Cobanov v Josifovski (No 2)
[2021] ACTSC 111
SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Case Title: | Cobanov v Josifovski (No 2) |
Citation: | [2021] ACTSC 111 |
Hearing Dates: | 21 October 2019 – 24 October 2019, 16 June 2020 |
Submissions Last Received: | 1 July 2020 |
DecisionDate: | 3 June 2021 |
Reasons Date: | 4 June 2021 |
Before: | Loukas-Karlsson J |
Decision: | See [853] |
Catchwords: | PARTNERSHIP – whether common intention of parties to form partnership – whether property ‘partnership property’ – whether express term illegal or unenforceable as against public policy – where express term is for avoidance of paying capital gains tax – whether owed fiduciary obligations – remedies for breach of fiduciary duties – account of profits – equitable compensation – restitution – resulting trust CONTRACT – standard form building contract – whether inclusions list incorporated – whether rectification damages warranted – where owner sold the property TORTS – NEGLIGENCE – standard of care |
Legislation Cited: | Building Act 2004 (ACT) ss 42, 48 Civil Law (Property) Act 2006 (ACT) ss 201, 204 Statute of Frauds (1677) (29 Car 2) |
Cases Cited: | Bellgrove v Eldridge (1954) 90 CLR 613 Birtchnell v Equity Trustees Executors and Agency Co Ltd [1929] HCA 24; 42 CLR 384 |
Parties: | John Ivo Cobanov (First Plaintiff) A-Shell Homes Pty Ltd (Second Plaintiff) Kiki Josifovski ( Defendant) |
Representation: | Counsel B Buckland ( First and Second Plaintiffs) C Cassimatis ( Defendant) |
| Solicitors O’Connor Harris & Co ( First and Second Plaintiffs) Meyer Vandenberg ( Defendant) | |
File Number: | SC 241 of 2018 |
CONTENTS
| Introduction | 5 |
| Issues for Determination | 6 |
| Evidence | 7 |
| Credit and Reliability | 7 |
| Plaintiffs’ Claim | 8 |
| Does the evidence support the conclusion that the first plaintiff and the defendant formed a partnership to develop and sell the property? | 8 |
| What were the terms of the partnership agreement? | 28 |
| Is the alleged partnership agreement illegal (in part or in whole) or unenforceable for public policy reasons? | 29 |
| If any term of the alleged partnership is illegal, is that term severable? | 35 |
| If the whole of the partnership is illegal, are the plaintiffs entitled to restitution for monies spent and payments not claimed? | 36 |
| Are the plaintiffs entitled to equitable compensation or an account of profits? | 36 |
| Did the defendant pay the second plaintiff $76,850 in cash on 1 July 2013 as part of payment towards the amount due under the HIA Contract? | 39 |
| Did the first plaintiff pay the $25,000? What was the purpose and legal effect of that payment? | 57 |
| Does the evidence support a conclusion that the defendant sought, and/or directed the alleged Additional Works? | 69 |
| Did the plaintiffs pay for the alleged Additional Works? Were they performed? Were they additional to requirements in the HIA Contract? | 69 |
| Are the plaintiffs entitled to restitution for the alleged Additional Works? | 89 |
| If the alleged partnership was not formed, are the plaintiffs, or either of them, entitled to restitution? If so, how much? | 90 |
| Conclusion on the Plaintiffs’ Claim | 90 |
| Defendant’s Counterclaim | 91 |
| Which version of the HIA Contract did the second plaintiff and the defendant enter? | 91 |
| Did the parties intend to incorporate the inclusions list and building plans in the HIA Contract? | 91 |
| Did the first plaintiff fail to adequately supervise the works undertaken by the second plaintiff? | 108 |
| Did the second plaintiff fail to complete the works? | 110 |
| Did the second plaintiff breach the HIA Contract, and his duty of care (breaches) by failing to build the house in a proper and skilful way, with proper material and with reasonable promptness? | 119 |
| If the second plaintiff committed part or all of the breaches, did those breaches cause the defendant to suffer the loss claimed? | 121 |
| Was the second plaintiff entitled to be paid for each of the progress payments? Does the defendant’s authorisation of payment of each of the progress payments affect the defendant’s right to claim those payments back? | 127 |
| Is the defendant entitled to compensation for losses caused by the breaches, in circumstances where he sold the property on or about 24 July 2019? | 130 |
| Conclusion on the Defendant’s Counterclaim | 138 |
| Application for Interim Injunction | 139 |
| Orders | 142 |
LOUKAS-KARLSSON J:
Introduction
This case concerned a dispute between three parties in respect of the construction of a residential property in the suburb of Casey (the property). John Ivo Cobanov (the first plaintiff) is the sole director, secretary, and shareholder of A-Shell Homes Pty Ltd (the second plaintiff). The plaintiffs claimed that the first plaintiff entered into a partnership with Kiki Josifovski (the defendant) to develop and sell the property. The plaintiffs also claimed that the second plaintiff performed works that were additional (the Additional Works) to the HIA ACT Residential Building Contract for New Dwellings (HIA Contract) that was entered into by the first plaintiff on behalf of the second plaintiff with the defendant.
The defendant denied any the existence of any partnership agreement and contended that the relationship between the parties was an ordinary arms-length builder/owner relationship. If there was a partnership between the first plaintiff and the defendant to develop and sell the property, the defendant contended the whole partnership was void for illegality or unenforceable due to public policy reasons as it involved an alleged scheme to avoid the payment of capital gains tax. The defendant further disputed any liability for the Additional Works claim.
The defendant also brought a counterclaim against the plaintiffs alleging that the second plaintiff breached the HIA Contract by failing to complete the contract requirements as to stages of the construction. The counterclaim also alleged that the second plaintiff failed to take reasonable care in undertaking the construction works which were the subject of the HIA Contract and that the negligence of the second plaintiff caused the defendant to suffer loss and damage.
Issues for Determination
In accordance with in chambers orders of the court made on 26 November 2019, the agreed issues for determination in this matter are as follows:
On the Amended Statement of Claim
1. Does the evidence support the conclusion that the first plaintiff and the defendant formed a partnership to develop and sell the property?
2. If the first plaintiff and the defendant formed the alleged partnership:
a. What were the terms of the partnership agreement?
b. Is the alleged partnership agreement illegal (in part or in whole) or unenforceable for public policy reasons?
c. If any term of the alleged partnership is illegal, is that term severable?
d. If the whole of the partnership is illegal, are the plaintiffs entitled to restitution for monies spent and payments not claimed?
e. Are the plaintiffs entitled to equitable compensation or an account of profits?
3. Did the defendant pay the second plaintiff $76,850 in cash on 1 July 2013 as part of payment towards the amount due under the HIA Contract?
4. Did the first plaintiff pay the $25,000? What was the purpose and legal effect of that payment?
5. Does the evidence support a conclusion that the defendant sought, and/or directed the alleged Additional Works as defined at paragraph 32 of the amended statement of claim?
6. Did the plaintiffs pay for the alleged Additional Works? Were they performed? Were they additional to the requirements in the HIA Contracts?
7. Are the plaintiffs entitled to restitution for the alleged Additional Works?
8. If the alleged partnership was not formed, are the plaintiffs, or either of them, entitled to restitution? If so, how much?
On the Counterclaim
9. Which version of the HIA Contract did the second plaintiff and the defendant enter? Mr Cobanov’s version at page 394 of Exhibit 1 or Mr Josifovski’s version with the inclusion list at page 420 of Exhibit 1?
10. Did the parties intend to incorporate the inclusions list and building plans in the HIA Contract?
11. Did the first plaintiff fail to adequately supervise the works undertaken by the second plaintiff (noting he was the sole director, employee and shareholder thereof)?
12. Did the second plaintiff fail to complete the works?
13. Did the second plaintiff breach the HIA Contract, and his duty of care (owed to the defendant) (Breaches) by failing to build the house in a proper and skilful way, with proper material and with reasonable promptness?
14. If the second plaintiff committed part or all of the Breaches, did those Breaches cause the defendant to suffer the loss claimed (including the amounts the defendant paid to contractors as set out at paragraph 63 of Mr Josifovski’s statement dated 25 February 2019)?
15. Was the second plaintiff entitled to be paid for each of the progress payments? Does the defendant’s authorisation of payment of each of the progress payments affect the defendant’s right to claim those payments back?
16. Is the defendant entitled to compensation for losses caused by the Breaches, in circumstances where he sold the property on or about 24 July 2019?
Evidence
Both the documentary evidence and oral evidence in this matter were extensive. It is important I note that all evidence that was received by the court has been taken into consideration, even where it is not explicitly referred to below.
Credit and Reliability
The plaintiffs contended that the court’s ultimate disposition of both the plaintiffs’ claim and the defendant’s counterclaim would involve an assessment of the versions of events given by the first plaintiff and the defendant. It was asserted that this was a credit case which would guide the courts determination as to which of the two versions was true and correct on the balance of probabilities.[1]
[1] T31.34-35.
The defendant asserted that while the credit of the first plaintiff and the defendant would inform the court’s inquiry, the case would not rise and fall on credit. The defendant noted that the defendant could be ‘guilty’ of each of the points the plaintiffs’ wished to make as to his credit, but it would have no ultimate bearing on whether the parties entered into the HIA Contract and whether the completed dwelling was defective.[2]
[2] T44.15-30.
It is abundantly clear from the authorities that the assessment of credit through demeanour has its limitations and that credibility may be more accurately tested by reference to objective facts, motive, and overall probabilities: see Fox v Percy [2003] HCA 22; 214 CLR 118 at [30]-[31], Ryan v Bunnings Group Limited [2020] ACTSC 353 at [21]-[30] (Ryan v Bunnings Group Limited), Craig v Silverbrook [2013] NSWSC 1687 at [140]-[142] (Craig v Silverbrook). This is the approach I have adopted in this case.
In Craig v Silverbrook, Sackar J made the following observations at [142]:
In the recent decision of McGraddie v McGraddie and Another [2013] UKSC 58; [2013] 1 WLR 2477, the UK Supreme Court emphasised that, especially in cases where a trial judge is faced with a stark choice between irreconcilable accounts, the credibility of the parties’ testimony, and the trial judge’s assessment of the character of witnesses and the manner in which the witnesses give evidence, is of primary importance. … Similar observations have been made in Australian authorities (Fox v Percy at [23]; Rosenburg v Percival [2001] HCA 18; 205 CLR 434 at [41] per McHugh J and see generally comments in Ritchie’s Uniform Civil Procedure NSW at SCA s 75A.20).
This case does not turn on demeanour. It turns on evidence.
In Director of Public Prosecutions (NSW) v Elskaf [2012] NSWSC 21, Garling J outlined at [60]-[61] the following considerations with respect to the assessment of a witness’ credibility and reliability:
It is necessary for a judicial officer to explain why he or she has found the evidence of a witness to be unacceptable. The possible bases for such a finding would include (but are not limited to):
(a) Contradictory evidence of the same events or incidents from another witness;
(b) Contradictory evidence from contemporaneous documents;
(c) Inconsistencies or contradictions within a witness’ own evidence;
(d) The demeanour of a witness, including the manner of giving evidence; and
(e) Evidence of conduct or behaviour which is inconsistent with mandatory practices of police officers, or else those practices which are regularly followed by police officers.
A party who has called evidence from a witness, which is relevant and apparently probative, and whose evidence is not accepted is entitled to know the basis of that non-acceptance, in order, at least, to be able to assess the prospect of a successful appeal.
In my view, the reliability of the first plaintiff’s evidence is significantly undermined by his unsatisfactory evidence that while he did sign the 1 July 2013 invoice for $76,850 as paid, he did not receive those funds. Additionally, the reliability of the first plaintiff’s evidence is undermined by his evidence that he was going to pay capital gains tax on his portion of the profit realised from the sale of the property, notwithstanding the tax avoidance term. Further in my view, the reliability of the defendant’s evidence is undermined by the unsatisfactory evidence concerning the inclusions list.
The unsatisfactory aspects of the evidence of both the first plaintiff and the defendant outlined above has cast something of a shadow over the evidence of both parties, respectively. Therefore where there is available reliable, corroborative evidence, I have relied upon it: Ryan v Bunnings Group Limited at [74]; Maric v The Nominal Defendant [2012] NSWDC 69 at [118]; Tuggeranong Town Centre Pty Limited v Brenda Hungerford Pty Limited (No 2) [2017] ACTSC 88 at [964]; Kelenik v Apostolidis & Ors [2009] VSC 208 at [595]; and Toyota Finance Australia Limited v AJI Enterprise Group Pty Ltd [2019] NSWSC 33 at [83]. In particular, I have relied upon on the corroborative evidence of Elle Cobanov, Snezana Josifovski and Ratko Josifovski.
Plaintiffs’ Claim
Does the evidence support the conclusion that the first plaintiff and the defendant formed a partnership to develop and sell the property?
Relevant Legal Principles – Partnership – Statute
‘Partnership’ is defined within s 6(1) of the Partnership Act 1963 (ACT) (Partnership Act) as the ‘relation between people carrying on a business in common with a view of profit’.
s 24 of the Partnership Act states the following:
1. …. All property, and rights and interests in property, originally brought into the stock of a firm or acquired, whether by purchase or otherwise, on account of a firm or for the purposes, and in the course of the business, of a firm are called in this Act partnership property.
2. Subject to subsection (3), the partnership property of a firm shall be held and applied by the partners in the firm exclusively for the purposes of the firm and in accordance with the partnership agreement.
3. A legal estate or interest in land, being an estate or interest that belongs to a firm, shall devolve according to the nature and tenure of, and the general rules of law applicable to, the estate or interest, but in trust so far as is necessary for the persons beneficially interested in the estate or interest under this section.
…
s 33(1) of the Partnership Act states the following:
A partner in a firm other than an incorporated limited partnership must give true accounts and full information about everything affecting the firm to another partner or another partner’s legal personal representatives.
s 39 of the Partnership Act states the following:
A partnership is dissolved by the happening of an event which makes it unlawful for the business of the firm to be carried on or for the members of the firm to carry on the business of the firm in partnership.
s 44(1) of the Partnership Act states the following:
After the dissolution of a partnership, the authority of each partner to bind the firm and the other rights and obligations of the partners continue, despite the dissolution, so far as necessary to wind up the affairs of the firm or to complete transactions started but unfinished at the time the partnership is dissolved, but not otherwise.
s 5(1) of the Partnership Act establishes that the rules of equity and common law applying to partnership continue in force except as far as they are inconsistent with the Act. That is to say that the PartnershipAct does not cover the field of all law governing partnerships.
Relevant Legal Principles – Partnership at Common Law
A partnership may be created through an express agreement or it may be an inference to be drawn from the dealings between the parties: Ferrie v Whitehead (1879) 5 VLR(L) 132. The partnership relationship is itself a contractual arrangement: Pooley v Driver (1876) 5 Ch D at 472.
The conduct and actions of the parties throughout their dealings will form the basis of any inference to be drawn as to whether there was a partnership agreement. Whether a partnership exists does not depend on the private intention of a party, instead their intentions will be ascertained from their actions: Montefiore v Smith (1876) 14 SCR (NSW) 245. Determination of the intention of the parties is a question of fact: Bryant Bros v Thiele [1923] SASR 393 at 401 and all facts and relevant circumstances of the interactions between the parties must be considered: Re Ruddock (1879) 5 VLR (IP & M) 51.
A single purpose joint venture is still capable of being a partnership if it is able to satisfy the indicia for a partnership, in that the enterprise has the object of gain or profit: Minter v Minter [2000] NSWSC 100 at [81]; United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1 at 15. The key factor is not ongoing continuity of carrying on a business but instead whether it is a commercial venture with a view to profit.
Although the ACT modern successor of the Statute of Frauds (1677) (29 Car 2), s 201(1) of the Civil Law (Property) Act 2006 (ACT) (Civil Law (Property) Act) establishes that an interest in land cannot be created except by writing, this requirement does not apply to a partnership that is formed for the purpose of acquiring land as opposed an acquisition of land itself: Comlin Holdings Pty Ltd v Metlej Developments Pty Ltd [2018] NSWSC 761 at [199] (Comlin Holdings).
In addressing whether such a partnership must be evidenced in writing, in Ford v Comber (1890) 16 VLR 540 at 552, Holroyd J stated:
When a partnership, or an agreement for partnership, for the purpose of buying and selling land exists, and afterwards in pursuance of the partnership agreement one of the members purchases land in his own name, the land becomes part of the stock-in-trade of the firm, although the agreement was never reduced to writing. The Statute of Frauds (I use the old term for convenience) is not violated, inasmuch as a resulting trust is created by operation of law…But the partnership agreement must exist first, and its existence must be proved as an independent fact.
In Sze Tu v Lowe [2014] NSWCA 462; 89 NSWLR 317 at [115]-[127], the Court of Appeal held that property acquired after the partnership is formed should not be referred to as property the subject of a resulting trust but instead to be understood as partnership property within the meaning given by the relevant Partnership Act. This view was approved in Comlin Holdings at [192].
In relation to the issue of whether a partnership was for an illegal purpose, illegality should be explicitly raised in the pleadings: Hill v Stewart (1887) 13 VLR 76 at 79. However, if the court discovers during the course of the proceedings that the purpose of the partnership is illegal, the court must refuse to grant the relief sought and dismiss the claim: Noble v Maddison (1912) 12 SR (NSW) 45.
Evidence
John Cobanov
The first plaintiff completed a witness statement dated 20 December 2018 (the first witness statement of the first plaintiff) that formed part of Exhibit 1.[3] At the hearing, counsel for the defendant objected to various parts of the first witness statement of the first plaintiff. I determined that the evidence was admissible, subject to weight. The question of weight being a matter for submissions from the parties prior to my determination of the case.[4]
[3] The first witness statement of the first plaintiff Tab 6 Exhibit 1.
[4] T42.39-46.
The first witness statement of the first plaintiff sets out a context for the dispute by asserting that the first plaintiff met the defendant’s brother, Goran Josifovski, in the mid-2000s. At some point Goran Josifovski introduced the first plaintiff to the defendant. On 1 December 2009, the first plaintiff entered into a contract for the building of an upstairs residential and downstairs commercial building located at 60 Phyllis Ashton Circuit Gungahlin (the Phyllis Ashton project). The property was owned jointly by Goran Josifovski and the defendant.
The first witness statement of the first plaintiff detailed an arrangement between the second plaintiff and CRD (No 1) Pty Ltd (CRD) where the second plaintiff had entered into a put and call option deed with CRD for 5 blocks of land in Casey.[5] The first plaintiff had not found a buyer for the land by 11 April 2011 for one of the blocks, being the subject property, and CRD exercised its put option.[6]
[5] The first witness statement of the first plaintiff Tab 6 Exhibit 1 [3].
[6] The first witness statement of the first plaintiff Tab 6 Exhibit 1 [4].
The first witness statement of the first plaintiff set out an exchange with Goran Josifovski after the prospective buyer did not proceed with the purchase of two of the Casey blocks. The first plaintiff asserted that Goran Josifovski stated that the defendant may be interested and the defendant subsequently called the first plaintiff and a meeting was arranged to take place in January 2013.
The first plaintiff said to the defendant words to the effect of “I have this block that I was due to settle on in November 2012. I need to find a buyer and Goran said you might be interested but he doesn’t think you can afford it”. The defendant replied with words to the effect of “that’s right”.
The first plaintiff broached the idea of jointly developing the block by building a display home. The first plaintiff then said words to the effect of “I’m old and used to building houses from the 80s. I need to do something to appeal to newer, younger buyers”. The defendant then said that he was undertaking a course in order to become qualified as a builder in the ACT. The first plaintiff and the defendant proceeded to discuss how the project would be ideal for the defendant to provide new and fresh design ideas, as well as offering the defendant the opportunity to develop experience under the first plaintiff’s builder’s licence.
The first plaintiff alleges that he and the defendant orally agreed that the first plaintiff would contribute the availability of the block, his licence and insurances, his resources, equipment, time, skill and experience as a builder all at cost. The defendant would contribute design ideas, time and sufficient finance to cover as much of the costs of the build that could not be covered by the first plaintiff at first instance. The first plaintiff asserted that he said to the defendant “the amount that I can cover I estimate will be about 20% of the total build cost, excluding the cost of the land”.
The first plaintiff stated that once built, the property would be sold. The first plaintiff and the defendant would be reimbursed for the expenses they had contributed and the profit would be shared.
The first plaintiff claimed that he and the defendant established that the next step was to engage an architect for the design and for the defendant to obtain finance approval. The parties orally agreed for the defendant to approach Robert Jukic from R Inventive Building Design, who was the tenant at the defendant and Goran Josifovski’s property located at Phyllis Ashton Circuit. The first plaintiff also asserted that the parties established that the defendant would approach Patrick Bouquiaux, a mortgage broker with Tiffen & Co. The first plaintiff asserted that both he and the defendant both knew Patrick Bouquiaux and had both used his services previously.[7]
[7] The first witness statement of the first plaintiff Tab 6 Exhibit 1 [11]-[19].
The first plaintiff completed a second witness statement on 18 April 2019 (the second witness statement of the first plaintiff) that also formed part of Exhibit 1.[8] At the hearing, counsel for the defendant again objected to various parts of the second witness statement of the first plaintiff. Again, I adopted the approach of receiving the evidence subject to weight as discussed above.
[8] Tab 14 Exhibit 1.
Under the heading ‘Kiki’s active involvement in the build’, the second witness statement of the first plaintiff annexed a series of email correspondence between the first plaintiff and the defendant.[9] An exchange that commenced on 5 September 2013 to 11 September 2013 was as follows:
[9] Tab 76 Exhibit 1.
First Plaintiff: kiki jarod bricklayer [mobile number] you will have to ring pgh bricks need 4000 facebricks 3000 commons on js Cobanov account.
Defendant: bricks ordered ok.
Defendant: Just spoke to Jared. He’s good for Wednesday this week. He will give me quantities for sand lime cement today. What’s the account name with lopilato so I can order? I’m ordering the bricks so they arrive by Wednesday. Can I call you over there if I need to ask you something?
Defendant: John why do we need facebricks when its all going to be rendered? Shouldn’t I just get 7000 super scratch commons? The only part not rendered is the stonewall feature at the front similar like your place in forest.
First Plaintiff: OK so 7000 scratch commons ordered. Will be here tommorow (sic). Jared to start Wednesday. Just need your account name for lopilato for the sand cement lime etc? Thanks john.
Defendant: Sand ordered with Lopilato. Where do you usually get your cement from John? Bricks coming today, brickies to start this week just need to finalise cement order. I will await your advice boss…
First Plaintiff: Herzog steel.
Defendant: Thanks. The brickies are setting up today, they will be pumping it through this week and weekend. Hopefully the rain holds off. When are you back?
On 27 April 2014, the defendant sent the first plaintiff the following email:
Defendant: John,
Contact details needed
Please provide contact details for the following: Marco phone number, Dazza phone number, Bricklayers name and phone number. Plumbers name and phone number (give me rasic and the younger boy). Tiler name and number. Guy for downpipes. Someone for glassbalustrading? (sic)
Account details
Please provide account details for the following: FAW. Magnet Mart. Flight stairs. Someone for glass balustrading? Timber guy gavin. Rivoland plus other any other tile place? Barnetts transport so I can follow up appliances deliveries. Concrete?. Lopilato bros
Invoices
How do we go about paying invoices? How do I access building funds while you are away? Aside from the items in the list, I will need to pay renderers, painters, supplies etc.
Ok, have a safe trip, enjoy a few aged whiskeys on the beach. I assume you will have your phone with you and email so please stay in touch. I will call you soon to go over the details.
Thanks
On 7 and 8 May 2014, the first plaintiff and the defendant exchanged the following email correspondence:
Defendant: Hi John,
Enjoying the holiday?
Marco
Marco has asked me to get you to organise materials for the wardrobes. Just standard plain white adjustable board is fine Can you please let me know where we need to get supplies from? He is calling me on a daily basis asking what he can do.
Treads
Also, I need Darren to get two treads or the stairs to the cellar. We could not find anything at your farm, can you please organise this or let me know where I can tell Daz to attain. Some with any other supplies he needs for the cellar.
Timber floors
I have a good floating floor substitute for a good price. European Oak in Charcoal. Its floating but it still looks the part. Works out to be 80-90sq fully finished. Just need Marco to install. I will get a quote/invoice to you in coming days. I asked Gavin too but he came in a nearly double that price for it. Need to have flooring completed in the next week or so.
Tiles
I went to see Ronnie but he hasn’t attained anything suitable yet. If you hear from him please let me know. I will go look for some alternative suppliers this weekend.
Door handles, etc
Where should I be getting these from, marco will need to do this at the same time he does the wardrobes etc
Please email me soon. Call me anytime on [number] or on viber.
Thanks
Kiki
First Plaintiff: Faw for timber and door handles ,steps come from binks in Mitchell but I don’t have account there about 50 dollars each ,tiles I was speaking to Dennis riivoland (sic) tiles queanbeyan for tiles he found something ask him ,timber floors go ahead I’m now on line Croatia bit hard to get things organized but all good see you 22 nd
Defendant: Ok thanks. What is the account called at FAW? For the timber floors, is my estimate correct, 195sqm?
Also can you please organise the plumber/ rasic (or give me their details) to make the downpipes square ones not round as discussed.
I think that’s all for now. Ill (sic) wait for your email.
Speak soon.
First Plaintiff: Faw [account name] timber floor was 70 metres sq
Further emails between the defendant and various subcontractors with the first and second plaintiffs at times carbon copied into the correspondence were also annexed to the second witness statement of the first plaintiff.[10] Many of the subcontractors themselves provided witness statements and will be referred to below.
[10] Tab 77 Exhibit 1.
At the hearing on 21 October 2019 the first plaintiff also gave oral evidence. In relation to the meeting that took place between the first plaintiff and the defendant in January 2013, the first plaintiff stated in examination in chief that his recollection of that conversation involved him telling the defendant he had the piece of land, that the defendant could have a look at it and together they could undertake a joint venture.[11]
[11] T66.36-43.
The first plaintiff gave evidence that at the meeting in January 2013, he and the defendant discussed the potential arrangement because they had to formulate a plan on how to execute it. The first plaintiff stated he said to the defendant they could do the project together and he could help the defendant get the project across the line.[12]
[12] T67.1-6.
A collection of printed emails was tendered through the first plaintiff and became Exhibit 3. The email exchange above at paragraphs [37]-[39] that formed part of Exhibit 1 was also part of Exhibit 3 however further emails were included in Exhibit 3. An email in Exhibit 3 from the defendant to an email address of the second plaintiff on 3 March 2014 stated the following:
Defendant: John
Two options for the bath: Harvey norman commercial: DECINA HNF1525 Fabrino Rect. Bath – 1525 x 765 x 400 mm WH WHT Ea $193.60 inc gst
Ostar: bath tub VB150N 1500mm $154 incl gst
Let me know which one you pick.
Thanks Kiki
A further email forming part of Exhibit 3 was sent from the defendant to the second plaintiff on 4 March 2014 in the same thread:
Defendant: John,
Please order this at the same time as the bath from ostar. This will save us a grand in the powder room.
WD480 Vanity $190+ gst
….
We will also need plugs and floor wastes – where can you get these from?
Thanks Kiki
During cross examination the first plaintiff confirmed that he did not take any steps to formally establish the partnership. The first plaintiff conceded he did not obtain a tax file number, an ABN, did not lodge any business activity statements nor income tax returns for the partnership.[13] The first plaintiff stated that it was not necessary to obtain a tax file number nor an ABN for the partnership and conceded he had no intention obtaining either form of documentation to be associated with the partnership.[14] The following exchange took place between counsel for the defendant, and the first plaintiff:
[13] T106.1-13.
[14] T123.16-20 & 42-45.
Counsel for the Defendant: You had no intention of getting an ABN, an Australian Business Number, did you?
First Plaintiff: No, but my business is separate to Kiki’s business. Whatever business Kiki has is his business, whatever I have is my business.[15]
[15] T123.19-21.
The first plaintiff confirmed that he had bought and sold various properties previously and was familiar with the process of what costs are incurred when a property is purchased.[16] The first plaintiff acknowledged that he did not pay stamp duty, conveyancing costs, council rates or water rates for the property.[17]
[16] T106.31-37.
[17] T107.1-7 & T106.39-47.
The first plaintiff was referred to a cheque butt for the $25,000 which said ‘land sale’, the cheque butt became part of Exhibit 2 in the proceedings. When queried why he had made a written record of that note but not of the alleged partnership agreement, the first plaintiff stated that he had undertaken a previous project with the defendant (the Phyllis Ashton project) and that he thought the defendant was of good character.[18]
[18] T135.5-7.
In re-examination the first plaintiff was again asked why he did not undertake steps to formally set up an Australian business number or complete a business activity statement. The first plaintiff answered that he did not feel it was necessary and that at the time he had indicated to the defendant that it was an opportunity for the defendant to project manage the job.[19]
[19] T178.43-45.
After been granted leave to reopen examination in chief,[20] the first plaintiff was also asked further questions about whether he had in fact recorded anything in writing establishing the partnership. The first plaintiff was referred to a document that had portions that were typed, as well as handwritten notes. The typed portion of the document read:
[20] T184.30-32.
I, John Cobanov of ASHELL HOMES PTY LTD, agree to the work plan as prescribed in the agreement and adhere to complete all works by ____
I understand that if I do not complete the full scope of work prescribed in the document to the client’s satisfaction then I may be financially penalised as per the client’s discretion.
Agreement to complete works within timeframe
Signed: _________________
Print Name: _________________
Date: _________________
Witness
Signed: _________________
Print Name: _________________
Date: _________________
The handwritten part of the document had the words ‘30 days from floor being delivered’ handwritten into the second line where the document specified when the work was to be completed by. Underneath the area for signatures, there was further handwriting that read:
As we discussed. All money to be returned to each partner. Your way or my way. Size now is 310m² + inclusions. – allowance can be made on tiles, bathroom kitchens, in $1200 no landscaping
The document was unsigned and undated. The first plaintiff gave evidence that it was his handwriting at the bottom of the page and that he would have written this on the document before his meeting with the defendant on 14 July 2014.[21]
[21] T185.21-27 & T186.16.
Counsel for the plaintiffs sought to tender the undated document and counsel for the defendant objected to its tender pursuant to s 135 of the Evidence Act 2011 (ACT) (Evidence Act).[22] Counsel for the defendant submitted the document was of no probative value and had the tendency to be misleading and confusing. It was also submitted that the document was inconsistent with the partnership as pleaded by the plaintiffs’ that claimed it was an oral agreement.[23]
[22] T186.32-36.
[23] T186.30-45.
When considering whether to grant leave to reopen the examination in chief, I observed that at best, the document appeared to be an undated note to self.[24] As to the objection to the tender of the document, I noted there was force in the submissions of counsel for the defendant but allowed the document to be tendered subject to weight. The undated document which purportedly set out a written partnership became Exhibit 8 in the proceedings.
[24] T184.14-15.
In cross examination as to Exhibit 8, the first plaintiff gave evidence that he intended to rely on both the oral agreement that was said to have originated before June 2014 and the written agreement in July 2014.[25]
Elle Cobanov
[25] T188.1-11.
Elle Cobanov is the daughter of the first plaintiff. Elle Cobanov provided a witness statement dated 18 April 2019 that formed part of Exhibit 1.[26] In her witness statement, Elle Cobanov asserted that in early 2013 the first plaintiff had told her about an arrangement he had made with the defendant to jointly develop a property on one of the CRD blocks that the second plaintiff had bought on speculation of subsequently finding an owner to buy and build on it.[27]
[26] Elle Cobanov statement Tab 13 Exhibit 1.
[27] Elle Cobanov statement Tab 13 Exhibit 1 [12].
The witness statement of Elle Cobanov also stated that the first plaintiff had told her that the arrangement was a partnership whereby the first plaintiff would provide his accounts with suppliers, trade discounts, builder’s licence and expertise, as well as some finance. The defendant would also contribute finance. Upon completion, the property would be sold, the proceeds would be used to pay the first plaintiff and the defendant’s respective contributions and then the profits would be split.[28]
[28] Elle Cobanov statement Tab 13 Exhibit 1 [13].
Elle Cobanov gave oral evidence at the hearing on 22 October 2019. The portions of her witness statement extracted in the preceding two paragraphs were initially objected to by counsel for the defendant. However, counsel for the defendant subsequently was not heard against the portions of the material being admitted into evidence subject to weight.[29] The oral evidence of Elle Cobanov did not add further to the issue of whether there was a partnership.
Juha Lehtonen
[29] T142.37.
Juha Lehtonen provided a witness statement dated 14 December 2018 that formed part of Exhibit 1. Juha Lehtonen is a carpenter and is self-employed. Juha Lehtonen met the first plaintiff in 2009 and subcontracted to him on multiple building jobs for residential dwellings thereafter. Juha Lehtonen had also previously met the defendant and Goran Josifovski.[30]
[30] Juha Lehtonen statement Tab 3 Exhibit 1 [3]-[5], [11].
Juha Lehtonen stated that he had first learnt about the ‘Casey job’ when the first plaintiff asked him to cut frames for the property. In his witness statement, Juha Lehtonen stated that from the ‘get go’ he was told that the property was ‘a speci home’, that is a show home being built on speculation of finding a buyer.[31] Juha Lehtonen had initially presumed that the first plaintiff, the defendant and Goran Josifovski were building the property in a partnership. However, the first plaintiff told him that “this one is just me and Kiki. Kiki is arranging the finances and I am doing the building. Happy days”.[32]
[31] Juha Lehtonen statement Tab 3 Exhibit 1 [9].
[32] Juha Lehtonen statement Tab 3 Exhibit 1 [12].
Early in the build, Juha Lehtonen queried with the first plaintiff why single glaze windows were being used for the property when his understanding was that double glaze was to be used, unless the owner wanted to maximise profit. The first plaintiff responded that “this isn’t anyone’s house. We’re building this together and then selling it off”.[33]
[33] Juha Lehtonen statement Tab 3 Exhibit 1 [10].
In his witness statement, Juha Lehtonen noted that the defendant became increasingly concerned with specifications of the house. Juha Lehtonen stated that he began to think that the property was going to be the defendant’s home, rather than being sold off.[34]
[34] Juha Lehtonen statement Tab 3 Exhibit 1 [15].
Juha Lehtonen did not give any oral evidence at the hearing nor was he cross-examined on his statement. Counsel for the defendant objected to the tender of the entire statement on the basis of relevance.[35] I allowed the tender of the statement subject again to weight.[36]
John Rasic
[35] T158.3-4.
[36] T161.8-10.
Vlatko ‘John’ Rasic completed a witness statement on 21 December 2018 that formed part of Exhibit 1.[37] John Rasic is in the business of earthworks, plumbing and drainage services. He met the first plaintiff over twenty years ago as a builder and would undertake plumbing and drainage of approximately five to ten houses a year for the first plaintiff. John Rasic also knew the defendant’s father, Ratko Josifovski as well as the defendant’s brother, Goran Josifovski from having previously undertaken works for them.[38]
[37] John Rasic statement Tab 7 Exhibit 1.
[38] John Rasic statement Tab 7 Exhibit 1 [4]-[5], [7]-8].
John Rasic stated that he received plans from the first plaintiff for the development of the property and he then provided the first plaintiff with a quote for his services. John Rasic claimed that the first plaintiff called him and the following conversation took place:
First Plaintiff: I am doing this project as a joint venture with Kiki.
John Rasic: Are you going to make money on this land or are you just feeling the market out?
First Plaintiff: It should be right as long as we don’t blow out on the finishes.[39]
[39] John Rasic statement Tab 7 Exhibit 1 [10]-[11].
John Rasic reported that at the beginning of the project, the first plaintiff was always present and the defendant would always come along to give his input. As the project developed, more instructions were being provided by the defendant. John Rasic stated that usual practice was that owners would not direct trades but that this was a different arrangement.[40]
[40] John Rasic statement Tab 7 Exhibit 1 [12].
In his witness statement, John Rasic stated that due to customisation, the schedule of finishes increased and the defendant would become increasingly irritated. John Rasic opined that it became obvious the property was not going to market.[41]
[41] John Rasic statement Tab 7 Exhibit 1 [13].
John Rasic gave evidence at the hearing on 23 October 2019, to the extent that he partook in examination in chief to adopt his statement and for his witness statement to be formally tendered as part of Exhibit 1. Counsel for the defendant objected to the entirety of the statement being admitted on the basis that it possessed no probative value.[42] The statement was admitted again subject to weight.[43]
Scott Dickason
[42] T190.40.
[43] T191.1-2.
Scott Dickason completed a witness statement dated 18 December 2018 that formed part of Exhibit 1.[44] At the time his witness statement was deposed, Scott Dickason had been a licenced electrician for twenty-one years and a sole trader for nine years. His work was predominantly the supply and provision of electrical materials and services by subcontract to builders on residential houses or units.[45]
[44] Scott Dickason statement Tab 4 Exhibit 1.
[45] Scott Dickason statement Tab 4 Exhibit 1 [2].
Scott Dickason had employed Andrew Desmond as a qualified electrician since 2010. The first plaintiff and Scott Dickason met in the mid-2000s through family friends and the first plaintiff became one of the first builders Scott Dickason contracted to. Thereafter Scott Dickason performed fairly consistent work for the first plaintiff as a subcontractor on projects building residential houses or units.[46] Scott Dickason was previously aware of the second plaintiff, being one of the companies that the first plaintiff represented and as an entity that was the contractor for different projects.[47]
[46] Scott Dickason statement Tab 4 Exhibit 1 [5].
[47] Scott Dickason statement Tab 4 Exhibit 1 [6]-[7].
Scott Dickason stated that at some point in 2013, the first plaintiff sent him plans for a residential build in Casey, being the property. The first plaintiff asked for a quote for electrical work and wiring, which Scott Dickason delegated to Andrew Desmond who then provide the first plaintiff with the quote.[48]
[48] Scott Dickason statement Tab 4 Exhibit 1 [12].
The first plaintiff then called Scott Dickason approximately six months later to ask whether the electrical works could be commenced. The following conversation took place:
First Plaintiff: Do you remember Kiki Josifovski and his brother Goran when we did their place in Gungahlin?
Scott Dickason: [words to the effect of ‘yes’]
First Plaintiff: Kiki and I are partners on this job. Kiki has fresh ideas and designs to make it more suitable to people like Kiki. We’re doing this together like I did with G.[49]
[49] Scott Dickason statement Tab 4 Exhibit 1 [13].
In his witness statement, Scott Dickason states that he knows the person referred to as ‘G’ to be his accountant Gerardo D’Ambrosio. Scott Dickason stated that prior the property being developed, Gerardo D’Ambrosio had said to him words to the effect of “I am investing in a place with John. John has a block of land in Casey that he needs to sell or build on. He is going to provide the material and labour and I am going to finance it. When it’s built, we’ll see it and split the profits after paying back our respective expenses”. Scott Dickason understood that when the first plaintiff said “like I did with G” to be the same arrangement that Gerardo D’Ambrosio had told him of but with the defendant.[50]
[50] Scott Dickason statement Tab 4 Exhibit 1 [14], [16]-[17].
During the development of the property, Scott Dickason stated he and Andrew Desmond had commenced the wiring when the defendant began to come to the site and ask for variation to the works. Upon checking with the first plaintiff, Scott Dickason stated that the first plaintiff said “go ahead and do it” and eventually words to the effect of “do whatever Kiki wants”.[51] Scott Dickason noted that in his experience, it was very unusual to accept modifications directly from a client without liaising with the builder.[52]
[51] Scott Dickason statement Tab 4 Exhibit 1 [18].
[52] Scott Dickason statement Tab 4 Exhibit 1 [21].
Scott Dickason gave evidence at the hearing on 23 October 2019, again only to the extent that his examination in chief involved him confirming the accuracy of his statement and for his statement to be tendered as part of Exhibit 1.[53] Scott Dickason was not cross-examined. Counsel for the defendant again maintained an objection to the entirety of the statement being admitted.[54] I allowed the statement to be tendered, again subject to weight.[55]
Andrew Desmond
[53] T195.1-27.
[54] T195.42-44.
[55] T195.46-47 & T196.1-2.
Andrew ‘Drew’ Desmond completed a witness statement dated 19 December 2018 which formed part of Exhibit 1.[56] As referenced above, Andrew Desmond had worked for Scott Dickason since 2010 as a qualified electrician. Andrew Desmond knew the first plaintiff as a builder who had utilised Scott Dickason’s services frequently over the years.[57]
[56] Tab 5 Exhibit 1.
[57] Andrew Desmond statement Tab 5 Exhibit 1 [1], [3].
Andrew Desmond confirmed that Scott Dickason had provided him with the set of plans for the property and completed the quote for the first plaintiff. Approximately six months later, Andrew Desmond and Scott Dickason attended the property to commence wiring. In his statement, Andrew Desmond stated that he was introduced to the defendant by Scott Dickason and at the time of introduction Scott Dickason said “Kiki is doing this with John”.[58]
[58] Andrew Desmond statement Tab 5 Exhibit 1 [4]-[5].
In his witness statement, Andrew Desmond states that it became clear to him that the defendant was not an ‘ordinary owner’ as the defendant was requesting additional variations beyond the scope of the initial quote. Andrew Desmond understood from early in the project that he was permitted to take instructions from the defendant in relation to variations.[59] The first plaintiff also said to Andrew Desmond on a couple of occasions that the defendant was his partner.[60]
[59] Andrew Desmond statement Tab 5 Exhibit 1 [7].
[60] Andrew Desmond statement Tab 5 Exhibit 1 [5]-[6].
Andrew Desmond stated that as the job progressed, the defendant was increasingly present at the site and by the fixing stage, was there at least half of the time. In relation to variations to the original quote, the defendant would liaise directly with Andrew Desmond often verbally or at times via email.[61]
[61] Andrew Desmond statement Tab 5 Exhibit 1 [9]-[11].
Andrew Desmond gave oral evidence at the hearing on 23 October 2019. His examination in chief was brief in that it consisted only of adopting his statement so that it could be tendered as part of Exhibit 1 and to confirm his email address on a set of correspondence that had been tendered through the first plaintiff in relation to the defendant’s active involvement in the build.[62] Andrew Desmond was not cross examined although counsel for the defendant maintained an objection to the tender of Andrew Desmond’s statement on the basis of relevance. Counsel for the defendant noted that the objection was not laboured to the extent that I would allow the tender of evidence subject to weight.[63] I determined that the statement would again be admitted subject to weight.[64]
Kiki Josifovski
[62] T193.24-25.
[63] T194.16-17.
[64] T194.19-21.
The defendant completed his first witness statement (the first witness statement of the defendant) on 25 February 2018. The first witness statement of the defendant also became part of Exhibit 1.[65] The defendant denied the allegation that he had entered into a partnership with the first plaintiff to develop the property and further stated he had no desire to enter a partnership with the first plaintiff.[66]
[65] Tab 8 Exhibit 1.
[66] The first witness statement of the defendant Tab 8 Exhibit 1 [6].
The defendant claimed that he had commenced looking for a block of land to build a family home on where he and his fiancé would live. In the defendant’s first witness statement, the defendant claimed his brother Goran Josifovski had suggested that the defendant ought to consider a parcel of land for sale in Casey.[67]
[67] The first witness statement of the defendant Tab 8 Exhibit 1 [7]-[8].
The defendant further denied that he had agreed with the first plaintiff to use the services of Patrick Bouquiaux to obtain finance to develop the property. Instead, the defendant claimed that he sought the services of Patrick Bouquiaux as he had previously acted as the mortgage broker for the defendant.[68]
[68] The first witness statement of the defendant Tab 8 Exhibit 1 [12].
In the defendant’s first witness statement, the defendant agreed that the first plaintiff had recently finished building a property that the defendant and Goran Josifovski owned in Gungahlin, being the Phyllis Ashton project. The defendant stated that he spoken to the first plaintiff before purchasing the property to seek advice on construction costs.
Prior to purchasing the property, the defendant also claimed he spoke to the architect Robert Jukic to obtain advice about what dwelling could be built on the property.[69] The defendant denied that he and the first plaintiff had agreed to utilise the services of Robert Jukic. Instead, the defendant stated that he chose Robert Jukic as he was a family friend of the defendant and he had previously engaged the services of Robert Jukic.[70]
[69] The first witness statement of the defendant Tab 8 Exhibit 1 [3].
[70] The first witness statement of the defendant Tab 8 Exhibit 1 [16].
After receiving sketches of what a dwelling on the property could look like, the defendant sought a costing estimate to build the house in the sketch from the first plaintiff. The defendant recalled that the first plaintiff said words to the effect of “I could probably get it up for about $350,000”.[71]
[71] The first witness statement of the defendant Tab 8 Exhibit 1 [17].
In either late April or early May 2013, the defendant and his fiancé had decided to purchase the property and engaged Aussie Conveyancing to act as solicitors on the purchase.[72] Approximately at the same time, the defendant engaged Robert Jukic to prepare proper plans. The plans dated 4 June 2013 were provided to the defendant in early June 2013.[73]
[72] The first witness statement of the defendant Tab 8 Exhibit 1 [18].
[73] The first witness statement of the defendant Tab 8 Exhibit 1 [19].
Shortly after receiving the plans, the defendant provided them to the first plaintiff for an update on costing, an inclusions list and a timeframe for the build.[74]
[74] The first witness statement of the defendant Tab 8 Exhibit 1 [21].
Around 12 June 2013, the defendant met with Patrick Bouquiaux and the first plaintiff at Tiffen & Co’s office in Kingston to execute the HIA Contract. The defendant claimed that one copy of the HIA Contract was executed and Patrick Bouquiaux made two copies, one for the defendant and one for the first plaintiff. The original was to be provided to Westpac Bank to obtain finance.[75]
[75] The first witness statement of the defendant Tab 8 Exhibit 1 [26].
Patrick Bouquiaux had verbally advised the defendant that he had unconditional loan approval and then confirmed this in a letter dated 1 July 2013. The letter stated that the defendant had approval for an interest-only (for 15 years) loan with a term of 30 years, for the sum of $555,870.[76]
[76] The first witness statement of the defendant Tab 8 Exhibit 1 [30], [39].
On 2 July 2013, the defendant exchanged a contract to purchase the property from CRD for a sum of $277,500. The purchase was funded by the defendant entirely from his own monies and monies he had personally borrowed from Westpac Bank.[77]
[77] The first witness statement of the defendant Tab 8 Exhibit 1 [40].
On 17 July 2013, the defendant’s solicitors advised him that $7,267.50 was payable to the ACT Revenue Office for stamp duty on the property. The defendant provided a bank cheque from Commonwealth Bank for that amount.[78]
[78] The first witness statement of the defendant Tab 8 Exhibit 1 [56].
On 22 July 2013, the defendant’s conveyancer received an email from CRD that stated that the first plaintiff or the defendant needed to pay interest of $4,158.22 in addition to the remainder of the purchase price or CRD would not settle on the property. The defendant asserted he had not been aware of any pre-existing relationship or deal between CRD and the first plaintiff.
On 26 July 2013, settlement of the purchase of the property occurred. The defendant was not required to pay interest.[79]
[79] The first witness statement of the defendant Tab 8 Exhibit 1 [59].
In the defendant’s first written statement, the defendant denied that he had ever entered into a partnership in relation to the property with the first plaintiff nor any of the entities controlled by the first plaintiff. The defendant claimed he was first put on notice of an alleged partnership when he received a letter from the first plaintiff’s solicitor on 14 November 2017.[80]
[80] The first witness statement of the defendant Tab 8 Exhibit 1 [60]-[61].
The defendant denied that the first plaintiff or the second plaintiff ever made any financial contribution to the construction of the dwelling on the property.[81]
[81] The first witness statement of the defendant Tab 8 Exhibit 1 [62].
The defendant also denied that he was actively involved in the build. The defendant claimed he only received emails in respect of site plans due to the first plaintiff being overseas and wanting to avoid any delays resulting from that travel.[82]
[82] The first witness statement of the defendant Tab 8 Exhibit 1 [70].
In relation to elective variations to the plans, the defendant denied that he had instructed Robert Jukic to amend the plans to accommodate these variations. The defendant stated that variations were required as ‘work arounds’ due to errors in the construction.[83] The defendant insisted that the plans required amending because the second plaintiff failed to construct the dwelling in accordance with the approved plans.[84]
[83] The first witness statement of the defendant Tab 8 Exhibit 1 [74].
[84] The first witness statement of the defendant Tab 8 Exhibit 1 [81].
As to why the defendant began to pay trades directly, the defendant stated that this was due to the first plaintiff being overseas, frequently away or uncontactable. To continue the progress of the build, the defendant paid the subcontractors directly.[85]
[85] The first witness statement of the defendant Tab 8 Exhibit 1 [92], [94].
The defendant admitted that he was regularly onsite to check the progress of the development throughout October and November 2014. The defendant stated that while onsite, various subcontractors would make complaints to him that the second plaintiff had not paid them. The defendant claimed that he paid many of the subcontractors directly out of desperation and in an effort to complete the development.[86]
[86] The first witness statement of the defendant Tab 8 Exhibit 1 [99].
The defendant admitted that he had sourced material directly from suppliers using the first plaintiff’s trade accounts, engaged directly with tradesmen regarding the sourcing and specification of materials, provided direction to tradesmen and researched options for different fittings and fixtures and placed orders using the first plaintiff’s trade accounts or credentials. The defendant claimed this was undertaken in the normal course of an owner specifying inclusions for his home. In relation to the use of the first plaintiff’s trade accounts, the defendant stated he only used said accounts when the first plaintiff asked him to.[87]
[87] The first witness statement of the defendant Tab 8 Exhibit 1 [110].
The defendant addressed the statement of Juha Lehtonen in the defendant’s first witness statement. The defendant denied knowing Juha Lehtonen as well as denying the conversations that were claimed to have taken place involving the defendant in Juha Lehtonen’s witness statement.[88]
[88] The first witness statement of the defendant Tab 8 Exhibit 1 [172].
The defendant addressed the allegations contained within the statement of John Rasic. The defendant denied that he was providing instructions for variations.[89]
[89] The first witness statement of the defendant Tab 8 Exhibit 1 [173].
In relation to the statement of Scott Dickason, the defendant also denied that he directed Scott Dickason to undertake variations.[90]
[90] The first witness statement of the defendant Tab 8 Exhibit 1 [171].
The defendant again denied the allegations as set out in the statement of Andrew Desmond, specifically that he ever directed any variations.
The defendant also completed a second witness statement (the second witness statement of the defendant) dated 5 June 2019 that formed part of Exhibit 1.[91] In the second witness statement of the defendant, the defendant denied the partnership with the first plaintiff as set out in the witness statement of Elle Cobanov.[92]
[91] Tab 15 Exhibit 1.
[92] The second witness statement of the defendant Tab 15 Exhibit 1 [16].
The defendant gave evidence at the hearing on 23 October 2019 and 24 October 2019. Both of the defendant’s witness statements were tendered as part of Exhibit 1. Counsel for the plaintiffs raised objections in relation to the admissibility of portions of the defendant’s first and second witness statements. I allowed the statements to be tendered subject to weight.[93]
[93] T205.42-43.
The defendant was cross examined by counsel for the plaintiffs on his intention to look for a parcel on land to build a family home on in 2013.[94] The defendant stated that he saw block 1 of 104 in Casey was for sale and that the whole estate had been advertised. The defendant claimed there had been a sales office and agents working in the sales office. When it was put to him that the block was not available for sale because it was still under contract with the first plaintiff and CRD, the defendant stated he did not know whether that was the case.[95]
[94] T258.5-6.
[95] T258.18-38.
The defendant gave evidence that his intention was to live with his family at the property after it was built and that had been his intention when purchasing the property.[96] It was put to the defendant that his intention was instead to build an investment property, as recorded by Patrick Bouquiaux. The defendant denied that he was going to build an investment property.[97]
[96] T258.43-47.
[97] T260.1-3 & 16-20.
The defendant was referred to his Loan Application documentation for the Westpac Bank loan that became Exhibit 13 in the proceedings. There were references in the Loan Application to whether the property was going to be rented out. Under the question “will you rent out this property?” a box was ticked next to the word “yes” and in the box asking for the rental amount per month to be specified, $3,983 was written. It was put to the defendant that he clearly intended to rent out the property, given that he obtained a rental appraisal for the property. The defendant denied this and said the rental appraisal amount was included because Patrick Bouquiaux would have thought it would assist in helping to obtain interest only finance.[98]
[98] T262.5-7.
It was put to the defendant that the Westpac Loan Application contained various references that the property was to be an investment property because that was indeed the loan purpose. The defendant denied this was the purpose of the loan.[99] The defendant was queried on why he was content to tell Westpac the loan was for an investment property compared to a live-in home.[100] The defendant responded that he had faith in his mortgage broker to obtain an interest only loan.[101]
[99] T264.36-37.
[100] T265.27-45.
[101] T266.3.
The defendant was referred to a previous project involving himself, the first plaintiff and Alfonso Campa for a property in Crace (the Campa project). The defendant gave evidence that Alfonso Campa asked the defendant if he knew a builder and the defendant confirmed he did, being the first plaintiff.[102] The defendant was referred to an email that had originated from an email address belonging to the defendant on 25 April 2013. The email was addressed to an email address of the second plaintiff and stated the following:
[102] T280.11-13.
John,
As discussed here are the final plans for crace. Call me when you review these so we can figure out how to go about it. I have done the numbers and it looks good.
Also when you can, get me the quote for the demountable. Remember to change the specs slightly.
Talk soon
Attached to the email was a PDF document titled ‘133 Samaria residence’. It was put to the defendant that the Campa project was another project that the defendant was undertaking with the first plaintiff. The defendant denied this characterisation of the Campa project and instead claimed he was just acting as an introducer. When queried why he had ‘done the numbers’ if he was just an introducer, the defendant stated he did not know what that line was in reference to and could not recall the email itself.[103] The email became Exhibit 16 in the proceedings.
Consideration
[103] T281.14-37.
The plaintiffs submitted that the court should find that the defendant found out about the sale of the subject land as a result of conversations with the first plaintiff, rather than the version proffered by the defendant under cross examination. It was the conversation with the first plaintiff that was the genesis of the alleged partnership.[104] On the evidence, I am not persuaded on the balance of probabilities of the plaintiffs’ version of events concerning the initial conversation in relation to the alleged partnership. I am not persuaded that this was the beginning of a partnership.
[104] Plaintiffs’ submissions in chief 4 December 2019 [15].
The plaintiffs submitted that from this conversation, it was the common intention of the parties to develop the property for their mutual profit. The first plaintiff would contribute, or cause to be contributed through the second plaintiff: the subject property; building licence and insurances; trade and supplier contacts and accounts; equipment, time and skill and experience as a builder, while the defendant would provide finance, as well as design ideas and time in running the build. The first plaintiff would also contribute 20 per cent of the build cost and 10 per cent of the land cost, the former in kind and the latter in cash. The goal of the partnership was mutual profit. The plaintiffs alleged that the evasion of tax was not the purpose of the transaction.[105] Again, I am not persuaded that it was the common intention of the parties to develop the property for their mutual profit.
[105] Plaintiffs’ submissions in chief 4 December 2019 [16].
The plaintiffs emphasised that the first plaintiff arranged for the second plaintiff’s contract with CRD for the subject property to be rescinded and for a fresh contact with CRD to be issued with the defendant as the purchaser. The plaintiffs submitted that the defendant did not offer a reasonable explanation of how this arrangement took place yet maintained the assertion that the dealings between the parties were always an arm’s length transaction.[106] This aspect of the evidence does not, in my view, detract from my finding that on the balance of probabilities I am not persuaded there was a partnership. Nor am I persuaded entirely of the defendant’s version of the events. Nevertheless, the plaintiffs bear the onus on the balance of probabilities of establishing the partnership and in my view, the plaintiffs have not done so to the requisite standard.
[106] Plaintiffs’ submissions in chief 4 December 2019 [18].
The plaintiffs also relied on the Campa project to inform the inquiry as to whether there was a partnership. The Campa project was also another proposal on foot between the parties and Alfonso Campa and it provided context to the intention of the parties to develop the subject property as a partnership rather than a standard arm’s length owner/ builder relationship. The plaintiffs drew upon Exhibit 16 which was an email from the defendant to the first plaintiff in relation to the Campa project in which the defendant writes “I have done the numbers and it looks good”.[107] In my view, Exhibit 16 does not necessarily support the first plaintiff’s partnership contention.
[107] Plaintiffs’ submissions in chief 4 December 2019 [19]-[20].
The references to renting out the property in the loan application documents and the anticipated rental return were also relied upon by the plaintiffs to counteract the evidence of the defendant that the property was only ever going to be his marital home and that was the purpose of it being built. The plaintiffs submitted that the court would more readily accept what is recorded in the contemporaneous material about the purpose of the loan and would reject the version proffered by the defendant.[108] Again, in my view this is not determinative, nor does it necessarily lend support to the first plaintiff’s version of events.
[108] Plaintiffs’ submissions in chief 4 December 2019 [27]-[29].
The plaintiffs relied on the defendant not calling Patrick Bouquiaux as grounds for the court drawing a Jones v Dunkel (1959) 101 CLR 298 (Jones v Dunkel) inference. That is, that the unexplained failure of the defendant to call Patrick Bouquiaux may lead to an inference that the evidence of that witness would not have assisted the defendant’s case: see Jones v Dunkel at [5].[109]
[109] Plaintiffs’ submissions in chief 4 December 2019 [28].
The plaintiffs’ highlighted that the evidence of Patrick Bouquiaux could have provided evidence as to why he had written that the purpose of the loan was for an investment property, why a rental appraisal was obtained and why the weekly rental amount was written into the loan documentation. The defendant’s position was that these actions undertaken by Patrick Bouquiaux were apparently contrary to the defendant’s intention, that is that he was building a family home to live in with his fiancé. The plaintiffs submitted that where the defendant denies aspects of the claim by asserting a positive state of affairs, it is not for the plaintiffs to make good the defence case. The plaintiffs commended the alternative inference that the defendant did not call Patrick Bouquiaux as his evidence would have undermined the versions of events propounded by the defendant.[110] I take this into account. Nevertheless, the drawing or otherwise of the inference does not assist to any significant degree on the partnership issue.
[110] Plaintiffs’ submissions in chief 4 December 2019 [66]-[68].
At the further hearing for submissions on 16 June 2020, counsel for the plaintiffs again referred to the loan documentation completed by Patrick Bouquiaux and noted that it was not a ‘just a tick-a-box investment property’.[111]
[111] T384.5.
The plaintiffs also drew upon the defendant’s active role in the management of the build to demonstrate the alleged partnership. The plaintiffs referred to the chains of email correspondence, where the defendant engaged directly with suppliers and subcontractors, to demonstrate that the degree and type of involvement in the building of the property of the defendant could only be explicable if the defendant was acting as a partner and not as an ordinary homeowner.[112] At the further hearing, counsel for the plaintiffs submitted that the correspondence during the course of the build showed a level of participation and care which is only consistent with the actions of a partnership.[113]
[112] Plaintiffs’ submissions in chief 4 December 2019 [15].
[113] T389.31-33.
The evidence of Juha Lehtonen, John Rasic, Scott Dickason and Andrew Desmond was relied upon to demonstrate that the defendant was involved in the construction of the property more than a regular owner would be. The plaintiffs’ explanation for the defendant’s involvement was that the defendant was authorised to give instructions to the subcontractors because the parties were jointly engaged in developing the subject property for mutual profit.[114]
[114] Plaintiffs’ submissions in chief 4 December 2019 [57].
The plaintiffs’ submissions also addressed four additional factors that they claimed undermined the defendant’s version of events as to the existence of a partnership:
1. The progress payment invoices, in relation to the evidence of Elle Cobanov that she did not recognise them as invoices of the second plaintiff and that the first plaintiff was not technologically proficient to author them, to assert that the progress payment invoices were authored by the defendant.
2. The final progress payment was not released to the second plaintiff in error.
3. The defendant did not call Patrick Bouquiaux to give evidence.
4. The Construction Contract Settlement Agreement.[115]
[115] Plaintiffs’ submissions in chief 4 December 2019 [59]-[73].
In my view, the objective evidence does not support the finding on the balance of probabilities that the parties entered into a partnership agreement. The first plaintiff had taken no steps to formally set up the alleged partnership. The first plaintiff did not contribute to payment of stamp duty, conveyancing costs nor council and water rates.
The evidence of the third-party subcontractors, namely Juha Lehtonen, John Rasic, Scott Dickason and Andrew Desmond, relied on by the plaintiffs was not in my view particularly probative. It was not of telling significance in this case.
It was submitted by counsel for the defendant and I accept that the Phyllis Ashton project involving the first plaintiff, the defendant and Goran Josifovski as well as the original arrangement with Goran Josifovski to sell the block to a group including a man named Ziad Deeb were the pre-purchase arrangements of the parties. These facts do not assist the court to determine whether or not there was a partnership in this case.
It was also submitted on behalf of the defendant that the use of the HIA Contract, regardless of whether it was the first plaintiff’s[116] or the defendant’s version[117] of the HIA Contract, was another factor that highlighted that the parties were not in a partnership.[118] Counsel for the defendant submitted that the HIA Contract was entered into in the ordinary commercial sense of a builder/ client arrangement rather than a partnership agreement.[119] I accept this submission.
[116] Tab 79 Exhibit 1.
[117] Tab 80 Exhibit 1.
[118] T406.44-45.
[119] T406.26-37.
I do not accept the plaintiffs’ submission that the degree and nature of the defendant’s involvement in the development was inconsistent with an ordinary fixed-price construction project completed through an arms-length builder/ owner agreement.
Counsel for the plaintiffs stated that the overarching inference that the plaintiffs urged upon the court was that a partnership between the first plaintiff and the defendant was the only explanation for the entirety of the circumstances. As discerned above, I am not persuaded on the balance of probabilities of such a partnership.
What were the terms of the partnership agreement?
As discussed above, in my view the evidence does not support a finding that the first plaintiff and the defendant formed a partnership to develop and sell the property. However, if I am wrong and the matter proceeds to appeal, it is important to deal with this issue on a contingent basis: see Ross v Gordon [2021] ACTSC 41 at [171]. I include the plaintiffs’ and defendant’s submission on this issue for completeness.
Plaintiff Submissions
In the plaintiffs’ amended statement of claim, the plaintiffs alleged that the express terms of the partnership between the first plaintiff and the defendant were as follows:
1. The first plaintiff and the defendant would develop Block 1, Section 104 Casey, also known as 48 Wighton Terrace and 31 Chilton Street (the property);
2. The defendant would obtain finance to purchase the land and contribute to funding the build;
3. The first plaintiff would assign his right to purchase the property from CRD to the defendant;
4. The second plaintiff would build the residential home on the property at a cost of $1,180 per square metre; and
5. Upon completion of the building, the defendant would live in the property for one year to avoid capital gains tax, following which the property would be sold and the profits from the sale would be divided equally between the first plaintiff and the defendant.[120]
Defendant Submissions
[120] Plaintiffs’ amended statement of claim 22 October 2019 [8].
As the defendant’s primary argument was that the court could not be satisfied that the parties entered into the alleged partnership agreement, the defendant did not make any submissions as to any alternative express terms of the partnership agreement.
Consideration
As stated above, I have concluded that I am not satisfied that there was a partnership. In my view, even if a partnership had been established, it would have been void for illegality or unenforceable as it was against public policy reasons. I set out the relevant legal principles below.
1. An award for damages is not reasonable in circumstances where ethe rectification is unlikely to occur;
2. The defendant did not incur a loss on the sale of the property.[683]
[683] Plaintiffs’ submissions in reply 16 March 2020 [63].
I accept these submissions as they accord with my view of the evidence.
The incoming owners of the property succeeded the defendant’s rights to bring an action for breach of statutory warranty, pursuant to s 88(3) of the Building Act. That subsection explicitly establishes that each of the owner’s successors in title succeeds to the rights of the owner in relation to the statutory warranties. The plaintiffs claimed that as a result, from the date of transfer the defendant no longer had any rights to claim for breach of s 88 of the Building Act. The plaintiffs stated that any claim for breaches of s 88 relied upon by the defendant for unrectified defects had to fail for want of standing.[684] In my view there is force in this submission.
[684] Plaintiffs’ submissions in reply 16 March 2020 [64].
The rectification works carried out by the defendant prior to the sale of the property were undertaken and paid for by the defendant after he took possession of the property and excluded the second plaintiff in breach of the HIA Contract.[685]
[685] Plaintiffs’ submissions in reply 16 March 2020 [65].
The defendant submitted that the decision of UI International was not applicable in this matter for the following reasons from that case at [45]-[87]:
1. UI International was a decision in respect of an application to strike out certain parts of an unusually pleaded statement of claim. There had been three attempts at amending the statement of claim.
2. The case centred on a building dispute brought by a developer (who developed the land for residential, retail and office purposes) against, amongst others, the builder with whom it contracted to design and construct the building on the land;
3. After completion of the construction, the developer subdivided the land and sold some of the lots. The developer was then not able to unilaterally carry out any rectification works on the building as that course required the consent of persons who were not parties to the matter;
4. In the third proposed amended statement of claim, the developer alleged it was entitled to damages for the demolition and rebuilding of the development for $31,099,490. This claim for damages were based on the following three bases:
(a) The defects caused the developer to lose the contractual entitlement to achieve the development objective;
(b) The builder ought reasonably to have known that ownership of the development might be transferred by the developer to third parties so that defects would cause losses claimed by the developer in addition to losses suffered by the third parties as the new owners;
(c) That the developer would undertake such steps as necessary to facilitate the building and rebuilding of the development, including by applying to the District Court for approval.
5. The developer could not rely on Bellgrove v Eldridge due to the way it had pleaded its statement of claim on the basis that the losses were based on the reduced marketability of the development resulting from the defects, as opposed to the actual cost to rectify.[686]
[686] Defendant submissions in reply on the counterclaim 9 April 2020 [45].
I do not accept that UI International is not applicable in this case.
The defendant also made reference to Stone v Chappel where at [55], Kourakis CJ had asserted that rectification damages are to be awarded unless there is ‘good reason’ to adopt another measure as rectification would be manifestly disproportionate to the attaining of the contractual benefit. His Honour then referred to 8 considerations derived from the authorities to determine whether good reason exists:
1. The degree of departure from the contractual stipulation;
2. The adverse effect of the departure on the functional utility, amenity and aesthetic appearance of the building;
3. The reasons, objectively ascertained and commonly known, for which the innocent party made the stipulation which was breached;
4. The practical feasibility of rectifying the work, including the effects on third parties of attempting to do so;
5. Whether or not the innocent party intends to carry out the rectification work;
6. The absolute cost of the rectification work and the disproportion between that cost and
(a) The value of the building and contract price;
(b) The diminution in commercial value of the building;
(c) The effect of the departure on the functional utility, amenity and aesthetic appearance of the building;
7. The nature of the wrongdoer’s fault for the defect; and
8. The public interest in reducing economic waste.
The defendant was critical of these considerations from Stone v Chappel and claimed that despite Kourakis CJ stating the considerations had been distilled from the authorities, there had not been a reference to an authority for each consideration, apart from an earlier citing of Bellgrove v Eldridge in the preceding paragraph at [54]. [687]
[687] Defendant submissions in reply on the counterclaim 9 April 2020 [51].
The defendant took particular issue with consideration 5 and again asserted that there was no authority offered for this consideration nor was it explained in reference to Bellgrove v Eldridge or any other appellate court decision in Australia.[688]
[688] Defendant submissions in reply on the counterclaim 9 April 2020 [52].
The defendant noted that reference had been made in Stone v Chappel to the House of Lords decision of Ruxley Electronics and Construction Ltd v Forsyth (1996) 1 AC 344 (Ruxley) and Hinton J in Stone v Chappel at [429] had noted that ‘in Ruxley all of their Lordships assumed that rectification damages as a remedy was subject to the qualification of reasonableness.[689]
[689] Defendant submissions in reply on the counterclaim 9 April 2020 [54].
Ruxley concerned a building dispute over a swimming pool where the diving area was to be 7 feet 6 inches deep. On completion the pool was suitable for diving but the designated area was only 5 feet deep. There was no adverse effect on the value of the property yet the estimated cost of rebuilding the pool to the specified depth in the contract was £21,560. The House of Lords determined that where the expenditure was out of all proportion to the benefit to be obtained, the appropriate measure of damages was not the cost of reinstatement but the diminution in the value of the work occasioned by the breach. Even if this would result in a nominal award only.
In Ruxley at 353-354, Lord Bridge observed the following:
The circumstances giving rise to the present appeal exemplify a situation which one might suppose to be of not infrequent occurrence. A landowner contracts for building works to be executed on his land. When the work is complete it serves the practical purpose for which it was required perfectly satisfactorily. But in some minor respect the finished work falls short of the contract specification. The difference in commercial value between the work as built and the work as specified is nil. But the owner can honestly say “this work does not please me as well as would that for which I expressly stipulated. It does not satisfy my personal preference. In terms of amenity, convenience or aesthetic satisfaction I have lost something”. Nevertheless the contractual defect could only be remedied by demolishing the work and starting again from scratch. The cost of doing so would be so great in proportion to any benefit it would confer on the owner that no reasonable owner would think of incurring it. What is the measure of the loss which the owner has sustained in these circumstances?...
… To hold in a case such as this that the measure of the build owner’s loss is the cost of reinstatement, however unreasonable it would be to incur that cost, seems to me to fly in the face of common sense.
The defendant submitted that the court was not bound by Ruxley nor by Stone v Chappel as the decisions were plainly wrong and in the latter, the Supreme Court of South Australia had failed to adopt the ratio from Bellgrove v Eldridge. It was submitted that the court ought to adopt the course taken in Bellgrove v Eldridge.[690]
[690] Defendant submissions in reply on the counterclaim 9 April 2020 [55]-[57].
In my view this required some further analysis.
Further Submissions on Bellgrove v Eldridge and Ruxley
At the further hearing for oral submissions on 16 June 2020, the parties were ordered to provide further submissions on the High Court case of Bellgrove v Eldridge and the House of Lords decision in Ruxley.
Defendant Submissions on Bellgrove v Eldridge and Ruxley
The defendant referred to the cases of Tabcorp and Cordon Investments Pty Ltd v Ledesor Properties Pty Ltd [2012] NSWCA 184 (Cordon Investments), as well as the other authorities referenced earlier. The defendant submitted that Cordon Investments was inconsistent with Hyder Consulting, Harris and Cesare. Cordon Investments overlooked and requalified the ruling principle in Bellgrove v Eldridge.[691]
[691] Defendant’s response to plaintiffs’ note on Bellgrove and Ruxley 1 July 2020 [11].
The defendant submitted that Cordon Investments was outside the ratio of Bellgrove v Eldridge and the court was obliged to follow the other authorities it had referenced in place of Cordon Investments.[692]
[692] Defendant’s response to plaintiffs’ note on Bellgrove and Ruxley 1 July 2020 [11].
The defendant referred to the following factors in the current matter:
1. The first plaintiff admitted the second plaintiff performed the defective works as defined by the George Pudja report;
2. The defendant’s unchallenged evidence that he paid various third parties to finish some of the incomplete works in the sum of $88,661.20 (as referenced in the first witness statement of the defendant);
3. The defendant paid a plumber $4,650 to repair defective drainage work attributable to the second plaintiff;
4. If the court did not order the second plaintiff to pay for the reasonable costs of the defects, the second plaintiff will make a windfall through being paid regardless of whether the works were completed at all or to the requisite standard.[693]
[693] Defendant’s response to plaintiffs’ note on Bellgrove and Ruxley 1 July 2020 [12].
The defendant submitted that if the court was inclined to the notion of common sense that was alluded to in Cordon Investments, that enquiry ought not be limited to the sale of the property. It should also include consideration of the second plaintiff’s breaches of the HIA Contract and the defendant’s payment to correct some of the defective items.[694]
Consideration
[694] Defendant’s response to plaintiffs’ note on Bellgrove and Ruxley 1 July 2020 [14].
Both Bell v Eldridge and Ruxley are discussed in Tabcorp. The following propositions emerge from Tabcorp at [18]-[19]:
1. The House of Lords referred to passages in Bellgrove v Eldridge without dissent.
2. The High Court in Tabcorp referred to the result in Ruxley and the particular facts in that case. Ruxley itself is not inconsistent with the Australian line of authority.
Both Tabcorp and Bellgrove v Eldridge had been applied in Cordon Investments at [214]. It was noted that in Cordon Investments, Bathurst CJ on behalf of the court held at [229]-[230]:
While I accept that a possibility that rectification work will not be carried out does not preclude a claim for damages: Bellgrove v Eldridge, and that unreasonableness will only be established in exceptional circumstances: Tabcorp Holdings, in the present case the carrying out of the work would be unreasonable in the sense described by Giles JA in Westpoint Management Ltd v Chocolate Factory Apartments Ltd (McColl and Campbell JJA agreeing). His Honour dealt with the issue in the following manner (at [59]-[61]):
[59] Relevance of the plaintiff’s intention to carry out the rectification work to reasonableness is accepted in, for example, Chitty on Contracts… and Hudson’s Building and Engineering Contracts… It appears to have been accepted in De Cesare v Deluxe Motors Pty Ltd – indeed, sale of the building may have relevance through whether or not the rectification work will be carried out. If truly going to reasonableness, I do not think consideration of whether or not the plaintiff will carry out the rectification work is inconsistent with Bellgrove v Eldridge, since the regard to it is part of arriving at the plaintiff’s compensable loss. Once there is compensable loss, the court is not concerned with the plaintiff’s use of the compensation.
[60] But the plaintiff’s intention to carry out the rectification work, it seems to me, is not of significance in itself. The plaintiff may intend to carry out rectification work which is not necessary and reasonable, or may intend not to carry out rectification work which is necessary and reasonable. The significance will lie in why the plaintiff intends or does not intend to carry out the rectification work, for the light it sheds on whether the rectification is necessary and reasonable. Putting the same point not in terms of intention, but of whether or not the plaintiff will carry out the rectification work, whether the plaintiff will do so has significance for the same reason, and not through the bald question of whether or not the plaintiff will carry out the rectification work. That question is immaterial, see Bellgrove v Eldridge.
[61] So if supervening events mean that the rectification work can not be carried out, it can hardly be found that the rectification work is reasonable in order to achieve the contractual objective: achievement of the contractual objective is no longer relevant. If the sale of the property to a contended purchaser means that the plaintiff did not think and the purchaser does not think the rectification work needs to be carried out, it may well be found to be unreasonable to carry out the rectification work. An intention not to carry out the rectification work will not of itself make carrying out the work unreasonable, but it may be evidentiary of unreasonableness; if the reason for the intention is that the property is perfectly functional and aesthetically pleasing despite the non-complying work, for example, it may well be found that rectification is out of all proportion to achievement of the contractual objective or to the benefit to be thereby obtained.
The combination of the lack of intention to carry out the rectification work, the transfer of the property…and the absence of any evidence that the defects were affecting the use and occupation of the building or the common property leads, in my opinion, to the conclusion that it would be unreasonable to carry out the work and that damages for the cost of rectification should therefore not be awarded.
In my view the authorities indicate that the question of reasonableness of an award of rectification is fundamentally a question of fact. On the evidence in this case I am not satisfied an award of rectification damages is called for.
Conclusion on the Defendant’s Counterclaim
In the defence to amended statement of claim and counterclaim, the defendant sought the following relief:
1. damages and or compensation for breach of the HIA Contract including rectification costs;
2. damages and or compensation for negligence in undertaking the construction works; and
3. damages and or compensation for contravening s 42 of the Building Act.
For the reasons outlined above, the counterclaim is not made out on the balance of probabilities and the defendant is not entitled to the relief sought.
Application for Interim Injunction
At the commencement of the hearing on 21 October 2019, counsel for the plaintiffs moved on an application in proceeding dated 17 October 2019. That application sought to restrain the defendant from disposing of, dealing with, or diminishing the proceeds from the sale of the property and was supported by an affidavit of the plaintiffs’ solicitor Gavin Mansfield affirmed on 17 October 2019 (the Gavin Mansfield affidavit).
The Gavin Mansfield affidavit detailed that he had received instructions from the first plaintiff on 10 October 2019 that the defendant had been observed moving out of the property. The plaintiffs’ solicitor proceeded to conduct Google searches to ascertain information as to the status of title of the property which indicated that the property had been sold on 11 July 2019 for $1,125,000.
Email correspondence between the plaintiffs’ solicitor and the defendant’s solicitor was annexed to the Gavin Mansfield affidavit. In the first email dated 11 October 2019 sent by the plaintiffs’ solicitor to the defendant’s solicitor, the plaintiffs’ solicitor attached links to websites that indicated that the property had been sold. An urgent request was made for confirmation that the property had been sold, for disclosure of all discoverable documents in relation to the sale and for advice as to what the defendant had done or intended to do with the proceeds of sale.
On 15 October 2019, the plaintiffs’ solicitor wrote to the defendant’s solicitor requesting a substantive and full response to their first letter, noting that no response had been received. The plaintiff’s solicitor put the defendant’s solicitor on notice that if they were not provided with a substantive and full response including the provision of all discoverable documents by 16 October 2019, it was anticipated an urgent interlocutory application would be made pursuant to Parts 2.8 and 2.9 of the Court Procedure Rules 2006 (ACT).
On 16 October 2019, the defendant’s solicitor responded to the plaintiffs’ solicitor and attached a letter to their email in response. In the letter, the defendant’s solicitor denied that there was any basis for the plaintiffs’ request for information and documents. The letter confirmed that exchange of contracts for the sale of the property occurred on 24 July 2019 and that settlement occurred on 10 October 2019. A copy of the front page for sale was enclosed with the letter.
The Gavin Mansfield affidavit also annexed a copy of the defendant’s most recent balance Westpac Bank Investment Loan account, which was dated 23 January 2015. The loan was secured by a mortgage over the property and as at 23 January 2015, the balance was $563,674.
At the commencement of the hearing, counsel for the defendant opposed the granting of an interim injunction. Counsel for the defendant stated that “quite a bit of the money has been dissipated to satisfy debts that the defendant owed”.[695] Counsel for the plaintiffs noted that this was the first instance that he had been notified that monies had been dissipated and put the defendant on notice that the statement of claim may need to be amended.[696]
[695] T12.23-25.
[696] T14.33-35 & T14.39-45.
After a short adjournment, counsel for the plaintiffs’ notified that court that he had been informed by counsel for the defendant that only $126.11 remained from the sale of $1,125,000.[697] Counsel for the defendant confirmed that $126.11 was the amount remaining.[698] Counsel for the plaintiffs indicated that had this information been forthcoming prior to the hearing when it was requested, the application for an interim injunction would not have been prepared nor would have it been formally moved upon at the outset of the hearing.[699]
[697] T21.41-43.
[698] T22.19-20.
[699] T23.1-6.
After hearing from the parties, I reserved the question of costs in relation to the application for an interim injunction.[700] As the true amount of the remaining funds was late breaking, it is appropriate to also set out the relevant evidence of the parties and witnesses as to how $126.11 came to be the remaining quantum.
Evidence
Kiki Josifovski
[700] T24.43.
In cross examination, the defendant was questioned about the sale of the property. The defendant agreed that he had entered into a contract to sell the property on 24 July 2019 and that he did not tell the first plaintiff he had entered into that contract.[701] The defendant gave evidence that he did not tell his solicitors in this matter that he had sold the property on or about 24 July 2019.[702]
[701] T317.9-12.
[702] T317.38-39.
The defendant recalled that that there had been a mediation in this matter on 8 August 2019. When asked whether he had informed his solicitors prior to the mediation that he had entered into a contract to sell the property, the defendant responded that he did not recall.[703]
[703] T317.41-42.
The defendant was shown the Gavin Mansfield affidavit and referred to the annexure that contained the letter from the defendant’s solicitor to the plaintiffs’ solicitor. The defendant confirmed that he instructed his solicitor to send that letter and that he had refused to provide the information to the first plaintiff, despite the request to do so from the plaintiffs’ solicitor.[704]
[704] T318.38-45 & T319.1-2.
The defendant confirmed that from the sale there was only $126.11 and that the Westpac Loan was for $563,000.[705] The defendant gave evidence that between February 2015 and October 2019, he had increased the load on the property by roughly $500,000.[706] The defendant stated that the Westpac Loan was approximately $920,000 as at 10 October 2019.[707]
[705] T319.7-8, 9-20.
[706] T319.45-46 & T320.1-2.
[707] T320.15-16.
As to the approximate remaining $205,000 after $920,000 is deducted from the sale amount of $1,125,000, the defendant gave evidence that the remaining funds from the sale were paid out to individuals that had loaned him money, being his father Ratko Josifovski and his brother Goran Josifovski.[708]
[708] T321.25-30.
The defendant stated that it was his understanding that he gave both Ratko Josifovski and his father a mortgage over the property and that he had formally signed a document confirming this arrangement.[709]
[709] T321.39-41.
It was put to the defendant that the mortgage arrangements with Ratko Josifovski and Goran Josifovski were made so that there would be no funds left over from the sale of the property and so the first plaintiff would not have to be paid anything from the proceeds of the sale. The defendant denied this assertion.[710]
[710] T322.23-39.
Later in the cross examination, documents had been produced on behalf of the defendant that provided information about the sale of the property. The first page of the bundle was the first page of the contract for sale of the property. Also included in the bundle of documents on the second page was the settlement adjustment sheet for the sale of the property dated 10 October 2019. Under the heading ‘Bank Cheque Details’, a cheque for $913,681.30 was payable to Westpac Bank. The defendant confirmed that the $913,681.30 was owed to Westpac Bank solely for the loan for the property and that the amount owed to Westpac Bank had increased between 2015 and 2019 from $563,000 to $913,681.30.[711]
[711] T350.8-15.
Contained within the third page of the bundle was a handwritten document dated 24 April 2017. The defendant confirmed that the document was not written in English and that it was written in Macedonian.[712] The defendant confirmed that the document said that his father Ratko Josifovski would lend him $100,000 and that it was agreed that the defendant would return that amount upon the sale of his home, being the property that is the subject of these proceedings.[713] The defendant gave evidence that he received the $100,000 loan from Ratko Josifovski by a deposit in his bank account on approximately 24 April 2017.[714]
[712] T350.17-20.
[713] T350.28-34.
[714] T352.5-9.
The defendant was referred to the final page of the bundle which was a handwritten letter dated 20 September 2018. It read as follows:
I Goran Josifovski have agreed to assist my brother Kiki Josifovski financially.
I have committed to give him a sum upto (sic) $75,000 which must be repaid within 14 days upon sale of his home (being [address of the property]).
I accept his offer of security & guarantee against [address of the property].
The letter was signed by Goran Josifovski and Kiki Josifovski. The defendant gave evidence that Goran Josifovski wrote the document and that it was written in the presence of the defendant on 20 September 2018.[715] The defendant stated that Goran Josifovski did not give him the $75,000 on that occasion, instead that he received the money over a period of time in varying amounts and methods of payment.[716] The defendant claimed that he received some of the money in cash but that he could not recall how much cash in total Goran Josifovski had given him. The defendant also stated that Goran Josifovski would give him money by paying for things on the defendant’s behalf or by transferring amounts to him.[717]
[715] T351.1-3.
[716] T351.5-9.
[717] T351.17-20, 42-44.
The bundle of documents containing the contract for sale of the property, the settlement adjustment sheet, the handwritten document in Macedonian recording the loan of $100,000 from Ratko Josifovski to the defendant and the handwritten document recording the loan of up to $75,000 from Goran Josifovski to the defendant collectively became Exhibit 19 in the proceedings.[718]
Ratko Josifovski
[718] T352.19.
Ratko Josifovski was referred to the third page of Exhibit 19, being the handwritten document in Macedonian dated 24 April 2017. Ratko Josifovski confirmed that he wrote the document and that it recorded a loan of $100,000 to the defendant.[719]
[719] T363.20-27.
When asked why the $100,000 loan had been recorded in writing but not the $76,850 gift, Ratko Josifovski gave evidence that the funds were for different purposes and that the $100,000 was to be repaid.[720]
Goran Josifovski
[720] T262.36-40.
It is noted that Goran Josifovski was not called to give evidence about the handwritten document recording the loan of up to $75,000 to the defendant.
Consideration
In light of the conduct of the defendant as outlined above, it is appropriate that the defendant bears the cost of the plaintiffs’ application for the interim injunction.
Orders
The orders of the court are:
1. On the plaintiffs’ claim, judgment be entered for the defendant.
2. On the defendant’s (as counterclaimant) claim, judgment be entered for the first and second plaintiff (as the first counter defendant and the second counter defendant).
3. The defendant pay the plaintiffs’ costs of the application dated 17 October 2019 for an interim injunction.
4. Each party is to pay its own costs for the remainder of the proceedings.
5. If an alternative costs order is sought, parties have liberty to notify the court in writing that a party wishes to be heard further in relation to costs within 7 days of these reasons being published.
| I certify that the preceding eight hundred and fifty-three [853] numbered paragraphs are a true copy of the Reasons for Judgment of her Honour Justice Loukas-Karlsson Associate: Rhiannon McGlinn Date: 4 June 2021 |
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