | |
DATE OF JUDGMENT: | 3 August 2006 | |
CASE MAY BE CITED AS: | Civoken Pty Ltd & Anor v Madden Grove Developments Pty Ltd & Ors | |
MEDIUM NEUTRAL CITATION: | [2006] VSC 283 | |
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CONTRACT – contract for the sale of land and construction of retirement village – interpretation – whether parties to contract agreed to variation of terms – breach of express terms.
ESTOPPEL – silence or failure to complain – requirement of reliance upon assumption induced by representor’s conduct – absence of relevant assumption – absence of conduct inducing adoption of any assumption.
The Commonwealth v Verwayen (1990) 170 CLR 394
Pacific National (ACT) Limited v Queensland Rail [2006] FCA 91
Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387
CONTRACT – rescission of contract of sale – conditions 5 and 6(2) of Table A of the Seventh Schedule of the Transfer of Land Act 1958 (Vic) – operation vis-à-vis contractual rights to terminate – absence of notice does not preclude termination where conduct repudiatory or breach incapable of remedy.
Nund v McWaters [1982] VR 575
Poort v Development Underwriting (Victoria) Pty Ltd (No. 2) [1977] VR 454
Shuler AG vWickman Machine Tool Sales Ltd [1974] AC 235
CONTRACT – repudiation – persistent and pervasive disregard of contractual provisions – inference contracting party not prepared to take primary obligations seriously – promisee unaware of conduct.
Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1988) 166 CLR 623
CONTRACT – intermediate terms – requirement of sufficiently serious breach to permit termination by non-breaching party – terminating party permitted to rely on breaches unknown at the time of termination.
Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1986) 162 CLR 549
MISLEADING AND DECEPTIVE CONDUCT – Trade Practices Act 1974 (Cth) ss.51A and 52 – misleading representations – effect of disclaimers – reliance by representee – representor as “conduit” – representations as to “intention, expectation and anticipation” – continuing representations – liability for aiding, abetting, counselling or procuring contravention – knowledge required to establish accessorial liability.
Butcher & Anor v Lachlan Elder Realty Pty Limited (2004) 218 CLR 592
Cummings v Lewis (1993) 41 FCR 559
SALE OF LAND – Sale of Land Act 1962 (Vic), ss.2(4), 32(5) and 32(7) – failure to comply with s.32 – meaning of “terms contract”.
Fifty-Eighth Highwire Pty Ltd v Cohen & Anor [1996] 2 VR 64
FIDUCIARY RELATIONSHIP – whether plaintiffs akin to “investors” or “promoters” – no relevant fiduciary duty established.
Hospital Products Limited v United States Surgical Corporation (1984) 156 CLR 41
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr D. Denton SC with Mr M. Kingston | Herbert Geer & Rundle |
| For the First and Second Defendants | Mr P. Collinson SC with Mr M. O’Bryan | Minter Ellison |
| For the Third Defendant | Mr J. Evans | Deacons |
TABLE OF CONTENTS
Introduction........................................................................................................................................ 1
Principal issues................................................................................................................................... 3
Sequence of events – Establishment of the project..................................................................... 4
The Sudholz / Primelife joint venture, initial acquisition and early work.......................... 4
Introduction of the intermediaries............................................................................................. 5
Production of the property information report........................................................................ 6
Receipt of the property information report by the plaintiffs.................................................. 7
Representations in the property information report............................................................... 9
Representation concerning MGD in the property information report, and involvement of Mr Sudholz in the report’s preparation......................................................................................... 12
The offers to purchase................................................................................................................ 16
Evidence as to analysis of the property information report by the plaintiffs prior to the offers........................................................................................................................................................ 19
Intermediaries’ dealings with investors.................................................................................. 20
Withdrawal of Taxation Ruling 94/24 and advice as to consequences.............................. 22
Evidence as to the material provided to counsel.................................................................... 23
Sudholz and Primelife retain an interest through SSFS........................................................ 27
The relevant contracts................................................................................................................ 28
Commissions earned by the intermediaries............................................................................ 33
The role of Mr Sandground....................................................................................................... 36
Sequence of events – Pursuing planning approval................................................................... 38
Early dealings with council and advice on the restrictive covenants................................. 38
The application for a planning permit..................................................................................... 40
Boroondara Council initial response and further reports to the plaintiffs......................... 43
Community consultation........................................................................................................... 45
Revised plans: March 2002........................................................................................................ 49
Meeting on 12 November 2002.................................................................................................. 51
Revised plans: November 2002................................................................................................ 53
Planning permit and VCAT appeal.......................................................................................... 54
Primelife reviews the development.......................................................................................... 55
Sent and Porter leave Primelife................................................................................................. 55
Primelife decides on fewer larger apartments........................................................................ 56
Meeting on 24 October 2003...................................................................................................... 58
Meeting on 2 February 2004...................................................................................................... 58
Attempted renegotiation............................................................................................................ 60
Rescission notice.......................................................................................................................... 61
Two further issues....................................................................................................................... 62
“Madden Grove Developments Pty Ltd”: The first defendant and Nationwide............. 62
Payment of the deposit............................................................................................................... 66
Some principal findings of fact..................................................................................................... 71
Establishment of the project...................................................................................................... 71
Pursuit of planning approval.................................................................................................... 72
Relevant contractual provisions.................................................................................................... 75
The contract of sale..................................................................................................................... 75
Memorandum of understanding.............................................................................................. 79
Other agreements........................................................................................................................ 80
Contract claims................................................................................................................................. 82
Construction issues..................................................................................................................... 82
Alleged breaches of the contract of sale, absent variation, amendment, estoppel, election or waiver........................................................................................................................................................ 84
Variation, amendment, estoppel, election or waiver............................................................. 93
Condition 5 of Table A............................................................................................................... 99
Characterisation of MGD’s conduct in breach........................................................................ 99
Effect of Condition 5 of Table A (General Condition 9.1)................................................... 103
Conclusion on the contract claims.......................................................................................... 106
Misleading and deceptive conduct............................................................................................. 108
The alleged representations, ignoring the “disclaimers”.................................................... 108
Effect of the disclaimer and other provisions....................................................................... 111
Contraventions of Section 52 Trade Practices Act.................................................................. 117
Reliance....................................................................................................................................... 122
Who is the contravening representor?................................................................................... 131
Aiding and Abetting by Sudholz............................................................................................ 132
Conclusions on misleading and deceptive conduct claims................................................ 133
Sale of Land Act............................................................................................................................. 134
Other Issues..................................................................................................................................... 140
Managed Investment Scheme................................................................................................. 140
Breach of Fiduciary Duty......................................................................................................... 141
Counterclaims............................................................................................................................ 142
Contribution Claims................................................................................................................. 143
Conclusions..................................................................................................................................... 144
HIS HONOUR:
Introduction
In the year 2000 a complicated array of interwoven syndicates and joint ventures were formed for the purpose of redeveloping a four storey concrete framed brick building located in the heart of residential Kew. Large sums of money have changed hands and considerable work has been undertaken by architects and other consultants. But no building work has been done, and, although a planning permit for a redevelopment of the existing building has been granted, all plans to proceed with the development in accordance with that permit have been abandoned. In this proceeding the principal active participants in these transactions are, in effect, litigating over the consequences of this state of affairs.
The second defendant, Primelife Corporation Ltd (“Primelife”), is a publicly listed company in the business of developing and managing aged care residential facilities.
The third defendant, Mr Sudholz, is a former real estate agent. In 1991 he commenced employment with the chartered accounting firm Arthur Andersen. He became a partner of Arthur Andersen in 1993 and from then until 2002 he was the partner in charge of the Real Estate and Hospitality Services Group within Arthur Andersen’s Melbourne office. He is not himself an accountant.
The first defendant, Madden Grove Developments Pty Ltd (“MGD”), is a company formed by Primelife and Mr Sudholz. The shares in MGD are owned equally by Primelife on the one hand and Mr Sudholz and interests closely associated with him on the other.
In early 2000, investments in retirement village developments were perceived to have taxation advantages. This perception was based primarily upon Taxation Ruling 94/24 which provided that where a developer constructed a retirement village with a view to selling the individual units on a strata title basis, the trading stock provisions of the Income Tax Assessment Act 1936 (Cth) would apply and expenditure incurred in acquiring and developing the village would be considered expenditure of a revenue nature, thereby allowing a deduction for that expenditure in the year in which it was incurred.
The two plaintiffs, Civoken Pty Ltd (“Civoken”) and Stones Sharp Financial Services Pty Ltd (“SSFS”), are best described in these transactions as “intermediaries” between MGD, Primelife and Mr Sudholz on the one hand and a group of persons and entities who invested money in the venture on the other. The venture was presented to these investors as one warranting their consideration on the basis both of the returns realisable and of the taxation advantages thought to be available in accordance with Taxation Ruling 94/24. Officers of Civoken and SSFS conduct business as, or are associated with, firms of accountants and financial advisers.
Civoken has two directors, Terence George and Renato Penzo. Mr George is, amongst other things, a property development consultant. Mr Penzo is an accountant and is a director of Anthony De Luca Partners Pty Ltd which carries on an accounting practice under the name De Luca Partners.
SSFS is a company associated with an accounting firm named Stones Sharp. The directors of the company and the partners in the firm are Barry Stones, Ken Sharp Eric Cirulis and Peter Wilson.
The relevant officers of Civoken and SSFS introduced their clients to the proposal and those clients make up a substantial proportion of the investors. The investors are not parties to these proceedings.
Principal issues
There are two documents which are central to the case. The first is a contract of sale dated 28 June 2000 between Civoken and SSFS as purchasers and MGD as vendor. The second is a property information report published under the insignia of Primelife and Arthur Andersen in February 2000 which sets out information and projections concerning the Madden Grove project.
The contract of sale provided for a total purchase price of the land at Madden Grove of $40,800,000, of which $10,200,000 was payable as a deposit. The contract also contained provisions under which MGD was to apply for a planning permit and arrange the construction of a retirement village development on the land.
In 2004 Civoken and SSFS purported to terminate the contract of sale.
There are a large number of issues raised in the proceeding but the principal issues are:
(a)Did MGD perform its obligations under the contract of sale? Were Civoken and SSFS justified in their purported termination?
(b)Did the property information report contain representations which were misleading and deceptive? Were they relied upon by Civoken and SSFS?
The factual issues raised by the former questions principally concern the sequence of events relating to pursuit of planning approval. The factual issues raised by the latter questions principally concern the sequence of events relating to the establishment of the project.
The trial proceeded on issues of liability only.
Sequence of events – Establishment of the project
The Sudholz / Primelife joint venture, initial acquisition and early work
The chief executive officer of Primelife until October 2003 was Mr Eduard (Ted) Sent. Mr Sudholz and Mr Sent had known each other since about 1991. In 1999 they discussed the formation of a joint venture between Primelife on the one hand and interests associated with Mr Sudholz on the other in relation to two properties being sold by the University of Melbourne in Kew. One property was at 2-12 Madden Grove, Kew. The other property was in Studley Park Road. According to Mr Sudholz’s evidence, Mr Sent and he agreed in 1999 that they would enter into a “50-50 joint venture for redevelopment” of the Madden Grove property. Eventually both sites were acquired by joint venture entities associated with Primelife and Mr Sudholz.
Meldrums Pty Ltd, trading under the name Meldrum Partners, was engaged by Primelife as the architect for the Madden Grove project. The architect at Meldrum Partners who was principally responsible for the project was Mr Tim Meldrum. Mr Meldrum began work in July 1999.
Early on, Mr Meldrum discovered what he described to Primelife as a “small legal problem” in relation to the Madden Grove site. The Madden Grove site is on three titles. The existing building, which occupies 6 – 12 Madden Grove, is on Lots 9 and 10 of the original plan of subdivision and is on its own certificate of title. There are no buildings on 2 or 4 Madden Grove, which are respectively lots 7 and 8 on the plan of subdivision and are each on their own certificate of title. There are restrictive covenants on 2 and 4 Madden Grove which prohibit the erection on the land of any building other than a single private dwelling. Mr Meldrum was working on a multi‑unit redevelopment which would cover the entire site. He alerted Primelife to this issue by a facsimile transmission of 30 July 1999.
In the latter half of 1999 Mr Meldrum prepared the first concept sketches. He showed them to officers of the Boroondara Council, which was the responsible authority for the purposes of s.47 of the Planning and Environment Act 1987 (Vic).
By a contract of sale dated 21 December 1999 Primelife purchased the Madden Grove property from the University of Melbourne for the sum of $3,625,000.
Introduction of the intermediaries
In 1996 Mr George was introduced to Mr Sent by Mr Anthony De Luca, an accountant, who was at that time a director of Primelife. Mr George assisted Primelife in obtaining finance and was also involved in arranging a syndicate to invest in a Primelife project in Burwood. Mr Penzo of De Luca Partners formed a syndicate which invested in that project.
In December 1999 Mr Sent introduced the Madden Grove project to Mr George. Mr George discussed the proposal with Mr Penzo and they decided to work together. In due course Civoken was formed by Mr George and Mr Penzo for the sole purpose of the Madden Grove project. Mr George and Mr Penzo are the two directors of Civoken.
The process by which SSFS became involved is less clear. SSFS was initially formed by the partners of the accounting firm Stones Sharp to establish a financial services division for the firm’s clients. As matters have transpired, SSFS has undertaken only two tasks. The first concerned an insurance product, and the second is the Madden Grove project. The directors of SSFS are the four partners in Stones Sharp. The only two directors who gave evidence were Mr Cirulis and Mr Sharp.
Mr Sharp in his witness statement did not say how it was that he came to be aware of the Madden Grove project. In cross-examination, Mr Sharp indicated that a Mr David Sandground had introduced the Madden Grove development to him as an investment opportunity. Mr Sharp said he had met Mr Sandground approximately two years earlier. Mr Sharp described his relationship with Mr Sandground as being “more or less as a business associate.” He said Mr Sandground was introduced as a person who had “various business interests”. Mr Sharp then said: “He obviously knew we were a firm of accountants and made us aware of the retirement village industry and in particular, that prospective retirement village.”
According to Mr Sharp, Mr Sandground provided Mr Sharp with reasons why the Madden Grove development would be a good investment. Although the two discussed the potential tax benefits of the investment, Mr Sharp said that he was already aware of those benefits (as set out in Taxation Ruling 94/24) prior to the Madden Grove proposal. He was not certain when he had become aware of the ruling but indicated that it had arisen in relation to earlier proposed investments in retirement villages brought to Stones Sharp’s attention.
In his witness statement Mr Cirulis said that the proposal was introduced to him by Mr Sharp. In cross-examination Mr Cirulis said he was introduced to the development as a possible investment by Mr Sandground prior to Mr Sharp doing so.
Production of the property information report
Mr Meldrum prepared a series of sketches in February 2000 which bear the date March 2000, and which depict a development across the entire site at 2 – 12 Madden Grove. Mr Meldrum’s evidence was that these drawings were prepared on the assumption that the restrictive covenants on 2 and 4 Madden Grove would be removed.
According to the evidence of Mr Sudholz, Mr Sent told him at some point early in 2000 that Primelife was under “resource pressure” and that he wanted Arthur Andersen to put together a number of reports for proposed investments, including the Madden Grove proposal.
A report described as a property information report was then prepared within Arthur Andersen. I will return to the issue of who prepared the report. Mr Meldrum’s drawings dated March 2000 were incorporated into the report.
One issue of significance in the proceeding is when the property information report was completed. This is because Civoken and SSFS claim that their relevant officers relied on the property information report when they made an offer to Primelife on Monday 14 February 2000. The oral evidence given by the two witnesses who were concerned in the report’s production did not assist in identifying exactly when the document was completed. There is a document in evidence which does assist. On Friday 11 February 2000 Mr Sandground faxed detailed comments on a draft of the report to the then deputy chief executive officer of Primelife, Ms Sandra (Sandi) Porter. The machine notations on this fax record the time of transmission as being 10.38am. Most of the 10 matters raised in that facsimile transmission are reflected in the final version of the report. This leads me to conclude that the final version of the report was completed some time on Friday 11 February 2000 at the earliest.
Receipt of the property information report by the plaintiffs
Mr Sharp’s first witness statement contained the following passage:
“At a time before or no later than 9 February 2000 I recall receiving the Arthur Andersen Report.”
His supplementary witness statement contained the following passage:
“At paragraph 8 of my November 2005 witness statement I stated that at a time before and no later than 9 February 2000 I recall receiving the Arthur Andersen report. Having considered the matter further it may well be that I did not receive the Arthur Andersen report until 11 February 2000. I certainly received it before 14 February 2000.”
In his cross-examination he explained this difference as being referable to further thought that he had given to the matter. If he had persisted in his original version of events, Mr Sandground’s facsimile transmission to Ms Porter of Friday 11 February 2000 would have suggested that his evidence was incorrect. This document was put to him in cross-examination and he said that he had never seen it before.
Mr Sharp agreed in cross-examination that it was “possible” that he did not receive the report until 14 February 2000. In his cross-examination Mr Sharp said that his recollection was that “a number of copies” of the report “were delivered to the firm”. He said that his belief was that the first time he saw the property information report was when a bundle of them arrived. He was shown a document dated 16 February 2000 addressed to him at Stones Sharp from Primelife which reads:
“At the request of David Sandground, please find enclosed 20 copies of the Property Information Memorandum on the above property for your information.”
Mr Sharp rejected the suggestion that he had not seen the property information report before signing the offer made on 14 February 2000. In relation to the letter, he said that he recalled requesting “additional copies”. Later in the trial a copy letter dated 16 March 2000 addressed to Mr Sharp and enclosing “a further 20 copies of the property information memorandum” was tendered. This document was not put to Mr Sharp.
Mr Sharp agreed in his cross-examination that there was no record of the receipt of the property information report. He said that his recollection is that they were hand delivered but he would not speculate on by whom. He said he recalled “several appearing in my office”.
Mr Cirulis in his witness statement said the following:
“On a date, I can no longer recall, but believe it was in early February 2000, I received, from Ken Sharp a copy of the Arthur Andersen Report.”
In his cross-examination Mr Cirulis said that the receipt of the report “would have been no later than the Friday which was 11 February”. When asked why he picked that date he said it was because he recalled Mr Sharp and he reviewing the report on the Saturday. This aspect of Mr Cirulis’s evidence was not reflected in those terms in the evidence given by Mr Sharp, and was not set out in those terms in the relevant part of Mr Cirulis’s witness statement.
Mr George in his witness statement said he could no longer recall precisely when he received the Arthur Andersen report “but I believe, it was prior to 14 February 2000”. His witness statement said that to the best of his recollection he received a copy of the report from either Ted Sent or Sandi Porter at the offices of Primelife. In his cross-examination he said that he had previously received a draft copy of the report. He said he believed he received the final version on the weekend prior to 14 February but “I’m not 100 per cent sure”. He also said he believed he received it “on the Friday”. He said there was no record of receipt in his files.
In Mr Penzo’s witness statement he said that to the best of his recollection “sometime in February 2000” he received a telephone call from Ms Porter’s assistant, Ms Shona Holzer, advising that there was documentation available for collection, that he attended the offices of Primelife, and that he obtained a copy of the Arthur Andersen report. In his cross‑examination he said that he knew he had the report on 14 February because he and his co-director made a decision based upon the report to go ahead on 14 February and commit to purchase 50 percent of the village. He also has no record of when he obtained the property information report.
Representations in the property information report
The property information report bears superficial similarity to a prospectus. It describes the proposed development and summarises the terms of the proposed contracts. It sets out anticipated cash flow and estimated tax savings. It gives information in relation to Primelife and in relation to MGD. There are a number of statements throughout the document to the effect that it had been prepared by Arthur Andersen on the basis of information provided by Primelife. Early in the report there is a detailed disclaimer.
The property information report describes an asset which is offered for sale “by MGD”. The asset is the following:
“●The retirement facility to be known as Madden Grove Village which will comprise, upon completion, 102 retirement apartments, situated in the Madden Grove, Kew;
●The rights to receive future benefits including Deferred Management Fees (DMF) from the contracts entered into by residents who occupy the village.”
The property information report continues in the next section as follows:
“Madden Grove Village, upon completion, will comprise a luxury integrated retirement facility comprising 102 independent apartments of 1 and 2 bedroom configuration . . .”
The property information report goes on to describe two stages of the proposed development. Stage 1 was to comprise 70 independent apartments in a redevelopment of the existing building on 6 – 12 Madden Grove and stage 2 was to comprise 32 independent apartments in new buildings on 2 and 4 Madden Grove.
The property information report advises that MGD will construct a retirement village facility on the property “comprising 102 independent apartments”. It states that MGD “invite offers” to purchase the facility for $40.8m. Some of the relevant terms are summarised as follows:
“●The purchaser is required to pay a $12,240,000, 30% deposit at time of the signing of contract.
●Purchaser is required to pay an instalment of $19,600,000 against the contract sum, 30 days from issue of the certificate of occupancy for Stage one, anticipated December 2002.
●Purchaser is required to pay the final instalment of $8,960,000 against the contract sum, 30 days from issue of the certificate of occupancy for Stage two, anticipated September 2004.
. . .
●The purchaser shall receive all sales revenue from the first time sale of units up to $40.8 million. Sales revenue in excess of $40.8 million will be shared equally between the purchaser and MGD (subject to cost adjustments).
. . .
●From Settlement Date, the Purchaser and MGD will share EBIT equally.”
In the section concerning title particulars reference is made to the restrictive covenants, to which I have earlier referred, on lots 7 and 8 (2 and 4 Madden Grove). The property information report advises that “MGD intends making an application to the local council to remove the covenant and has allowed additional time to accomplish this prior to the commencement of Stage 2 of the project”.
There are a number of further representations concerning the intention to construct 102 apartments in two stages.
Reference is made to the taxation advantages of the investment.
In the section concerning operation and management details, the following statement is made:
“Based on the standard of accommodation to be offered, MGD propose that the Licence Fee for a retirement unit at Madden Grove Village will average $400,000.”
It is clear that the purchase price of $40,800,000 has been calculated by multiplying this projected average fee of $400,000 by the number of units proposed to be built which will be available to be licensed, being 102.
The report concludes:
“An offer to purchase the Facility can only be made on the Offer Document provided by PLC. The form constitutes an offer made by the applicant to PLC and is irrevocable. Completed Offer Documents must be lodged prior to 8.00pm on Monday 14 February 2000.”
The reference to “PLC” is a reference to Primelife.
The property information report contains a detailed disclaimer early in the report (on page 2). The most relevant passages are the following:
“ … the information is not intended to provide any recommendation either expressly or by implication with respect to the proposed sale.
…
The information and material contained in this document has been provided to Arthur Andersen by PLC and has been relied upon by Arthur Andersen in its preparation of this document. Arthur Andersen has not made any independent enquiries, searches or investigations in relation to the subject of this PIM. Arthur Andersen has relied solely on information provided by PLC. Primelife Corporation have advised Arthur Andersen that every care has been taken in the preparation of the information and that all statements are based on information believed by PLC to be accurate and reliable. However, neither Arthur Andersen nor the Vendor make any guarantee, representation or warranty, either express or implied concerning:
(a) The accuracy or completeness of the information; or
(b) The future performance of Madden Grove Village.
Specifically, Arthur Andersen does not warrant or represent that the information has been audited, checked or verified by them except where specifically stated otherwise.
Recipients must make their own independent investigations and rely upon their own inquiries as to the accuracy or completeness of any of the information. Recipients should seek appropriate professional advice in reviewing the information and evaluating the suitability of the investment.
The information provided by PLC to Arthur Andersen and the information in this PIM includes certain statements, estimates, calculations and projections which reflect various assumptions which have been made by PLC. Those assumptions may or may not prove to be correct. For that reason, Arthur Andersen does not accept any responsibility or liability in relation to the accuracy of those statements, estimates, calculations and projections and the Recipient must make and rely solely on its own assessment of the investment.
. . .
PLC does not guarantee any particular rate of capital or income to be returned from the investment. All figures in the document are estimates only. Potential purchasers should independently verify all of the information contained in this PIM.”
Primelife executed a deed of indemnity in favour of Arthur Andersen.
Representation concerning MGD in the property information report, and involvement of Mr Sudholz in the report’s preparation
There is no doubt that the property information report contains two statements which are false.
The first paragraph of the report contains the following statement:
“Madden Grove Developments Pty Ltd (“MGD”) (ACN 063 888 817) is wholly owned by PLC.”
MGD, the first defendant, is not wholly owned by Primelife. The ACN referred to in the statement quoted is not the ACN of MGD. The issue of which company was, or was intended to be, the joint venture vehicle for Primelife and the Sudholz interests as at February 2000 is a separate issue to which I will return, but in this context that issue is of no significance. The company to which the passage from the property information report which I have quoted refers is the company which was to be the vendor of the land. The representation being made to a reader of the report was that the vendor company was wholly owned by Primelife. This statement was untrue. Neither MGD nor the company with the ACN given was wholly owned by Primelife at any time. It was never intended that the vendor company would be wholly owned by Primelife. It had been agreed between Mr Sudholz and Mr Sent that the vendor company would be a company owned as to 50 percent by Primelife and as to 50 percent by Mr Sudholz and interests associated with him, and that is what occurred.
A similar statement is made in the section of the report in which information is given concerning Primelife. The third paragraph of section 10 of the report contains the following statement, at page 27:
“Madden Grove Developments Pty Ltd is a recently incorporated wholly owned company in the Primelife Group of Companies.”
Counsel for all defendants accepted in the proceeding before me that the statements made concerning the proposed vendor company in the property information report were untrue. No evidence was led by Primelife concerning how these untrue statements came to be made in the report. Mr Sudholz did give an explanation. In substance, it was that he delegated the task of preparing the report, and that he believes that he did not read the untrue statements before the report was despatched.
Mr Sudholz’s evidence in his witness statement was that he asked an employee of Arthur Andersen, Ms Jodie Madden, to prepare the report. His witness statement then continued:
“I believe that I did not have any involvement with its preparation, or the obtaining of the information contained in it. I have been shown a couple of versions of the report produced by Arthur Andersen (CB 311 ) and (CB 251). I do not remember whether I ever read it in any of its versions.”
Ms Madden also gave evidence. Her evidence was that in late January or early February 2000 Mr Sudholz “requested that I assist him in putting together a Property Information Report” in relation to the Madden Grove proposal. Her witness statement contained the following statement:
“As best I can recall, Andrew Sudholz reviewed the drafts of the Report and either made recommended changes to it, or advised me of his changes which I then caused to be incorporated into the draft Report.”
In her oral evidence she confirmed that her statement that Mr Sudholz reviewed the drafts of the report was both her recollection of the ordinary practice in the preparation of such documents within Arthur Andersen at the time, and what she recalls happening on this occasion. In her witness statement and in her oral evidence she identified Mr Sudholz’s handwriting on a draft of the report and on another document, Exhibit P16, to which I will refer.
The documentary evidence is not consistent with Mr Sudholz’s expressed belief that he “did not have any involvement” with the report’s preparation. One draft of the report contains a number of handwritten notations which Ms Madden identified as his.
The documentary evidence is also not consistent with Mr Sudholz’s expressed belief that he “did not have any involvement” with the obtaining of the information contained in the report. Exhibit P16 (a copy of which is at CB 897-904) is a facsimile transmission from Ms Porter at Primelife to Ms Madden at Arthur Andersen sent on 9 February 2000. It sets out a good deal of information which was to be incorporated into the report. The facsimile transmission contains handwritten notations and calculations which Ms Madden identified as Mr Sudholz’s.
This facsimile transmission also includes the following typed statement by Ms Porter:
“Item 11
I will confirm asap details for MGD in para 3.”
The third paragraph of Item 11 of the draft report (the draft which contains handwritten notations Ms Madden identifies as Mr Sudholz’s, although not on that page) relevantly reads:
“Madden Grove Developments Pty Ltd is a recently incorporated wholly owned company in the Primelife Group of Companies.”
This statement is the same untrue statement as that contained in the third paragraph of Section 10 at page 27 of the final report, which I have quoted earlier.
Mr Sudholz in his cross-examination did not accept that all of the handwritten notes that Ms Madden had identified as his were definitely his. Some he said “could be” his, the rest he acknowledged were his. Whilst his witness statement had professed a belief that he had had no involvement in the report’s preparation, in his cross‑examination he said he believed that he had read it only in part. He was consistent in characterising his evidence as to his involvement in the report as being evidence of his “belief”.
Mr Sudholz suggested that the erroneous statements concerning the proposed vendor company may have been the result of the replication in this report of sections of another report concerning a project named “Red Bluff”.
Mr Sudholz said that if he had read the erroneous statements concerning the proposed vendor, he would have corrected them. Although later, he also expressed the view that the errors were not significant.
I was impressed by Ms Madden’s evidence. My assessment was that she was doing her best to recall accurately what had occurred.
My impression of Mr Sudholz was less positive. My impression was that he was only prepared to concede any involvement in the report’s preparation when confronted with his own handwriting on a draft of the report and on Ms Porter’s fax. Whilst due allowance must be made for the elapse of time, it seemed to me that Mr Sudholz was consciously seeking to minimize his role.
Mr Sudholz was the partner at Arthur Andersen responsible for the report. An employee reporting to him substantially drafted it. His handwriting is on a draft and on a fax setting out detail of the proposed contents. Ms Madden’s evidence was that he reviewed the drafts and made or recommended changes.
I cannot accept Mr Sudholz’s evidence in so far as it was to the effect that he did not read the erroneous statements concerning the proposed vendor. This is because:
(a)his evidence as to his belief concerning his role in the report’s preparation is inconsistent with the documentary evidence;
(b)his evidence as to his belief is inconsistent with the evidence of Ms Madden, which I accept;
(c)his evidence on the issue shifted between his witness statement and his oral evidence, and was expressed in terms of “belief”;
(d)it seems that he did not see the error as being significant, thus he may have left the statements uncorrected as he believed them to be unimportant.
My conclusion is that Ms Madden’s account is correct. She drafted the report. As the partner responsible, Mr Sudholz reviewed it, commented upon it and upon the information provided in relation to it, and made or recommended changes which Ms Madden then incorporated into the report. I do not accept that he did not read the untrue statements concerning the proposed vendor.
The offers to purchase
In the early afternoon of Monday 14 February 2000 Ms Porter faxed to Mr George a form of an “offer to purchase” document. The date typed on the fax is “14/2/2000 @ 3.15pm”. The facsimile transmission machine data printed on it records the time it was faxed as 14.35. Later that day (the machine notations record it as sent at 6.07pm) Ms Shona Holzer, who was Ms Porter’s executive assistant, faxed an “offer to purchase” document to Mr Penzo.
There is in evidence a copy of the offer to purchase document signed by Mr Penzo on behalf of Civoken and a faxed acceptance of that offer by Ms Porter acknowledging receipt of $50,000 being part payment of the deposit. That fax records the time of despatch as being 6.55pm.
There is also in evidence a copy of an offer to purchase document signed on behalf of SSFS by Mr Sharp and Mr Stones. The machine notations on that document suggest it was faxed from Stones Sharp at 17.58. The payment terms in the SSFS offer are different to those in the Civoken offer. Both versions provide for a purchase price of $20,400,000 for a 50 percent interest.
There is a letter in evidence from Ms Porter to SSFS dated 14 February 2000 accepting the SSFS offer and confirming receipt of $102,000 as part payment of the deposit, that being the amount due under the different payment terms in the SSFS offer.
Each of the executed offer documents relevantly reads as follows:
“I/We:
●Offer to purchase on an unconditional basis for the sum of Twenty Million Four Hundred Thousand Dollars ($20,400,000) a fifty per cent (50%) interest in the Facility, for which the total purchase price is $40,800,000, on the terms set out in the Property Report.
. . .
●agree to be bound in due course by the terms of the Contract, management & marketing agreement and profit share agreement to be entered into with MGD and/or PLC, provided that the terms thereof are generally in accord with the criteria described in the Property Report, unless I/We have agreed in writing to a variation thereof;
●agree that:
- the representations in the Property Report as to expected future events are forecasts which may not be achieved; and
- I/We have formed and am/are relying on my/our own opinions and judgments as to relevant future events, and not on the forecasts in the Property Report.”
References to the “Property Report” are references to the property information report prepared by Arthur Andersen.
Two matters concerning these offers need to be noted.
First, whilst the document refers to “MGD”, the first defendant had not been incorporated on 14 February 2000. It was incorporated the next day, 15 February 2000. I will return to this issue.
Secondly, the plaintiffs’ case was that the plaintiffs’ officers believed that they were bound on 14 February upon acceptance of the offers they made that day. Mr Sharp in cross-examination accepted the proposition that SSFS undertook an obligation on 14 February which was unconditional, as did Mr Cirulis. Mr George’s evidence was that he told Civoken’s solicitor, Mr Woodhams, in the context of preparation of a brief to counsel in June 2000, that Civoken had a contract to purchase the property constituted by the offer made and accepted on 14 February.
The plaintiffs made submissions in relation to Masters v Cameron,[1] and suggested that the circumstances were likely to fall within the “so called fourth category added to those set out in Masters v Cameron”. I note in this context that there was no evidence that the purchasers received the statement required by s.32 of the Sale of Land Act 1962 (Vic) prior to acceptance of the offers made on 14 February 2000.
[1](1954) 91 CLR 353.
The issue of whether the plaintiffs were legally bound when the offers made on 14 February were accepted by Ms Porter on behalf of Primelife is not one which needs to be determined. They certainly became bound when they executed more detailed agreements thereafter, and those agreements then governed their contractual position. Their officers’ belief that the plaintiffs were bound does have potential significance in the context of reliance and causation. In the circumstances I accept that the plaintiffs’ relevant officers believed they were bound when the offers they made on 14 February 2000 were accepted. The commercial decision to commit to the investment was made then. It was still necessary under the terms of the offers made to “in due course” execute the more detailed contracts referred to in the offers and in that respect the plaintiffs were, under the express terms of the offers, entitled to insist that those contracts be “generally in accord with the criteria” in the property information report.
Evidence as to analysis of the property information report by the plaintiffs prior to the offers
Mr Sharp in his witness statement said that he reviewed the property information report in detail and that he, Mr Cirulis and Mr Stones conducted a detailed analysis of it. He said that there was “a particular focus on the commencement and completion dates of the various stages, the consequential cashflow and what impact this would have on investors”. Having undertaken this analysis, he said a decision was made to invest. In cross-examination he said the analysis was reading the document and undertaking “calculations on cashflow for the clients based on the information report”. He said that there “wasn’t necessarily a document” created by this process and that the results were communicated to the clients orally in the days after 14 February 2000. He denied that the analysis was done after the offer of 14 February was sent. Mr Sharp said there was no document of any kind recording his analysis, not even a copy of the report with his notes on it, and that there had never been such a document.
Mr Cirulis in his witness statement said that he closely examined the report, and that he “particularly reviewed the information in the Arthur Andersen Report relating to cashflow aspects”. In his cross-examination (not in his witness statement) he said he recalled he and Mr Sharp going through the report “on the Saturday” (14 February being a Monday). He rejected the suggestion that it might have been on the following Saturday. No record now exists of the analysis he described.
Mr Stones did not give evidence, although a witness statement by him had been filed. An explanation for his absence was given from the bar table, but no evidence was led concerning that explanation.
The evidence of Mr Penzo and Mr George concerning their analysis of the report is fairly described as broad brush.
In his witness statement Mr George said he reviewed the report in detail and he set out what he said were the “critical parts” by reference to the tab headings in the report. He identified chapters 1, 2, 5, 6, 8 and 10. In his cross-examination Mr George seemed to me to be unable to differentiate between discussions he had with Ms Porter, Mr Sent and Mr Penzo concerning earlier drafts of the report, reviews he conducted with others after 14 February 2000, and his consideration (if any) of the final report prior to making the offer on 14 February.
Mr Penzo’s witness statement on this issue is in exactly the same words as Mr George’s, save that his list of “critical parts” by reference to the tab headings differs from Mr George’s list. Mr Penzo does not include “Chapter 1 – Introduction”, “Chapter 8 – Demographic Overview” or “Chapter 10 – Primelife Corporation Limited” in his list in contrast to Mr George. His list adds “Chapter 14 – Project Assumption”. In his cross-examination Mr Penzo said that he and his co-director (Mr George) made the decision “to go ahead on the 14th and commit to 50 per cent of the village” based on the report. He said there was no note or record of any meeting with Mr George in relation to the report.
Intermediaries’ dealings with investors
Mr George of Civoken prepared a document entitled “Madden Grove Village Kew Syndicate – Executive Summary” for the purposes of introducing the investment to prospective investors. The proposal set out in that executive summary document broadly reflected the proposal set out in the property information report save that a new entity was interposed named the “Syndicate Manager”. In analysing the financial arrangements, additional costs of $1,500,000, said to include syndicate management and administration fees, are added to the purchase price of $40,800,000. The executive summary referred to, and assumed that the recipient had, the property information report. It sought the completion of “offers to purchase” which were in terms which substantially replicated the offer executed by Civoken on 14 February 2000.
There are in evidence 25 letters from SSFS to Stones Sharp’s clients bearing the date 14 February 2000 (Exhibit D2). The letters are in a standard form and read as follows:
“Further to our recent discussions regarding your acquisition of an interest in the abovenamed joint venture, we would appreciate you forwarding us a cheque for [amount] representing your share of the initial deposit. Please make your cheque payable to Stones Sharp and forward same to this office no later than 28 February 2000.
Would you kindly note that the balance due for your investment in the joint venture is [amount] and is due and payable no later than 28 April, 2000. Please be advised that any payments made after the due date may incur an interest charge. Kindly make this cheque payable to Madden Grove Developments Pty Ltd.
We would appreciate you signing this letter where indicated below to acknowledge your acceptance of the above terms and conditions and forward to our office with your deposit cheque.
Should you have any queries do not hesitate to contact Ken Sharp or Eric Cirulis of this office.”
Each letter contains provision for the client to sign and date the letter under an acknowledgment of agreement. Most of the letters seek a cheque for $2,550 and specify the balance as $124,950. Nine of them specify different amounts; some specify more, some less.
The letters are all signed and dated by the clients. They each have on them a date stamp, indicating the date and time of the return of the signed letter to SSFS.
One letter, to a Mrs Bert, was dated by the client 14/02/2000 and was returned to SSFS at 11.00 a.m. on 15 February 2000. Three letters dated by the client 15/02/2000 were returned on 16 February 2000. Eight letters dated by the client 16/2/2000 were returned on 17 or 18 February 2000. All of the letters save for three were returned within a week of 14 February 2000.
The conclusion which I draw from these letters is that by 14 February 2000 SSFS had specific quantified commitments from at least 25 clients to invest in the venture. Unless the letters were prepared during the night, SSFS had prepared letters for these clients seeking payment and acknowledgement of agreement before SSFS faxed its offer for 50 percent of the venture to Primelife at 17:58 on 14 February 2000.
Mr Penzo, in his witness statement, gave a confusing account of the documents provided to prospective Civoken investors; they may have been given a copy of the property information report or the executive summary or both. Mr Penzo in his oral evidence said that he sent a copy of the property information report to prospective investors who requested it. In oral evidence Mr George said that he gave the property information report to the investors or their representatives that he met with concerning the proposed investment. Mr Sharp stated that: “All of the clients that came into the investment were given the opportunity of reading and taking a property information report.” I assume that the reference to “opportunity” means that it was available and its availability was made known. The possible inconsistency between this position and the 25 letters in Exhibit D2 was not put to him.
Clients of the officers of Civoken and SSFS, and others, subscribed to the venture up until 28 June 2000, the date the formal contracts bear, and continued to subscribe well beyond that date.
Withdrawal of Taxation Ruling 94/24 and advice as to consequences
According to an advice from counsel which is in evidence and to which I will refer, with effect from 19 April 2000 Draft Taxation Ruling 2000/D5 replaced Taxation Ruling TR94/24. This was perceived to be a negative development from prospective investors’ point of view. Draft Taxation Ruling 2000/D5 provided that the prior ruling, TR94/24, would continue to apply in circumstances where a retirement village owner fell within TR94/24 and “was irrevocably committed to building or acquiring a retirement village prior to the date of withdrawal of Taxation Ruling TR94/24,” that is, prior to 19 April 2000.
Civoken’s solicitors in the transaction were Woodhams O’Keeffe & Co (“Woodhams”). SSFS’s solicitor was Mr Martin Durkin.
Woodhams obtained advice from Mr Edward Power of counsel and from Mr Brian Collis QC on the application of TR94/24 and the effect of Draft Taxation Ruling 2000/D5 on the investors and prospective investors. In substance, on the material provided and the instructions given to counsel, the advice was that TR94/24 should apply.
The evidence as to the material upon which that advice was based raised some troubling issues.
Mr Power’s advice set out the material with which he had been briefed. One item which he set out was “Copy Contract of Sale, dated 14 February 2000,… between Civoken and Stones Sharp, as bare trustees for the Syndicate as the Purchaser and Madden Grove Developments Pty. Ltd. . . ., as Vendor. . .”
The only executed contract of sale between Civoken and SSFS as purchasers and MGD as vendor in evidence is dated 28 June 2000.
Evidence as to the material provided to counsel
When first asked by senior counsel for the first and second defendants about the reference to a contract of sale, apparently dated 14 February 2000, in Mr Power’s advice, Mr George professed ignorance. I refer to the following passages in his cross-examination:
Mr Collinson: The only contract of sale which has been discovered in this proceeding, Mr George, is this contract of sale dated 28 June 2000. Are you able to explain why Mr Power would have described the contract of sale briefed to him as a contract of sale dated 14 February 2000? - - - I can only assume that the offer to purchase signed on that date was described here by Mr Power as a contract of sale. That’s just my assumption.
…
So I suggest to you it can’t be the offers to purchase to which he is referring? - - - I can’t answer that, he may have had an unsigned copy prior to it being executed; I don’t know.
…
Is it possible that you gave to Mr Woodhams a copy of the contract of sale which had a date 14 February 2000 on it? - - - I don’t believe so. I don’t know but I don’t believe so.” [2]
[2]Transcript 491 – 492.
The documents referred to in Mr Power’s advice were eventually produced from the Woodhams file. Mr Woodhams gave evidence. He could not recall where the documents came from, nor could he identify handwriting which was on them. One of the documents (Exhibit D20) is a contract of sale which is dated 14 February 2000 and which names SSFS and Civoken as purchasers and MGD as vendor. It is unsigned but has a handwritten notation across the top reading:
“COPY – EXECUTED ORIGINAL HELD AT 691 HIGH ST THORNBURY”
691 High Street, Thornbury is the address of De Luca Partners.
All the documents have the same notation.
Mr Woodhams said that he had prepared and signed the brief to counsel, which stated, among other things, that a contract of sale had been executed on 14 February 2000. Mr Woodhams was not able to provide any explanation as to why there appeared to be two contracts of sale with two different dates.
After a foreshadowed dispute concerning privilege was resolved, and an application to recall Mr George and Mr Penzo for further cross-examination was made which, in the end, was not resisted, Mr George was recalled to give further evidence on the contract of sale referred to in counsel’s advice. His evidence on this occasion was surprising given his previous inability to recall the matter.
Mr George was shown the documents which had been produced from the Woodhams file, all indorsed with the notation “Copy – executed original held at 691 High St Thornbury.” He said that the notations were in his handwriting. He agreed that when the notations were made, no contract of sale had been executed, and that therefore the notation on the contract of sale was incorrect when written. Mr George maintained, however, that he did not realise that it was incorrect at the time. He said that he believed he had made the notations “some time in early June.”
Mr George said that before he made the notations on the contract of sale and other documents, he had had them for some time. He could not recall who had sent them to him.
Upon being asked why he made the notations, Mr George said:
“I made those annotations because I wished to get a tax opinion regarding whether parties could join in the Madden Grove syndicate agreement only after April the 20th, which I believe was the date that the relevant tax ruling, T094 [sic], was withdrawn and at that time I spoke to Mr Woodhams on the phone and told him I wanted an opinion and that I would send him a copy of the Madden Grove syndicate agreement, an unexecuted copy because the original was with Renato Penzo at 691 High Street, Thornbury and at that time Mr Woodhams said, “Well, I will need some other documentation” and I said, “I haven’t got any of the other original documentation and I don’t believe it’s relevant” and he said, “Send me some and put a note on it.” So I did send that to him.
Mr Collinson: Did you send all three documents to Mr Woodhams? - - I did. I then rang Mr Woodhams and said, “No, that’s not quite right – it’s not right. The only documents we have at 691 High Street, Thornbury, is the offer to purchase which is a legal document and we have the Madden Grove syndicate agreement so I do not want those included in the brief to counsel for the tax opinion” and I remember that conversation because it became quite animated at the time.” [3]
[3]Transcript 1476 – 1477.
Mr George said he could not remember the conclusion of the telephone conversation with Mr Woodhams, but he said he could recall telling Mr Woodhams that the documents he had given him were wrong and should not be included in the brief to counsel.
Mr George said that he had been well aware that Taxation Ruling 94/24 had been withdrawn on 19 April 2000. He said he had also been aware that if it could be demonstrated that there was an “irrevocable commitment” prior to 19 April 2000 then the ruling could still be relied upon. Mr George said he believed that the offer to purchase would have provided such proof. Upon being questioned as to why he did not then include a copy of that offer in the brief to counsel, Mr George replied, “I didn’t have one and [Mr Woodhams] didn’t ask me to go back and get it.” He claimed that he was not aware whether Mr Woodhams had a copy of the offer or not.
Mr George said that in early June, because of the uncertainty created by the withdrawal of Taxation Ruling 94/24, before receiving counsel’s advice, he would “not have accepted any others [investors] without a positive opinion.”
It was put to Mr George that he must have realised the purported contract of sale dated 14 February 2000 had not been withdrawn from the brief to counsel when he read counsel’s advice expressly referring to it. Mr George’s response was that he only “read part of the advice”. The material on which the advice was based was set out in the first few paragraphs of the memorandum. Included are details extracted from a contract of sale and a syndicate agreement both said to be dated 14 February 2000. Mr George claimed he did not read this part of the advice. He claimed that he read the parts that he “wanted to read” and what he “wanted to read was the opinion on whether the investors could still join the Madden Grove syndicate and enjoy whatever tax concessions were available under tax ruling 94/24.”
Mr George denied the suggestion put to him that by annotating the various agreements as noted, he deliberately set out to mislead counsel into assuming that there was an “irrevocable commitment” to the project, thereby attracting the exception to the withdrawal of Taxation Ruling 94/24. When it was put to him that he was lying to the Court when he suggested he did not know the agreements had not been executed when he sent them to Mr Woodhams, he said he had been unsure at the time and he had rectified things as soon as he could.
Mr George accepted that, at the end of June 2000, his “primary concern was to attract investors into the syndicate…” and that his remuneration was “commission based”.
Mr George’s evidence was that the opinion of counsel on the status of the project with regard to the withdrawal of Taxation Ruling 94/24 was sought for the purpose of passing it on to “intermediaries” of Mr George’s who dealt with potential investors, so that those intermediaries could decide whether to recommend that their clients invest or not. Mr George agreed that these intermediaries were authorised to show the advice to potential investors if they wished.
Mr George’s evidence on the issue of the provision of documents to counsel for the purposes of the advice was incredible and I reject it without hesitation. The contrast between his initial lack of recollection and the evidence he gave on his recall was stark. His account of his conversations with Mr Woodhams and his assertions concerning the parts of Mr Power’s advice which he read bordered on the absurd.
I record that counsel for the first and second defendants sought leave to recall Mr Woodhams (who they had called) on this issue. I would not permit that. I did give counsel for the plaintiffs two opportunities[4] to apply to recall Mr Woodhams for further cross-examination. No such application was made.
[4]Transcript 1515 and 1540.
Sudholz and Primelife retain an interest through SSFS
Civoken and SSFS had agreed to each take up 50 percent of the venture. They in turn “on sold” investments in the venture to persons who were predominantly the clients of their respective officers. Neither Civoken nor SSFS were able to procure investors for the entirety of their 50 percent share as 30 June 2000 approached. An arrangement was made that to the extent of any shortfall MGD and/or Primelife would “take up” the balance. This arrangement was brokered by Mr Sandground.
By a letter dated 27 June 2000 Ms Porter of Primelife wrote to SSFS in these terms:
“In accordance with our verbal advice last week, we confirm that in the event you are unable to collect the full amount of the deposit required pursuant to the Contract of Sale for the above property, the vendor will retain the apportioned percentage interest in the project.”
As matters transpired, what occurred was that Primelife and Mr Sudholz “took up” the shortfall by becoming investors in the SSFS syndicate themselves.
These arrangements are the genesis of a dispute, which did not emerge as a pleaded issue until during the trial, concerning how much of the deposit has been paid by Civoken and SSFS. The dispute concerns the correct characterisation of the arrangements and the steps taken to give effect to them.
The relevant contracts
Civoken on the one hand and the investors which it successfully introduced to the project on the other entered into an agreement entitled the “Madden Grove Syndicate Agreement”. The agreement bears the date 14 February 2000. Mr Penzo in his evidence said that the only “member” of the syndicate on 14 February 2000 was the DP Unit Trust, an entity used as an investment vehicle by the partners of De Luca Partners. There are many more entities which are parties to the agreement. One of the investors which is a party to the agreement is Trendy Corporation Pty Ltd. The agreement sets out Trendy Corporation Pty Ltd’s ABN. According to an extract of ASIC records tendered in the trial, this number was not allocated to it until 10 June 2000. Mr George said that the agreement was executed progressively as investors joined the syndicate. The execution pages of the agreement are laid out in a manner which is consistent with that evidence.
It is clear that Civoken’s “Madden Grove Syndicate Agreement” was not executed by all the parties to it on 14 February 2000. It seems to me to be most unlikely any party executed it on 14 February 2000, the very day of the offer to purchase. The handwritten date on the agreement is Mr Penzo’s. My conclusion is that the agreement has been backdated.
Civoken’s “Madden Grove Syndicate Agreement” establishes a “syndicate” of which Civoken is the “manager”. It provides that Civoken will enter into agreements “ostensibly as principal but in reality as agent for . . . the syndicate”. Under the agreement Civoken is entitled to a management fee of 5 percent of gross income and upon future realisation is entitled to a fee of 5 percent of the realisation price. Civoken is also entitled to a full indemnity for liabilities it incurs.
The investors introduced by SSFS executed a joint venture deed with SSFS which bears the date 28 February 2000. The SSFS joint venture agreement establishes a joint venture to be named the “SSFS Investment Syndicate” of which SSFS is the “Manager”. As manager SSFS is entitled to such fees and expenses as may be approved by a special resolution of the “joint venture” and is entitled to indemnity for liabilities incurred.
The SSFS joint venture deed records Primelife and Andrew Sudholz as having contributed $621,562.50 each. These contributions represent the shortfall previously referred to. Primelife and Mr Sudholz never made any cash contribution to SSFS. The matter was instead dealt with internally within Primelife, in a manner which I will address in detail separately. The presence of Primelife and Mr Sudholz as joint venture participants reveals that the SSFS joint venture deed was also backdated, and indicates it was in fact executed in late June 2000 at the earliest. This is because the letter confirming an arrangement concerning the shortfall is dated 27 June 2000.
The DP Unit Trust (the investment vehicle for Mr Penzo’s firm) took up a small percentage share in the Civoken syndicate (2.941176 percent). Mr Stones, Mr Sharp, and Mr Cirulis respectively invested $127,500, $127,500 and $63,750, of the total sum of $5,865,000 subscribed to the SSFS syndicate. Mr George did not directly or indirectly invest in the project himself.
Civoken and SSFS executed a joint venture agreement establishing a joint venture between the two of them. This joint venture agreement bears the date 14 March 2000. It was backdated too. It refers in one of the definitions to a marketing and management agreement “entered into on the date hereof”. That agreement bears the date 28 June 2000. In its second schedule, the joint venture agreement sets out the contributions made. The contributions are said to be Civoken: 42.5 percent $4,335,000 and SSFS: 57.5 percent $5,865,000. The offers made on 14 February 2000 were for interests of 50 percent each. The difference between 50 percent each, and the contributions set out in the joint venture agreement, reflects the amounts actually raised and the shortfall taken up by Primelife and Mr Sudholz through the SSFS syndicate. The shortfall was dealt with by increasing SSFS’s proportion and by the shareholders in MGD, Mr Sudholz and Primelife, taking up that increase. The Primelife letter confirming an arrangement about the shortfall, to which I have previously referred, was dated 27 June 2000. My conclusion is that the joint venture agreement between Civoken and SSFS was executed after 27 June 2000.
Civoken and SSFS as purchasers, and MGD as vendor, executed a contract of sale of the land at 2 – 12 Madden Grove Kew which is dated 28 June 2000. It will be necessary to consider the terms of this contract in some detail subsequently. For present purposes it suffices to say that the contract contains detailed provisions concerning an application for a planning permit and the construction of a retirement village by MGD.
The contract of sale refers to annexed plans. No plans are annexed to the copy which is in evidence. Counsel for MGD and Primelife submitted early in the trial that there are sufficient references in the definitions in the contract of sale to conclude that the plans contemplated by the parties to the contract of sale were the plans annexed to the property information report. I accept that. All parties conducted the trial on that basis.
Primelife and Mr Sudholz formalised the joint venture arrangement between them by an agreement entitled “The Madden Grove Joint Venture Agreement”. MGD was not the company named as the joint venture vehicle in that agreement. The company so named had a different ACN. I will return to this issue. For present purposes it is clear that eventually MGD did become the joint venture vehicle.
The final agreement to which reference should be made at this point is a document also dated 28 June 2000 entitled “Memorandum of Understanding” (“MOU”). It was executed by Mr Sent and Ms Porter on behalf of MGD, by Mr George and Mr Penzo on behalf of Civoken, and by Mr Sharp and Mr Stones on behalf of SSFS. It is a short document. It provides for termination of, or renegotiation of the price in, the contract of sale in certain eventualities concerning the outcome of the planning permit application or applications. Its subject matter is a topic which is one of the central issues in the case concerning MGD’s performance of the contract of sale. It is also relevant as its terms are particularly relied upon by MGD in relation to one controversial aspect of construction of the contract of sale. Its existence was revealed by MGD in the course of the interlocutory steps in the proceedings in circumstances which prompted the plaintiffs’ witnesses to proffer explanations in their witness statements for the plaintiffs’ prior failure to reveal it. The evidence given by the witnesses for the plaintiffs in this respect was extraordinary. The MGD officers who signed the MOU, Mr Sent and Ms Porter, were not called.
In his witness statement Mr Sharp acknowledged that he had signed the MOU, but said he had forgotten about it until early 2005, when the first and second defendants applied to amend their defences and counterclaims in this proceeding. In cross‑examination, Mr Sharp professed to have no recollection of the MOU or any of its terms. While now acknowledging its importance, he said he could not recall the provision that allowed the plaintiffs to terminate the contract if the planning permit was not procured. He said he could not recall whether he read the MOU before signing it, but he agreed with suggestions put to him to the effect that he did “think” that he had read it before signing it and had understood it. Mr Sharp could not recall receiving a letter from Primelife enclosing various contractual documents but not the MOU. Mr Sharp could not remember whether he had questioned why the MOU was not enclosed in this letter. He could not remember executing the MOU on the day it was dated, being 28 June 2000. Mr Sharp said he did not recall turning his mind to the potential consequences the MOU would have had on the tax structure of the transaction.
In his witness statement, Mr Cirulis said that he did not recall ever seeing the MOU until early 2005 when the first and second defendants applied to amend their defences and counterclaims in this proceeding, and could not recall reading or reviewing it. Mr Cirulis did not sign the MOU. In cross-examination, Mr Cirulis said he did not believe that he had reviewed the MOU prior to its execution, and whilst he conceded that it was possible he had but had now forgotten it, his basic position was that he “didn’t even know about it until it came up in discovery”.
In his witness statement, Mr George stated that he could not recall executing the MOU. Mr George said he was not aware the MOU was relevant until the first and second defendants applied to amend their defences and counterclaims in this proceeding. In cross-examination, he said he could not recall reading the MOU before signing it, but said that he “would have read everything [he] signed at the time.” He then agreed that he later forgot about the terms of the MOU.
In his witness statement Mr Penzo said he had not recalled signing the MOU on 28 June 2000 until he saw the proposed amended defence and counterclaim of MGD. In cross-examination, he conceded that it would be surprising for him to have executed the MOU without reading it and appreciating the importance of the provisions contained within it. Mr Penzo agreed that he had never previously encountered a memorandum of understanding used in a situation such as this one, and he said that he could not recall for what reason it was used in this case.
The plaintiffs’ solicitors, Mr Woodhams and Mr Durkin, also gave evidence concerning the MOU. They had not had witness statements prepared for them. They were called as witnesses by the first and second defendants. Mr Durkin had acted for SSFS and Mr Woodhams had acted for Civoken.
Mr Durkin’s recollections were limited, and privilege was not waived, which reduced his capacity to answer questions. He did identify a copy letter from Primelife’s solicitors to Ms Porter which referred to the MOU (Exhibit D16), and also two drafts of the MOU on which numbers had been written by him (Exhibit D17 and Exhibit D18), as all being documents from his file on the matter.
Mr Woodhams said he could recall very little. A draft of the MOU from his file was tendered (Exhibit D25). He said that upon receipt of such drafts, he would have reviewed them with Mr George.
The advice from counsel obtained by Mr Woodhams had said that TR94/24 would only continue to apply where the investors were “irrevocably committed” before 19 April 2000. The MOU, amongst other things, provided for termination of the contract and for renegotiation or recalculation of the purchase price in certain eventualities.
I cannot accept the evidence of the plaintiffs’ witnesses on this issue. I do not accept that those who signed the MOU all forgot about it. I make no finding as to whether the MOU was deliberately kept secret because that was not put to the witnesses who gave evidence about it.
Commissions earned by the intermediaries
The various intermediaries associated with the plaintiffs earned substantial commissions or fees as a result of their involvement in these transactions.
The evidence of Mr George and Mr Penzo, in cross-examination, was that they had made an agreement with Mr Sent of Primelife under which they would receive commission of 3 percent of the amount the investors they introduced “took up in that investment”. The 3 percent was calculated on the relevant proportions of the total price ($40.8m), not on the cash payable as the deposit. The commission was 12 percent of the cash paid.
According to the evidence of Primelife’s National Finance Manager, Mr Daniele, supported by MGD’s tendered accounting records (Exhibit D13), the total commission payable by MGD to the Civoken intermediaries as at November 2001 was $520,200, of which $367,200 had been paid to De Luca Partners and $107,100 to Mr George’s company, Bizcorp Properties Pty Ltd. The documentary evidence indicates a further payment of $45,900 to Bizcorp was approved on 18 April 2002.
According to Mr Daniele and MGD’s accounting records, Mr Sandground earned $449,437.50 in commission, calculated, in his case, at the rate of 2.5 percent of the relevant proportions of the total price. Of this sum $98,175.00 was paid by direct debit in July 2000 and sums of $265,200.00 and $36,975.00 were set off against investment contributions due from him. The balance of $49,087.50 was paid by cheque in October 2000.
Mr Sharp rejected the suggestion that he had earned any commission or fee as a result of his involvement in these transactions, either from Primelife directly or through Mr Sandground. On being asked whether Stones Sharp had received a share of Mr Sandground’s commission as a result of introducing clients to the investment, Mr Cirulis responded: “Not to my knowledge”. Senior counsel for the plaintiffs submitted that SSFS did not receive any commission from Primelife or Mr Sandground.
Stones Sharp, Mr Sharp and Mr Cirulis’s accounting firm, invoiced Sandground Group Pty Ltd for the sum of $182,325. The invoice was for professional services described as:-
“To accounting, consulting, business development and other related matters re retirement village projects for the period 1st April, 1999 to 30th June, 2000, including disbursements and out of pocket expenses.”
The invoice is dated 30 June 2000.
The process by which the existence of this invoice was revealed needs to be set out.
On 8 February 2006 Mr Sharp was asked in cross-examination about commissions or fees. He denied receiving any fee or commission from Primelife. He agreed he knew Mr Sandground or his company had received commissions. He was asked whether he took a participation “in his fee from Primelife” (being Sandground’s fee) and he said “no”.
A little earlier on 8 February 2006 Mr Sharp had been asked about records of time spent with clients concerning the Madden Grove proposal in or around February 2000. He was asked to bring to court the next day records of his time on this matter for which he had charged his clients.
In cross-examination it was put to Mr George that he had made no complaint at the meeting of November 2002 about Mr Sudholz’s role and he agreed. The following interchange then occurred:[61]
“Because the fact of that joint venture did not trouble you in terms of your participation in the Madden Grove Development? - - - I was concerned.
Why? - - - Because we were dealing with Primelife, a public company and we had no - - - I had no knowledge of that Mr Sudholz was involved in that particular project, in the Madden Grove Project. It may have made a difference, I don’t know.
Made a difference to what? - - - It may have made a difference to our participation.”
[61]Transcript 528.
A little later Mr George agreed that he would “probably” have gone ahead and signed the contracts even if he had known that Madden Grove was only owned as to 50 percent by Primelife.[62]
[62]Transcript 540.
In Mr Penzo’s cross-examination he said he had not realised Mr Sudholz was a joint venture partner with Primelife until July 2004,[63] although he had known he was a director of MGD since November 2002.[64] This aspect of his evidence was not consistent with Mr George’s evidence. Mr George’s evidence was that he had discussed Mr Sudholz’s involvement with Mr Penzo in November 2002.[65]
[63]Transcript 610.
[64]Transcript 605.
[65]Transcript 527 – 530.
Mr Penzo maintained that it was an “important fact” that MGD was wholly owned by Primelife “…because it was a publicly listed company and we had confidence in the publicly listed company and the officers”.[66]
[66]Transcript 609.
When it was put to him that he would have proceeded anyway, he said he may have but in a “different format”. When it was put to him that he did not know what he would have done, he said:
“No, I’m just saying that if I knew Primelife wasn’t 100% I would have reacted.”
On this issue I accept the evidence of Mr George and Mr Penzo. I do so notwithstanding my inability to accept their evidence on other issues, for the same two reasons as I gave in relation to Mr Sharp and Mr Cirulis. They appeared to me to be frank and open on this issue, and the inherent probabilities in my view support their account.
The plaintiffs made offers on 14 February. I am not persuaded on the balance of probabilities that they relied on the final version of the property information report (being the only document on which they rely in relation to this representation) on that day for the reasons given in relation to the representations concerning future performance.
The plaintiffs plead that all of the representations in issue were continuing representations and they allege that they were induced by them to execute the contract of sale dated 28 June 2000, and certain of the other agreements.
Whilst I am not persuaded the plaintiffs relied on the property information report on 14 February, it is clear that prior to execution of the contract of sale dated 28 June 2000, they used it to market the proposition to their clients and others.
The representations which I have found were made were of a continuing character. In my view that is not significant in relation to the representations about future performance of the investment. The plaintiffs made their commercial assessment and their commercial decision on or before 14 February. Whilst I have found that some of the representations about future performance were misleading (because of the application of s.51A) the plaintiffs have not established reliance, either on 14 February, or, in so far as the representations about projected performance were continuing, thereafter. They had committed themselves, and had commitments from clients, by 14 February. The evidence does not establish that the plaintiffs were induced to conduct themselves in a particular way by the representations about future performance either on 14 February or between then and execution of the formal contracts.
It seems to me that the representation that the vendor was a wholly owned subsidiary is different. This representation was also a continuing one. My conclusion is that the plaintiffs were induced to conduct themselves in a particular way by that continuing misrepresentation. What they were induced to do was to accept MGD as the contracting party, and as the sole contracting party, under the contract of sale. The offers they made on 14 February had provided that they agreed to be bound by formal contracts, but only if those contracts were in “accord” with the property information report. The formal contract of sale was not in accord with the property information report because the vendor was not a wholly owned subsidiary of Primelife.
The plaintiffs’ witnesses did not say that if told the truth they would have refused to go ahead at all. I think that such a refusal would have been unlikely. If they had been told the truth, my conclusion is that, in the words of Mr Penzo, there would have been some reaction and the plaintiffs would have sought a “different format”. Some of the plaintiffs’ officers may have been more concerned than others. As a group they would have reacted. They may have sought a different vendor who was wholly owned, and insisted Mr Sudholz’s interest be dealt with by Primelife in some other way. They may have sought guarantees or warranties from Primelife. They may have sought some other “different format”. As a result of being misled they were deprived of that opportunity. The quantification of the loss suffered as a result of their being deprived of that opportunity will have to be determined in a subsequent hearing.
Who is the contravening representor?
The property information report was published under the insignia of Primelife and Arthur Andersen. Primelife was the source of the information in it. The document sought offers directed to Primelife. Primelife made all the misleading representations I have found were made.
As at 14 February 2000, the representor was Primelife alone. MGD was not incorporated on 14 February 2000. Arthur Andersen had made it clear in the disclaimer that they were not the source of the representations and were “passing on” representations made by Primelife without their endorsement. They did not assert the representations were accurate. They identified the source. They disclaimed responsibility. The disclaimer was at the front of the document and was presented in the same way as the rest of the document.
The representations made were continuing. The plaintiffs submitted MGD must be taken to have adopted the representations after its incorporation on 15 February and I think that is correct.
Aiding and Abetting by Sudholz
In the claim against Mr Sudholz the plaintiffs cannot rely on s.51A.[67] To establish liability, it is necessary for the plaintiffs to establish in relation to the contraventions of s.52 of the Trade Practices Act that Mr Sudholz knew:
(a) that the relevant representation was made; and
(b)that the relevant representation was misleading in that he knew that it was false, or if it was a representation as to a future matter he knew that the representing party had no reasonable grounds for making the representation.[68]
[67]Quinlivan v Australian Competition & Consumer Commission [2004] FCAFC 175.
[68]Trade Practices Act, s.75B; Yorke v Lucas (1985) 158 CLR 661.
In relation to the representation concerning the prospective vendor, the plaintiffs have established that Mr Sudholz knew the representation was made and knew that it was false.
In relation to the balance of the representations which I have found were made the evidence does not establish that Mr Sudholz knew that they were false or, in so far as they were as to future matters, knew there were no reasonable grounds for making them.
Conclusions on misleading and deceptive conduct claims
My conclusions on the claims that the defendants contravened s.52 of the Trade Practices Act are as follows:
(a)Primelife contravened s.52 in that it engaged in misleading and deceptive conduct by representing that the proposed vendor was its wholly owned subsidiary, and by failing to correct or retract that representation prior to execution of the contract of sale dated 28 June 2000.
(b)MGD contravened s.52 in that it engaged in misleading and deceptive conduct by failing to correct or retract the representation made by Primelife that MGD was its wholly owned subsidiary.
(c)The plaintiffs relied upon these misrepresentations and were induced by them to contract with MGD alone without complaint.
(d)The loss which the plaintiffs have suffered is deprivation of the opportunity to seek different contractual arrangements to those made.
(e)Mr Sudholz is liable on the basis that he aided and abetted the contraventions referred to.
(f)Otherwise, the allegations of breach of the Trade Practices Act made by the plaintiffs fail.
Sale of Land Act
Pursuant to s.32(1) of the Sale of Land Act 1962 (Vic) every vendor under a contract of sale of land must give to the purchaser before he signs the contract a statement “signed by the vendor”, and must include in the contract a statement containing the matters specified in s.32(2).
Amongst the matters specified in s.32(2) is the information set out in Schedule 2 which must be given where the contract is a terms contract.
A “terms contract” is relevantly defined in s.32(2) as an executory contract under which the purchaser is “obliged to make two or more payments to the vendor after the execution of the contract and before he is entitled to a conveyance or transfer of the land”. Section 2(4) declares that for the purpose of determining whether a contract is a terms contract, payments made in relation to the contract on or before the execution of the contract or upon the making of which the purchaser becomes entitled to a transfer are not payments required to be made to the vendor after execution or before the purchaser is entitled to a transfer of the land.
Section 32(5) of the Sale of Land Act provides that where a vendor supplies false information or fails to supply all of the information required the purchaser may rescind.
In the first defendant’s fifth amended defence and counterclaim it is alleged that the wrongful service of the rescission notice constituted repudiation (paragraph 44). In their second further amended reply and defence to counterclaim the plaintiffs allege that they were entitled to rescind, amongst other grounds, because of non-compliance with s.32 of the Sale of Land Act (paragraph 23). Notwithstanding that the issue was only pleaded in their reply, the plaintiffs sought to support their claim on this ground. Counsel for MGD did not seek to rely on this pleading deficiency.[69]
[69]Transcript 1787.
The plaintiffs say they were entitled to rescind under s.32(5) because the purported s.32 statement to which I have referred was not given by the vendor to the purchaser and was not signed by the vendor. They say it was given and signed by Nationwide.
Counsel for MGD submitted that the s.32 statement was given and signed by the vendor, MGD, even though it had the “wrong” ACN on it. In this respect counsel for MGD referred to the fact that the vendor is named as “Madden Grove Developments Pty Ltd” and that the only company of that name as at the date of the statement (16 March 2000) was the first defendant MGD; and to the fact that the statement was signed by Mr Sent, who was a director of MGD and not a director of Nationwide.
On the issue of who signed and gave the s.32 statement in March 2000, the plaintiffs referred to the fact that the ACN given is Nationwide’s and to the fact that the statutory declaration concerning the nomination appears to nominate Nationwide. The plaintiffs submitted that there was no proper basis upon which to find that the signature on the statement was that of Mr Sent. I have already addressed the latter submission. I have concluded it is Mr Sent’s signature.
MGD’s incorporation under the name “Madden Grove Developments Pty Ltd” with Mr Sent and Mr Sudholz as directors and with Primelife and the Sudholz interest as shareholders as to 50 percent each on 15 February 2000, combined with Nationwide’s change of name on 13 February 2000 (according to the ASIC historical extract, pursuant to a Notice of Resolution Changing Name received by ASIC on 14 February 2000), suggest that the proposed vendor was MGD from 15 February 2000 and that the use of Nationwide’s ACN after that date in relation to the prospective vendor was a typographical error.
The reappearance of Nationwide’s ACN on documents apparently created after 15 February 2000 is troubling, as is its appearance on the undated nomination.
Despite these troubling aspects of the matter, on the balance of probabilities, I conclude that the s.32 statement dated 16 March 2000 was signed by MGD and given to the purchasers by it. I reach this conclusion because of the circumstances referable to MGD’s incorporation and Nationwide’s change of name as referred to above and because Mr Sent, who signed the statement, was a director of MGD and was not a director of Nationwide. It seems to me to be more likely that the error is that Nationwide’s ACN was put on the s.32 statement rather than that it was erroneously signed by Mr Sent who was not a director of Nationwide.
I now turn to the argument based on the proposition that the contract of sale is a “terms contract”. The plaintiffs contend the contract obliges the purchaser to make two or more payments after execution and before being entitled to a transfer.
The contract of sale provides for a total price of $40,800,000. Of that sum $10,200,000 is described as the deposit and $30,600,000 is described as the residue. The deposit is said to be “payable on or before the day of 2000 of which the sum of $204,000 has been paid”. As a matter of fact, the sum of $204,000 had not been paid, but that payment does not relevantly count in any event by virtue of s.2(4).
The plaintiffs submitted that the contract of sale did not provide for payment of the deposit on or prior to execution, and that most of the deposit was in fact paid after execution. They submitted the purchasers were “clearly obliged to pay the deposit after the execution”. MGD submitted that reference could be had to the property information report which indicated in two places (page 5 and page 11) that the deposit would be payable at the time of signing of the contract.
I have already set out what in fact occurred in relation to payment of the deposit. Almost all of it was paid after 28 June 2000; some of it was paid well after 28 June 2000. My conclusion is that the contractual provision was deliberately left blank because it was known that the deposit would not be paid on the day the contract was signed. Thus, the parties determined not to fix any time for payment of the deposit. Where a contract does not expressly or by necessary implication fix any time for performance the law implies that it shall be a reasonable time.[70] Accordingly, the purchasers were obliged to pay the deposit within a reasonable time after execution of the contract. It is the first such payment. It is not excluded by s.2(4).
[70]K. Lewison, The Interpretation of Contracts, 2004, Sweet & Maxwell, at 6.13.
The residue of $30,600,000 is payable pursuant to special condition 11. Pursuant to special condition 14 the purchaser is not entitled to a transfer until the residue has been paid in full.
The final residue payment is the sum of $9,980,000 which is payable pursuant to special condition 11.2. The plaintiffs submitted that on the proper construction of special condition 11.2 it provided for two payments. I do not accept that. Provision is made in relation to the sources of the final payment, but in my view that provision does not transform that payment into two payments. As the purchasers are entitled to a transfer on making the payment under special condition 11.2 that payment does not count by virtue of s.2(4).
There is a prior payment which the purchasers are required to make before the entitlement to a transfer arises, however.
Pursuant to special condition 11.1 the purchasers are required to pay the sum of $20,620,000, being part of the residue, 30 days after practical completion of stage 1 or 14 days after notification of a specified level of pre-sales, whichever is the later. Again, the plaintiffs contended that on the proper construction of special condition 11.1 it provided for more than one payment. I reject that construction for the same reason as I rejected the plaintiffs’ construction of special condition 11.2. Special condition 11.1 does require one payment, however. It is a payment which the purchasers are obliged to make after execution and before they are entitled to a transfer. It is the second payment of that character which is provided for in the contract. As a consequence the contract is a terms contract as defined in the Sale of Land Act.
As the contract is a terms contract, s.32 required that the vendor’s statement include the information set out in schedule 2. The vendor’s statement here did not do so. There was accordingly a failure to supply all the information required.
The purchasers were entitled to rescind pursuant to s.32(5), but this entitlement is subject to a statutory qualification upon which MGD relies.
Pursuant to s.32(7) of the Sale of Land Act the purchaser is not entitled to rescind “if the court is satisfied that the vendor has acted honestly and reasonably and ought fairly to be excused for the contravention and that the purchaser is in substantially as good a position as if all the relevant provisions of this section had been complied with.”
In Fifty-Eighth Highwire Pty Ltd v Cohen & Anor[71] the Court of Appeal held that s.32(7) will avail a vendor if, but only if, the court is satisfied of four things. First, that the vendor has acted honestly. Secondly, that the vendor has acted reasonably. Thirdly, that the vendor ought fairly to be excused for the contravention. Fourthly, that the purchaser is substantially in as good a position as if all the relevant provisions of s.32 had been complied with. The Court must be affirmatively satisfied of each of these four elements.
[71][1996] 2 VR 64 (“Fifty-Eighth Highwire”).
I am satisfied that the purchasers here are in substantially as good a position as if all the relevant provisions of s.32 had been complied with. I am not satisfied that the vendor has acted honestly. I am not satisfied that the vendor has acted reasonably. I am not satisfied that the vendor ought fairly to be excused for the contravention. The vendor has contravened s.32 as a result of a decision made to leave the date for payment of the deposit blank. I do not find that MGD acted dishonestly, or unreasonably. My finding is that I am not affirmatively satisfied that it acted honestly, reasonably, and ought fairly to be excused. It is most unlikely that any court could feel affirmatively satisfied of those matters without hearing from Mr Sent and Ms Porter. MGD has failed to call evidence which satisfies the requirements of s.32(7).
I adopt the observations made obiter by Brooking, JA, in Fifty-Eighth Highwire, which received the qualified support of Charles and Callaway, JJA, that s.32(5) does not import a requirement that the relevant failure induced entry into the contract.[72]
[72][1996] 2 VR 64 at 71 and 77.
If I am wrong in my conclusion that MGD did sign and give the purchasers a s.32 statement, then that failure also entitled the purchasers to rescind pursuant to s.32(5), subject to the potential application of s.32(7).[73] If a contravention had been established in that respect I would not have found that MGD was entitled to relief under s.32(7). Assuming non-compliance by a failure to give a signed s.32 statement at all, I am satisfied that the purchasers are in substantially as good a position as they would have been if s.32 had been complied with. I am not satisfied on the evidence that the vendor acted honestly. I am not satisfied the vendor acted reasonably. I am not satisfied the vendor fairly ought to be excused for the contravention. The change from MGD to Nationwide is substantially unexplained. Again, it is most unlikely that any court could conclude the requirements of s.32(7) were satisfied without hearing from Mr Sent and Ms Porter.
[73]See Hollingsworth v Noakes (1992) V Conv R 54-446 at 65,222.
Other Issues
Managed Investment Scheme
The plaintiffs plead that the investment proposed in the property information report constituted a managed investment scheme within the meaning of s.9 of the Corporations Law (Vic). They also allege that the representations which they allege contravened s.52 of the Trade Practices Act, also contravened s.995 and s.999 of the Corporations Law.
Included amongst the documents in the Court Book (but not eventually tendered in evidence) were copies of Court documents in two Federal Court proceedings in which the Australian Securities and Investments Commission alleges against the plaintiffs and the defendants in this proceeding, other than Mr Sudholz, and against other entities that the Madden Grove arrangements constituted an unregistered managed investment scheme. The plaintiffs’ counsel told me that ASIC was aware of this proceeding, but as a result of concerns which I nevertheless raised, the plaintiffs communicated with ASIC and during the course of the trial a representative of ASIC attended the hearing. That representative indicated that ASIC was aware of the allegations made in this proceeding and did not wish to be heard. I was at one stage told that undertakings had been given in the Federal Court proceedings which concerned this proceeding, but I am not aware of the content of those undertakings.
In the course of final submissions I asked senior counsel for the plaintiffs what the claims under ss.995 and 999 of the Corporations Law added to the claims under s.52 of the Trade Practices Act. Senior counsel’s response included the following observations:[74]
“The tests we agree, are the same, be it 52, 82 and 87 and it would appear that the relief – I should say the test – the relief is the same or much the same as under 87, but we would ask Your Honour to actually deal with it in Your Honour’s judgment even though it appears to be 52, rather than saying well, I won’t go on to deal with the managed investment scheme provisions, it is an aspect of the case that is has been there firmly and has been agitated before, Your Honour all the way through. I am not asking you just to come to that conclusion just to fill out some pages, but there may be matters that arise out of it that we would like at some stage, if we need to, to have to defend elsewhere.”
[74]Transcript 2050 – 2051.
Counsel for the first and second defendants submitted that it was unnecessary to decide the issues under ss.995 and 999 of the Corporations Law as those claims would necessarily succeed or fail as a result of the conclusions reached in relation to the s.52 claims and, if they succeeded, the relief would be the same.
In my view it is neither necessary nor desirable for me to deal with these claims. It is not necessary because the claims add nothing to the claims made under s.52 of the Trade Practices Act. It is undesirable because there is a risk of inconsistent findings and because there are parties to the Federal Court proceedings who are not parties to these proceedings. The explanation senior counsel for the plaintiffs gave as to why I ought to determine the issues raised in this context appeared to be that that would or might assist the plaintiffs in defending the Federal Court proceedings. That seems to me to be an inappropriate course to follow.
Breach of Fiduciary Duty
The plaintiffs plead that each of MGD, Primelife, and Mr Sudholz owed them a “fiduciary duty of disclosure”. Whilst the pleading is not entirely clear in this respect, the breach of that duty, which the plaintiffs allege, seems to me to be the failure to reveal Mr Sudholz’s involvement in MGD. The untruth the plaintiffs were told in relation to that matter has already been dealt with in the context of the s.52 claims. MGD and Primelife proffered no real explanation for the untruth. Mr Sudholz proffered explanations which I have rejected.
In their final submissions the plaintiffs contended for the existence of a fiduciary duty on the basis that Primelife, MGD and Mr Sudholz were promoters of an investment opportunity with a consequent obligation of candour or a duty to “lay bare the essentials” of the proposal. In this context they relied upon Directors of Central Railway Company of Venezuela v Kisch[75] and Hill v Rose.[76] In this analysis the plaintiffs cast themselves in the role of “investors”. In my view the plaintiffs are miscast in that role. They are more akin to promoters themselves than they are to investors. In my view the position is to be analysed, not by reference to principles applicable to dealings between promoters and investors but by reference to the principles applicable to dealings between commercial parties acting in their own interests, as laid down in Hospital Products Limited v United States Surgical Corporation.[77]
[75](1867) LR 2 HL 99.
[76][1990] VR 129.
[77](1984) 156 CLR 41 (“Hospital Products”)
I do not consider that the plaintiffs have established a fiduciary relationship between themselves on the one hand and the defendants on the other, or any of them. The relevant officers of the plaintiffs are sophisticated commercial men. Both plaintiffs had solicitors acting for them in the transactions. In my view there is no sense in which the defendants, or any of them, undertook to act in the interests of the plaintiffs.[78] The arrangements between the parties were purely commercial and it seems to me that they were undertaken on an equal footing.[79] There was nothing inherent in the relationship between the parties whereby the plaintiffs were in a position of disadvantage or vulnerability in the relevant sense.[80]
[78]Hospital Products Limited v United States Surgical Corporation (1984) 156 CLR 41 at 68 – 72 per Gibbs, CJ.
[79]Hospital Products Limited v United States Surgical Corporation (1984) 156 CLR 41 at 70 per Gibbs, CJ and at 118 per Wilson, J.
[80]Hospital Products Limited v United States Surgical Corporation (1984) 156 CLR 41 at 141 – 142 per Dawson, J.
Counterclaims
It necessarily follows from the findings I have made and the conclusions I have reached that MGD’s counterclaims, and the various counterclaims of Primelife and Mr Sudholz, save for one, are dismissed.
The counterclaim of Primelife and Mr Sudholz which is not dismissed is a claim made arising out of the dispute concerning the issue of whether the deposit was paid in full or not.
Prompted by MGD’s pleading that $1,243,125 of the deposit (being $621,562.50 × 2) was unpaid, SSFS, by notices dated 12 November 2004 to each of Primelife and Mr Sudholz purported to act under deemed transfer provisions of the SSFS joint venture agreement so as to transfer their respective “joint venture shares” for the sum of $1. This course was taken on the assumption that there had been a failure by each of them to pay the $621,562.50 required. The plaintiffs counsel accepted that if I found that the deposit had been paid in full, as I have, then Mr Sudholz and Primelife were entitled to declarations, which each of them seek in different terms in their respective counterclaims, to the effect that the notices of 12 November 2004 were void and of no effect.
In due course I will make declarations to that effect. I will hear the parties on the appropriate form of those declarations and upon any consequential orders which are required.
Contribution Claims
Mr Sudholz made a claim for contribution against Primelife. In final submissions counsel for Mr Sudholz made it clear that contribution was only sought if Mr Sudholz was found liable as a consequence of breach of the alleged fiduciary duty of disclosure. As I have not found Mr Suzholz liable on that basis the claim for contribution does not arise.
Conclusions
The plaintiffs have succeeded in establishing liability on certain of their contract claims. They have established breaches of the contract of sale in that MGD failed to lodge the Application (as defined) and failed to exercise its best endeavours to procure a grant of the Planning Permit (as defined) because the permit it was pursuing was not what the contract provided for. They have established that their purported termination of the contract of sale in August 2004 was effective, but not on the grounds then given. I have found that the conduct in breach which they have established amounted to repudiation, and, in any event amounted to breaches of intermediate terms sufficiently serious to justify termination. The plaintiffs’ failure to give notice under condition 5 of Table A did not preclude their entitlement to terminate as the relevant conduct was repudiatory and as the breaches were, in the relevant sense, irremediable.
The plaintiffs have not established liability on the claims they have made that there were contraventions of s.52 of the Trade Practices Act 1974 (Cth), save for one such claim. Their claims have failed because some of the representations they allege were not made, because some which were made were not misleading, and because they have failed to establish reliance upon those which were misleading.
The misleading conduct claim upon which the plaintiffs have established liability is the claim based on the representation that the prospective vendor of the land was a wholly owned subsidiary of Primelife. This misleading conduct induced the plaintiffs to accept MGD as the sole contracting party without complaint. It deprived the plaintiffs of the opportunity to insist that the contract of sale accord with the property information report in this respect or to seek some other “different format” in response to the true position. Mr Sudholz is also liable for this contravention on the basis that he aided and abetted the contravention.
The plaintiffs have also established that the contract of sale was a terms contract within the meaning of the Sale of Land Act 1962 (Vic) and that they were entitled to rescind pursuant to s.32(5) of that Act. The evidence does not establish the disentitling requirements of s.32(7).
I have not decided the claims based upon the allegation that the investment was a managed investment scheme within the meaning of s.9 of the Corporations Law (Vic). It is unnecessary to decide those claims as they add nothing to the claims under s.52 of the Trade Practices Act. It is undesirable to do so as they raise issues which are also the subject of proceedings in the Federal Court to which entities not before me are parties.
The plaintiffs’ claims based upon breach of fiduciary duty fail as I have found no such duty arose.
The various counterclaims fail, save for the counterclaims seeking declarations concerning SSFS’s notices dated 12 November 2004. I have found that the deposit provided for by the contract of sale was paid in full. Primelife and Mr Sudholz are entitled to declarations to the effect that the notices of 12 November 2004 are of no effect.
Given other findings Mr Sudholz’s contribution claim does not arise.
I will hear the parties on the further disposition of the proceeding consequent upon these findings on the issues of liability.
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