Cooper v Pretty Nominees Pty Ltd - [2013] SADC 75

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
COOPER & ANOR v PRETTY NOMINEES PTY LTD
[2013] SADC 75
Judgment of His Honour Judge Slattery
31 May 2013
CORPORATIONS - WINDING UP - CONDUCT AND INCIDENTS OF WINDING UP - EFFECT OF WINDING UP ON OTHER TRANSACTIONS - PREFERENCES - GENERALLY
CORPORATIONS - WINDING UP - CONDUCT AND INCIDENTS OF WINDING UP - EFFECT OF WINDING UP ON OTHER TRANSACTIONS - PREFERENCES - UNCOMMERCIAL TRANSACTION
EQUITY - TRUSTS AND TRUSTEES - EXPRESS TRUSTS CONSTITUTED INTER VIVOS - CONTRACTS AND COVENANTS
CONTRACTS - BUILDING, ENGINEERING AND RELATED CONTRACTS
Under the terms of a series of agreements made between an owner and a builder, a company now in liquidation, a monetary fund was held in the builder’s solicitor’s trust account in the name of the building owner. That fund was, under the terms of each of the series of agreements, to be applied with the permission of the owner, to pay the builder’s subcontractors and, upon completion of the works, the balance to the builder. The builder failed to complete the building works.
The owner terminated the building contract and completed the works at its own expense. At the time of termination the owner demanded from the builder’s solicitor and received a payment of the amount in the trust account of the solicitors, held in the name of the owner.
Whether the return of the monies upon termination of the contract to the building owner constituted a transaction for s9 Corporations Act and whether any such transaction fell within the purview of Part 5.7B Corporations Act.
Plaintiffs further alleged that the monies in the trust account were held on trust for its subcontractors. By permitting the return of the monies, the plaintiffs claimed that the builder waived a contractual right and hence this constituted a transaction for s9 Corporations Act. Alternatively the repayment of the loan (allegedly by the builder) was similarly a transaction for s9 Corporations Act. In the further alternative, the plaintiffs claim that the trust monies were a loan by the owner to the builder and so also constituted a ‘transaction’ when the loan was repaid.
Defendant owner alleges that the monies either belonged directly to it or were held on trust for it as a presently entitled beneficiary under a form of bare trust. Any contractual rights between the builder and owner were terminated due to repeated breaches by the builder.
Held: claim dismissed.
The rights and obligations between the owner and the builder were governed by the terms of the contracts between them from time to time. At the date of the termination of the contract by the owner, the builder only possessed a contractual right to call for payment to it of any credit balance in the trust account if it had completed the building work or if the owner so chooses. The building work was incomplete and the owner chose to require payment of the amount standing to its credit in the solicitor’s trust account. In order to obtain any right to claim for payment of those funds it was necessary for the builder to complete its obligations under the building contract and this the builder failed to do.
The owner was entitled to terminate the contract and call for payment to it of the amount standing to its credit in the solicitors’ trust account. The plaintiff possessed no legal or other equitable interest in those funds due to its breach of contract with the owner.
Observations concerning the existence of a ‘Quistclose trust’ obligation, whether there existed a trust with two limbs, the second of which required reconveyance of the settled trust sum in the event of the failure of the first limb.
Observations concerning the breadth of the concept of a ‘transaction’ for s9 Corporations Act 2001 and for Part 5.7B Corporations Act.
Observations concerning the right of the owner to terminate the building contract due to the breach by the builder of an essential term or condition or alternatively due to the builder’s breach of a series of intermediate terms.
Corporations Act 2001 s9; Part 5.7B; s513A; s588FA(1)(a); s588FB; s588FC; s588FE; Legal Practitioners Act 1981 s31; Ford and Lee ‘The Law of Trusts’ 2012 Thompson Reuters [5.12110]; [5-6058], referred to.
Re Emanuel (No. 14) Pty Ltd (in liq), Macks & Anor. v Blacklaw and Shadforth Pty Ltd (1997) 147 ALR 281; Saunders v Vautier (1841) 4 Beav 115; 49 ER 282 ; Stork Electrical Pty Ltd v Leighton Contractors Pty Ltd and Greg Sparkman [2000] QCA 517 ; Morice v The Bishop of Durham (1804) 9 Ves 399; 32 ER ; Re Australian Elizabethan Trust (1991) 30 FCR 491 ; Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd 233 CLR 115 ; Knight v Knight (1840) 3 Beav. 148; Re Northern Development Holdings Limited (unreported) Ch D, Megarry VC, 6 October 1978, applied.
Re Barrington and Associates Pty Ltd (1989) VR 940 ; Australian Kitchen Industries Pty Ltd v Albarran (2004) 51 ACSR 604 ; Neeta (Epping) Pty Ltd v Phillips [1974] 131 CLR 286, not followed.
Western Australia v Ward (2002) 213 CLR 1 ; Twin Sectra Limited v Yardley [2002] 2 AC 164 ; Re Denley’s Trust Deed; Holman v HH Martyn & Co. Ltd. [ 1969] 1 CH 373; Strathalbyn Show Jumping v Maze (2001) 79 SASR 54; Re Lipinski’s Will Trust [1976] 1Ch 235 ; Commissioner for Stamp Duties (NSW) v Perpetual Trustee Co. Ltd. (1941) 64 CLR 492 ; Barclays Bank Limited v Quistclose Investments Limited [1968] 3 All ER 651; Tidex v Trustees Executors and Agency Co. Ltd. [1971] 2 NSWLR 453 ; Toovey v Milne (1819) 2 B & Ald 683; Re Miles; ex parte National Australia Bank Limited v Official Receiver in Bankruptcy (1988) 20 FCR 194; Carrears Rothman Limited v Freeman Matthews Treasure Limited [1985] Ch 207; Elders Trustee and Executor Company Limited v Symon and Others [1934] SASR 435 ; Capital Finance v Tolcher 245 ALR 528 ; Carr v JA Berriman Pty Ltd [1953] 89 CLR 327 ; Re Astor’s Settlement; Astor v Scholfield [1952] Ch 534 , discussed.
Jones v Dunkel (1959) 101 CLR 299; Western Export Services Inc. v Jireh International Pty Ltd (2011) 86 ALJR 1; United Petroleum v Skorpos and Anor. [2012] SASC 151 ; Alstom Limited v Yokogawa Australia Pty Ltd and Anor. (No. 2) [2012] SASC 49 ; GNM Aldridge Pty Ltd v Walsh 33 ACSR 546; Peter Cox Investments Pty Ltd (in liq.) v International Air Transport Association and Anor. 161 ALR 105; Re Gold Corp Exchange Limited [1984] 2 All ER 806; Re Hegarty [2011] NSWSC 1194; Musset v Bingle [1876] WN 170; Re Thompson; Public Trustee v Lloyd [1934] Ch 342; Hardoon v Belilios [1901] 1 AC 118 , considered.

COOPER & ANOR v PRETTY NOMINEES PTY LTD
[2013] SADC 75

The plaintiffs claim as joint and several liquidators of Pari Australia Pty Ltd (in liquidation), a company that formerly traded as Rova Contracts.
The plaintiffs (compendiously referred to as Rova) make a claim under the Corporations Act (C.A.) for the recovery of an amount of money said to be received by the defendant Pretty Nominees Pty Ltd (the owner). The principal of that company is Mr Glynn Pretty. At all material times Mr Pretty represented the owner but he also used as the authorised agent of the owner, Mr Andrew Taplin of the company Taplin Management Pty Ltd. On a number of occasions Mr Pretty and Mr Taplin both attended meetings and took part in discussions on behalf of the owner.
At all relevant times, the firm Winters Solicitors acted as solicitors appointed by Rova through its principal, Mr Kenneth Cheuk (Cheuk). It is necessary at the outset to identify that although acting as solicitors for Rova, Winters also performed a second role by holding in the firm trust account an amount of money paid into its trust account by the owners from time to time.
The amount of the plaintiffs’ claim is in the sum of $57,865.66 in respect of two payments made on the 31^st of August 2007 under two cheques drawn on the trust account of Winters Solicitors being cheques number 96392 and 96393 in the amounts of $9,828.76 and $48,036.90 respectively.
The claim of Rova is that the receipt by the defendant of the sum of $57,865.66 constituted the receipt of a preference by the defendant contrary to s588F C.A, was a voidable transaction under s588FE C.A. and Rova sought an order for recovery of that amount under s588FF C.A.
Alternatively, Rova claims that the payment to the defendant constituted a voidable transaction for s588FB C.A. because it was allegedly an uncommercial transaction for s588FB C.A. and Rova sought an order for recovery of that amount under s588FF C.A.
For the sake of convenience, in the balance of this judgment I will not make a distinction between the two heads of claim of the plaintiffs and I will compendiously refer to them as the preference claim or the preference amount.
The defendant denies the claims of the plaintiffs however they are formulated and it seeks to maintain possession of the sum received by it in 2007.
For the reasons which follow, I am unable to accept the claim of the plaintiffs based upon the findings of fact that I have made. Although in those circumstances it was unnecessary to consider and resolve all of the corporations and trust issues that were the subject of argument, in deference to the very able arguments of counsel I have considered and dealt with those matters.
The pleadings
From the time that counsel opened Rova’s case, it was quite apparent that Rova’s pleadings were deficient. Consequentially, it followed that the owner’s defence and Rova’s reply to the owner’s defence were also likely to be inadequate going forward. During the trial, I insisted, without penalty to either side that the pleadings of both parties be regularised so that the parties properly pleaded the respective cases.[1]
[1] The same discretionary considerations apply to either side in relation to the cases that they put at trial as opposed to the cases that were reflected in their pleadings.
It was not until closing addresses of the parties that the pleadings were finalised and it is appropriate that I summarise those final pleaded cases.
Rova pleads that it and the owner were parties to a transaction which was preferential. There were two bases alleged as being the preferential effect of the transaction. The first was that certain payments were made by Rova or that certain payments were made on Rova’s behalf to the owner. Alternatively, it was alleged that certain contractual rights were waived or released by Rova (to the benefit of the owner). It was then alleged that the effect of one or other of those types of transactions was that the owner received a valuable benefit which reduced or discharged, pro tanto, “…unsecured debts which owed to it as follows…”. The debts alleged to be owed to it were the preferential amounts referred to above.
The subject matter of these allegations is that on the 31^st of August 2007, a request was made by Andrew Taplin, as agent of the owner to Winters Solicitors, for that firm to return to the owner, the amounts of money held in an account in the name of the owner in its trust account at that time totalling $57,865.66. The alternative plea of Rova is that the payment of the preference amount from the trust account to the owner was either an insolvent transaction[2] or in the alternative was an uncommercial transaction for s588FB C.A.
[2] S588FB C.A.
In its third defence, the owner has denied all of the allegations of Rova and pleads either as a matter of contract, or in equity, that the owner was released from any obligation to Rova in respect of which any transaction could have arisen and therefore there was no transaction as between Rova and the owner for the purposes of s588FC C.A. Alternatively it is alleged that, because the owner was a beneficiary presently entitled to the sum held in the trust account of the solicitor, the owner was in a position to call for and to receive that sum of money as that beneficiary presently entitled. The owner also claims that it did not receive any money in respect of any an unsecured debt because it received money from the solicitors that was properly to be seen as a beneficial entitlement owned by the defendant.
The owner also claims that the payment did not extinguish any liability of the owner and there was no decrease in the net value of the assets available to creditors. Consistent with the pleading in relation to the position of Rova’s solicitors as owing fiduciary duties to it, the owner also pleads that the liquidator would not have been entitled to the trust fund held in the solicitor’s trust account because it was the intention of the parties to the transaction that the funds would be held in the trust account in the name of the owner, for the owner (implicitly, to the exclusion of Rova). The funds would not be used except with the authorisation of the owner and therefore would not fall within the general funds of the assets of Rova.
The owner also pleads that for this reason, it retained a legal as well as a beneficial interest in the fund at all times and if there was a separate interest in the fund, it belonged to the subcontractors for the reasons which I will set out later. The interests of the subcontractors failed at the same time as the arrangements in respect of which the fund was paid into the solicitor’s trust account also failed.
Alternatively, the owner argued that Rova did not have any entitlement to enforce an alleged contractual obligation with the owner because any such obligation had been discharged due to the breach by Rova of its contract with the owner or alternatively because of the variations of the terms of the contractual arrangements between Rova and the owner on 22 February 2007, 13 April 2007 or 24 May 2007 conjunctively or severally. Therefore, as a result, there is no right for any specific performance of any contractual obligation which, if it arose, would only give a right to an award of nominal damages in respect of any alleged obligations between Rova and the owner.
In opening and after explaining the background of the matter and tendering Exhibit P1 being a statement of agreed facts, by consent, Mr Dal Cin (counsel for Rova) explained the thrust of Rova’s case. On the 31^st of August 2007 it is alleged that the owner was a creditor of Rova. Rova’s solicitors held funds in their trust account and the owner was under a contractual obligation to Rova to authorise those funds held in the trust account of the solicitors to be applied to discharge certain liabilities that Rova had incurred under a building contract with the owner for the renovation and repair of a property on South Terrace Adelaide (the South Terrace property). The money received on 31 August 2007 was the amount that had been paid into the solicitor’s trust account by the owner.
Rova identified that its preference case arose by the fact that Rova permitted the owner to take the money that was in the trust account.
Two alternatives are put. The first is that the deposit of the money into the trust account by the owner was in the nature of a loan to Rova so that it was Rova’s money once it “…hit the trust account…” albeit that under the contract between Rova and the owner, Rova had to apply that money to discharge certain creditors.
This first alternative assumes that the money paid into the solicitor’s trust account was subject to an obligation on Rova to use the funds in a particular way to pay contractors for the cost of renovation of the South Terrace property.
The second alternative put was that the question of ownership of the money is irrelevant. By permitting the funds to be returned to the owner, Rova waived its contractual rights to require the owner to authorise the payment of that money to the creditors who were to be paid.
Rova submitted that in respect of both of those versions, a transaction occurred by reference to s9 C.A.
In further explanation of Rova’s second alternative case, Rova contended that if the Court did not find that the money had become the company’s money by reason of a loan, then by permitting the owner to be released from its obligations to authorise the use of the funds to pay certain creditors, such arrangement constituted a transaction because it was a release or a waiver by Rova of a valuable right. That right was a valuable right because Rova had a contractual entitlement to require the money to be applied to discharge certain creditors in a sum equivalent to that amount.[3]
[3] T8.9-17.
By giving up that right, Rova gave up a contractual entitlement which fell within the definition of a transaction for the purposes of the dictionary provisions of the Corporations Act. This was because Rova had an entitlement and the owner had an obligation to authorise the use of those funds in a particular way. That obligation was released by Rova because it was discharged or waived.
The witnesses
In the view that I have formed, each of the witnesses gave his evidence in a manner that led me to believe that each of them were to be accepted as truthful witnesses. No substantial issues of credit arise between the witnesses. The witnesses called by Rova were the solicitor from Winters, Mr Stephen Barrett and the liquidator, Mr Cooper. The owner called evidence from Mr Glynn Pretty, the principal of the owner and Mr Andrew Taplin, the person who was appointed the owner’s agent, in and about the relevant transactions.
In my view each of those witnesses was credible and to the extent that there were any differences between the witnesses, it was minor and insignificant.
That said, Mr Barrett laboured under some difficulties in relation to his evidence. He has suffered ill health in the past three years and this matter is now quite old. It is a significant problem for liquidators that often many of these types of claims are quite old. This matter was at least 5 to 6 years old by the time it came to trial. I did not receive any information as to why the matter had not been pursued earlier.
Be that as it may, the difficulty is that witnesses were left largely to relying upon their memories which were patchy in part (and this is not a criticism of any of the witnesses) and the documents which were created contemporaneously with events.
I have had the benefit of a reasonable contemporaneous and thorough record of documents relating to these matters. Each of the parties’ cases are largely disclosed in the documents and insofar as there is a discrepancy in the evidence I have been able to resolve the matter using those records.
Insofar as the witness’s memory is inconsistent with a particular record, it is my view that reliance should be placed upon the records. Such inconsistencies were very rare.
In particular, Mr Barrett did not have particular memories about a number of matters even though he had made file notes in relation to them. He was in a position where he could not disagree with the content of the file note because he could not remember the event. He is quite certain that he made the file notes contemporaneously and that they record the particular events, his instructions and any action taken or to be taken in reference to those instructions. On balance, I accept Mr Barrett’s position about contemporaneity of the file records kept by him as many of them are hand written notes apparently created at the time of the events occurring.
The instructions given to Mr Barrett came from his client Mr Kenneth Cheuk. Mr Cheuk was not called to give evidence. I draw no adverse inference against the liquidator for failing to call Mr Cheuk. Mr Britten-Jones (counsel for the owner) mentioned in passing the failure to call Mr Cheuk but no Jones v Dunkel[4] point was made or pursued.
[4] (1959) 101 CLR 299.

That said it is my view that the inability of Rova to call Mr Cheuk has, because of the paucity of evidence, created some evidentiary difficulties for Rova which must be resolved from the contemporaneous records. Those records include agreements, variation documents and supplementary agreements as well as correspondence. The Court is left to do its best on the material that is available and to draw what is perceived to be the most appropriate inferences. The Court is therefore unable to say whether or not Mr Cheuk may have been of assistance in the process of fact finding. This lacuna in the plaintiff’s evidence becomes important in making assessments about the events that occurred in August 1987. Those matters will be developed later.
A preliminary evidentiary matter
On a preliminary matter, on a number of occasions objections were taken to questions by the owner’s counsel of Rova’s witnesses concerning documents prepared in and about the transactions the subject of this proceeding. The basis of the objection was that, contrary to common law principles, it was impermissible for questions to be asked of witnesses in relation to the meaning of particular terms in, for example, agreements.
In my view, the difficulty in relation to the interpretation of documents arose out of Rova’s case in opening. It was put to me by Rova’s counsel that relevant documents could only be understood in one particular way and that those documents should be characterised in that way. For example, it was put to me that an agreement[5] of 24 May 2007 can only be understood as a reaffirmation of a commitment made between the parties on the 22 February 2007, some three months prior. In order to make good that assertion, it was necessary for a comparison to be made between those two agreements and to obtain, from the evidence and so to derive, a full understanding of the expressed intention of the parties as reflected in the agreement of 24 May 2007.
[5] P2 tab 19 (page 89).
I have used this example but I reject Rova’s submission on the point. In my opinion, the document at Exhibit P2 tab 19 being a document signed by the relevant parties dated 24 May 2007 was, on an ordinary reading of it, an intentional amendment of the agreement between the parties of 22 February 2007.
The point in issue here is the question of the application of principle under the common law rules. Those principles may be stated as follows:-
1.   It is first necessary to identify an ambiguity in the language of the contract before a Court may have regard to surrounding circumstances and object of the transaction in aid of its interpretations;
2.   Evidence of surrounding circumstances is never admissible to contradict the language of a contract when it has a plain meaning;
3.   Where the issue is one of two or more possible meanings of terms within a contractual provision, the Court is permitted to look to the objective framework of facts within which the contract came into existence and to the parties presumed intention in the settings.[6]
[6] Western Export Services Inc. v Jireh International Pty Ltd (2011) 86 ALJR 1; United Petroleum v Skorpos and Anor. [2012] SASC 151 at [28]-[29]; Alstom Limited v Yokogawa Australia Pty Ltd and Anor. (No. 2) [2012] SASC 49 at [118].
In light of those principles, it is then necessary to consider the documentary material and make findings in relation to that material in light of the evidence that has been given in this matter.
I have raised this matter now because in the view that I have formed, the position contended for by Rova was internally inconsistent.
On the one hand Rova contended for a strict application of the Australian common law rules about the interpretation of documented agreements. On the other hand, Rova contended for the position that despite its wording, the documents of 24 May 2007 signed by the parties and later implemented, was only to be seen and interpreted as a reaffirmation of another agreement in a different form executed by the same parties on 22 February 2007. I am unable to accept the position contended for by Rova. I will deal with this matter in detail later in these reasons.
Corporations Act
Rova pleads in paragraph 4 of the Statement of Claim that the relation-back day for the commencement of the winding up within the meaning of s9 and s513A C.A.[7] is 3 September 2007. That matter is not put in contest by the owner.
[7] 513A Winding up ordered by the Court
Rova alleges that the unfair preference transactions were entered into during the 6 month period ending on the relation-back day this being the period from 4 March 2007 to 3 September 2007. The owner denies these assertions as a question of fact but does not put in contest the operation of the relation-back period, the insolvency of the builder or what generally may be called the preferential effect of the payment (if the C.A. provisions have application). The owner contends that from either 13 April 2007, or alternatively from 24 May 2007, any obligation (if it existed) for payment of subcontractors terminated. This is because of an agreement reached on one or other of those days that any obligation to pay subcontractors should end. The owner also points to the fact that on 27 August 2007 it terminated the agreement that it had with the defendant for just cause because of delay.
In particular, in paragraph 3I of its defence, the owner denies that Rova had any interest either legal or beneficial in the trust funds for eight principal reasons. They are as follows:-
1.   It was the intention of Rova and the owner that the funds would be held in a trust account in the name of the owner;
2.   The trust fund was held by Winters Solicitors on trust for the owner (and with no legal or other interest in Rova or anyone else);
3.   The owner paid the money into the trust account of Winters Solicitors;
4.   Rova was not authorised by or on behalf of the owner to deal with the money in the trust fund and did not do so;
5.   Any payment out from the trust fund required written authorisation from the owner;
6.   Rova and the owner never agreed to a loan nor intended that the fund would fall within the general assets of Rova;
7.   The owner retained a beneficial interest in the fund at all material times;
8.   In the alternative, it was the subcontractors who had a beneficial interest in the fund pursuant to the purpose of the deed until such time as that purpose failed by reason of the valid termination of the deed and building contract from which time the owner had the beneficial interest by operation of a resulting or secondary trust.
In due course, I will consider each of these defences. It is sufficient to say for the purposes of this part of my judgment that the challenges to the operation of the relevant provisions of the Corporations Act are made on a factual as well as on a legal basis.
In paragraph 6 of the second Statement of Claim (hereinafter called the Statement of Claim) Rova pleads that the transactions were insolvent transactions for the purposes of s588FC C.A.[8] because the transactions were entered into at a time when Rova was insolvent. The fact of insolvency is not challenged by the owner.[9]
[8] 588FC Insolvent transactions
A transaction of a company is an insolvent transaction of the company if, and only if, it is an unfair preference given by the company, or an uncommercial transaction of the company, and:
(a) any of the following happens at a time when the company is insolvent:
(i) the transaction is entered into; or
(ii) an act is done, or an omission is made, for the purpose of giving effect to the transaction; or
(b) the company becomes insolvent because of, or because of matters including:
(i) entering into the transaction; or
(ii) a person doing an act, or making an omission, for the purpose of giving effect to the transaction.
[9] [6.1] of the Third Defence.
In the alternative, it is pleaded that the transaction, namely the payment back of the sum of $57,000, was an uncommercial transaction within the meaning of s588FB[10] C.A. because no reasonable person in Rova’s circumstances would have entered into the transaction. The particulars provided are because the transactions did not discharge the liabilities of Rova to the owner, then Rova received no benefit. Alternatively it is alleged that Rova suffered a detriment in that funds which otherwise would have been available to discharge the debts owed to the relevant subcontractors ceased to be available.[11]
[10] 588FB Uncommercial transactions
(1) A transaction of a company is an uncommercial transaction of the company if, and only if, it may be expected that a reasonable person in the company’s circumstances would not have entered into the transaction, having regard to:
(a) the benefits (if any) to the company of entering into the transaction; and
(b) the detriment to the company of entering into the transaction; and
(c) the respective benefits to other parties to the transaction of entering into it; and
(d) any other relevant matter.
(2) A transaction may be an uncommercial transaction of a company because of subsection (1):
(a) whether or not a creditor of the company is a party to the transaction; and
(b) even if the transaction is given effect to, or is required to be given effect to, because of an order of an Australian court or a direction by an agency.
[11] At paragraph 6.2, 6.2.1 and 6.2.2 of the Statement of Claim.
It is then pleaded that the transactions are voidable transactions within the meaning of s588FE C.A.[12] and that the unfair preference transactions were unfair preferences within the meaning of s588FA[13] C.A. because Rova and the owner were party to the transactions for s588FA(1)(a) C.A. and the effect of the transactions was to allow the owner to receive from Rova more than the owner would receive if the transactions were set aside and the owner was to prove in the winding up of the company.
[12] 588FE Voidable transactions
(1) If a company is being wound up:
(a) a transaction of the company may be voidable because of any one or more of subsections (2) to (6) if the transaction was entered into on or after 23 June 1993; and
(b) a transaction of the company may be voidable because of subsection (6A) if the transaction was entered into on or after the commencement of the Corporations Amendment (Repayment of Directors’ Bonuses) Act 2003.
(2) The transaction is voidable if:
(a) it is an insolvent transaction of the company; and
(b) it was entered into, or an act was done for the purpose of giving effect to it:
(i) during the 6 months ending on the relation‑back day; or
(ii) after that day but on or before the day when the winding up began.
(2A) The transaction is voidable if:
(a) the transaction is:
(i) an uncommercial transaction of the company; or
(ii) an unfair preference given by the company to a creditor of the company; or
(iii) an unfair loan to the company; or
(iv) an unreasonable director‑related transaction of the company; and
(b) the company was under administration immediately before:
(i) the company resolved by special resolution that it be wound up voluntarily; or
(ii) the Court ordered that the company be wound up; and
(c) the transaction was entered into, or an act was done for the purpose of giving effect to it, during the period beginning at the start of the relation‑back day and ending:
(i) when the company made the special resolution that it be wound up voluntarily; or
(ii) when the Court made the order that the company be wound up; and
(d) the transaction, or the act done for the purpose of giving effect to it, was not entered into, or done, on behalf of the company by, or under the authority of, the administrator of the company.
(2B) …
(3) The transaction is voidable if:
(a) it is an insolvent transaction, and also an uncommercial transaction, of the company; and
(b) it was entered into, or an act was done for the purpose of giving effect to it, during the 2 years ending on the relation‑back day.
[13] 588FA Unfair preferences
(1) A transaction is an unfair preference given by a company to a creditor of the company if, and only if:
(a) the company and the creditor are parties to the transaction (even if someone else is also a party); and
(b) the transaction results in the creditor receiving from the company, in respect of an unsecured debt that the company owes to the creditor, more than the creditor would receive from the company in respect of the debt if the transaction were set aside and the creditor were to prove for the debt in a winding up of the company;
even if the transaction is entered into, is given effect to, or is required to be given effect to, because of an order of an Australian court or a direction by an agency.
(2) For the purposes of subsection (1), a secured debt is taken to be unsecured to the extent of so much of it (if any) as is not reflected in the value of the security.
(3) Where:
(a) a transaction is, for commercial purposes, an integral part of a continuing business relationship (for example, a running account) between a company and a creditor of the company (including such a relationship to which other persons are parties); and
(b) in the course of the relationship, the level of the company’s net indebtedness to the creditor is increased and reduced from time to time as the result of a series of transactions forming part of the relationship;
then:
(c) subsection (1) applies in relation to all the transactions forming part of the relationship as if they together constituted a single transaction; and
(d) the transaction referred to in paragraph (a) may only be taken to be an unfair preference given by the company to the creditor if, because of subsection (1) as applying because of paragraph (c) of this subsection, the single transaction referred to in the last‑mentioned paragraph is taken to be such an unfair preference.
The issues challenged by the owner are in respect of whether there was a transaction, whether any detriment was suffered and whether or not, on a proper reconciliation of the facts, the transaction was a trust arrangement and that Rova did not ever achieve the status of receiving a legal or beneficial interest in the trust fund.
In order to address those matters, it is necessary to return to the factual scenario of these issues and having resolved those matters, it would then be necessary to address the issues identified by the parties in their pleadings.
Factual narrative
The generally relevant documentary record in this matter is set out in Exhibit P2 comprising two volumes. Each of the documents in that exhibit are numbered sequentially and paginated.
An initial contract in writing was made between Rova and the owner. It is signed by Glynn Pretty for and on behalf of the owner and by Robert Lockyer for and on behalf of Rova. It was executed on the 20^th of June 2006. Mr Pretty’s signature and Mr Lockyer’s signature were both witnessed by Mr Andrew Taplin.
The contract was a project management agreement – PM2. Rova was to act as project manager of specified building works set out in Schedule 1. The description is as follows:-
“The building work shall be a refit; renovation as outlined on the attached plans and scope of works. It shall include internal fit-out and any external make good work.”
The document in Exhibit P2 does not include a copy of the plans or the scope of work.
Under Schedule 2, the completion date was 1 October 2006 with access to be taken from 1 July 2006.
I will not repeat the content of the schedules concerning its calculation but the lump sum fee for the works to be completed (Schedule 12) was $350,000 plus GST.[14]
[14] Exhibit P2 document 1.
There are a number of paragraphs of this agreement[15] that require emphasis. It is a project management agreement. In part B of the agreement the responsibilities of Rova are set out. In part C the project management services - pre-construction are set out and these include pre-construction advice (Clause 10), design and relevant approvals (Clause 11), project management plans (clause 12) and tenders (clause 13).
[15] Exhibit P2 document 1.
Under Part D the project management services and construction duties are set out. It is necessary to describe those matters in detail here. The content of Clause 15 is as follows:-
“15. THE PROJECT MANAGER IS TO:
(a)    Arrange to have the works set out by an registered surveyor;
(b)   Co-ordinate the work of Contractors with the activities and responsibilities of Consultants and other relevant persons in order to complete the works in accordance with the contract documents;
(c)    Establish an office at the site of the works and maintain competent staff at that office in order to co-ordinate and provide the general direction of the work and monitor the progress of Contractors;
(d)   Use his best endeavours to ascertain the rules and regulations of any Authorities relevant to the project and not previously ascertained;
(e)    Use his best endeavours to obtain approvals required by Authorities not previously obtained;
(f)    Arrange for the provision of necessary plant, materials and labour to complete those parts of the works which have not been undertaken by the Contractor;
(g)    Monitor the work of the Contractor engaged on a particular project in order to:
(i)     Assess the performance of the Contractor and recommend any course of action that may be available to the Principal to remedy any deficiency in the performance of the works;
(ii)Be reasonably satisfied that the work is being performed in accordance with the contract documents; and
(iii)Be reasonably satisfied that the work is of the quality required by the contract documents;
(h)   Monitor contracts on behalf of the Principal, which includes the reviewing and processing of all applications for payment, certificates, variations, cost adjustment and extensions of time made by the Contractor and preparing and submitting those applications to the Principal and recommending, to the Principal, payment, extensions of time and the issuing of certificates in accordance with the Contracts;
(i)     Use his best endeavours to obtain from the Contractor all “as built” drawings, maintenance manuals, operating instructions, guarantees, warranties or other similar documents prior to the issue of the final certificate;
(j)     Monitor the rectification of defects and completion of the works in the defects liability periods;
(k)   After consultation with the Contractor and Professional Service Providers, effect (as far as reasonably possible) all decisions made by the Principal on industrial relations issues;
(l)     Where appropriate, refer to the Consultants questions of interpretation of the contract documents;
(m) Refer all appropriate matters to the Professional Service Providers;
(n)   Advise the Principal when the works are at the stage of practical completion;
(o)   Advice [sic] the Principal when the works are at the stage of final completion; and
(p)   Provide the post-occupancy services specified in “Schedule 7”.
That clause of the agreement followed after the inclusion of clauses 10 in relation to pre-contract construction advice, clause 11 in relation to design and relevant approvals, clause 12 in relation to project management plans and clause 13 in relation to tenders. It is important for present purposes to identify the terms of clause 13 which I set out hereunder.
“13. TENDERS
(a)    Subject to paragraph (b) below, at agreed times the Project Manager will:
(i)     Prepare lists of tenderers;
(ii)Prepare all tender documents;
(iii)Invite tenders for the works;
(iv)   Analyse the tenders and advise the Principal as to the suitability and expertise of Contractors submitting tenders;
(v)Provide the Principal with all tenders received; and
(vi)Recommend to the Principal which tenderer should be awarded a contract.
(b)   The Project Manager has the right to enter into contracts without the prior approval of the Principal where the value of the contract is less than or equal to the amount as set out in “Schedule 6” or, if nothing is stated, $5,000.00.”

Clause 13(a)(vi) of the agreement is also important in this matter. Rova was required to recommend to the owner as principal which tenderer should be awarded with a contract.
Clauses 1-13 of the agreement and the arrangements to be made under them are to be understood as meaning that after gathering all the necessary information concerning the tenders and having identified the successful tenderers, Rova would make a recommendation to the principal, the owner, which tenderer should be awarded the contract and the owner would enter into that contract with the tenderer.
Consistent with that approach, clause 15 sets out the obligations of Rova as the project manager. These are the usual construction duties of the project managers. I refer in particular to clause 15(h); it was the obligation of Rova to review and process all payment claims by contractors and submit them to the owner as principal for payment.
Consistent with that obligation, it was necessary for Rova as the project manager to obtain a written consent of the owner as principal prior to terminating the contracts (clause 16) and Rova as the project manager was required to submit to the owner as principal on a stipulated time scheduling, a statement of the cost of the project during the period showing separately sums payable to contractors and time of repayment and the fees due to Rova as the project manager. Once that was submitted, it was then the responsibility of the owner as the principal to make payment direct to the contractor in relation to the claim and pay the project management fee.[16]
[16] “20. BUDGETED COST AND PROGRESS PAYMENTS
(a)The Project Manager must submit to the Principal at the frequency specified in “Schedule 9”, (or if nothing is specified then once a month), on the date stated in “Schedule 9”, a statement of costs of the project of concern during that period showing separately in relation to each project;
(i)The sum payable to the Contractor and the time for payment of each claim; and
(ii)The fees due to the Project Manager which must include any amount due cover all liability of the to Consultants or the Professional Service Providers.
(b)After the Project Manager has submitted the statement of costs, the Principal must:
(i) Make payment direct to the Contractor in relation to claim under Clause 20(a)(i); within the time stated in Schedule 9; and
(ii) pay the Project Manager the fees referred to in paragraph (a)(ii) above within the periods stated in Schedule 9.”
The project management fee was established by clause 23[17] and this included payment for variations under clause 24.
[17] “23. PROJECT MANAGER’S FEE
In consideration for the performance of the Project Manager’s services the Principal is to pay the Project Manager either:
(a)A lump sum fee as stated in “Schedule 12” which is to be paid by approximately equal monthly instalments (hereinafter referred to as a “lump sum fee”); OR
(b)A fee calculated as a percentage of the cost of the project, the percentage rate being specified in “Schedule 13”, which is to be paid by monthly instalments; OR
(c)A fee paid monthly and based on an hourly rate for the hours(or part thereof) worked by the Project Manager and his employees at the rates per hour as set out in “Schedule 14”. The Project Manager must maintain records for the hours worked; OR
(d)A fee calculated in the manner set out in “Schedule 15”.
(e)This clause is to be read subject to and is to be treated as required by Clause 28.”
Clause 26 is the termination clause[18] and clause 27 sets out a schedule in respect of payment to Rova as the project manager upon termination. There is also a specific dispute resolution and arbitration clause in relation to the contract.
[18] “26. TERMINATION
Either party may terminate this agreement at any time by giving to the other party 20 days notice in writing of its intention to so terminate. The notice of termination must be sent by certified mail or equivalent mail service.”
The terms of the contract between the parties are quite clear and are set out in the formal written agreement. In my opinion, the form of the agreement is for project management services to be provided by Rova to the owner.
In a series of cheques dated between 1 August 2006 and 6 December 2006 the owner paid to Rova some $223,000.[19] These payments were made in respect of a series of tax invoices rendered between 14 July 2006 and 4 December 2006.[20] There is an inconsistency between the claim for and the making of these payments and the terms of the contract. The payments were not made directly by the owner to the subcontractors as contemplated by the agreement but to and thereby through Rova.
[19] Exhibit P2 tab 2.
[20] Exhibit P2 tab 3 pages 29-34.
By a further invoice dated 19 February 2007, Rova made a claim upon the defendant[21] as follows:-
“Description contingency cost – additional cost due to the South Terrace project excess the quote of $350,000 – the amount claimed was $22,000
Prime cost some for plumbing rectification works – the amount claimed was $27,500
Variation cost for full settlement of any claim - $77,000.
These amounts totalled $126,500.”
[21] Exhibit P2 tab 3 page 35.
That claim was not paid.
The parties, by this time, had fallen out because of the failure by Rova to complete the works in accordance with the terms of the contract. The question arising was how the parties intended to deal with the variation cost clause and this delay.
On 5 February 2007, a meeting took place at the office of Taplin Management at Glenelg. Present at the meeting were Andrew Taplin, Glynn Pretty and Kenneth Cheuk. Kenneth Cheuk presented to the meeting a variation breakdown list from the company which was dated 5 February 2007.
Following the meeting, a letter was prepared for and on behalf of the owner by Mr Andrew Taplin and it was sent to Rova. It records what had transpired at the meeting, the matters resolved between the parties and how the existing contract was to proceed from that time.
Importantly the letter confirmed that of the $350,000 contract price, $296,103.95 had already been paid by the defendant to the company. The balance to be paid was $53,896.05 but by that time the works were well short of what may be described as being near completion.
The letter set out the terms to be reflected in a document (a Deed of Variation) that was later prepared and executed by those parties. The Deed of Variation is signed by Mr Glynn Pretty and Mr Kenneth Cheuk and is dated 22 February 2007.[22] Mr Barrett gave evidence that this document was the record of the resolution between the parties of the dispute that had by then arisen between them. Mr Barrett was retained to act as solicitor for Rova on the instructions of Mr Kenneth Cheuk.
[22] Exhibit P1 tab 5.
The recitals to the Deed are important because they identify the initial contract for project management services, the delay in completion, the fact that Rova has contracted in its own right with various subcontractors to complete the building work, that Rova would ensure that the building works are complete and that Rova’s construction fee as project manager is included in the lump sum fee of $350,000
The document is also an agreement to vary the contract.[23]
[23] Deed of Variation paragraph 3 (Exhibit P2 tab 5 page 39).
In paragraph 4 of the agreement, Rova warrants to complete the work in a proper manner using staff as nominated and suitably skilled and qualified subcontractors. In the same paragraph[24] Rova undertakes to ensure that any subcontractor who is not being paid will be paid in full. It is common ground between the parties that at the time, Rova had not paid a number of subcontractors despite having received in excess of $296,000 for contract claim amounts made upon the owner.
[24] Subclause 4.5.
As important, Rova undertook to satisfy clause 4.8 namely the procuring of a Certificate of Occupation within two months from the 28 February 2007 and in the event that the work is not completed by that time to pay liquidated damages to the owner at the rate of $400 per day up to a maximum of $10,000 per month. There was no liquidated damages clause in the original agreement.
Fresh obligations were undertaken by the owner under this document.[25] The owner undertook to pay the balance of the contract price being $53,741.50 (the unpaid amount of the $350,000 contract price). The obligation upon the owner under subclause 5.1 was to make payment within 24 hours of the practical completion of the building work and the issue of the Certificate of the Occupation.[26]
[25] Exhibit P2 tab 5 paragraph 5 page 40.
[26] Viz paragraphs 4.6 and 4.8 of the agreement.
In a further variation, the owner also agreed to pay to Rova the sum of $70,000 plus GST ($77,000 in total) in full settlement of any variation claim within 24 hours of the Certificate of Occupation and practical completion having being satisfied.
There is then a further important variation of the original project management agreement. Under subclause 6.1, the owner agrees to pay subcontractors within 7 days of the completion of the works. That is, different from clause 20 of the project management agreement whereby the owner was required to pay a monthly amount to contractors; the new obligation is directly upon the owner to pay the subcontractors within 7 days of the completion of the work. It is unclear to me whether the term “completion of work” in this context means the same as a procuring of a Certificate of Occupation at the time of practical completion of the building work, or whether it means within 7 days of the completion of the work of the subcontractor.
My view, on the whole reading of the agreement is that there is a distinction to be made between completion of the work in subclause 6.1 and practical completion of the building work in subclause 4.8. That is, the completion of the work by the subcontractor is not identifiable with the completion of the whole works and therefore a subcontractor would have a right to make a claim for payment and be paid within 7 days of the completion of the work by that subcontractor.
Consistent with that view, subclause 6.2 and 6.3 disclose that the owner is obligated to pay money into the solicitor’s trust account of the firm Winters Solicitors. That money is to be held in the name of the owner in that trust account. Under clause 6.3, the payments to the subcontractors would be made by the solicitors from those funds upon written authorisation having first been obtained from the owner. The proviso was that the sums to be paid from the trust account were not to exceed the total of the payments allowed for in clauses 5.1 and 5.2. The total of those payments is $123,741.50.
In my view, this arrangement intentionally creates a form of fiduciary relationship between the solicitors and the owner. This is a trust account arrangement. The solicitors are not permitted to disburse any money from the trust account except with the permission of the owner. In the event of a dispute between the owner and Rova, the solicitors’ first duty would be to the owner. At the very least the solicitors may be placed in the position of an inter pleader but this is unlikely absent any formal recognition by the parties and the solicitors of some sort of shared interest in the fund. What is not in doubt is the obligations upon the owner at the appropriate time to pay over the money in the agreed amount.
Consistent with the maintenance of the change of the former position of Rova as project manager, it was agreed under subclause 6.4 that any payment by the owner to a subcontractor does not create a contractual relationship with the subcontractor or make the owner liable to Rova or the subcontractor to make further payments, and that any payments made would be set off against the sum of $123,741.50
It follows and I find that clause 6 is a variation of the terms of the original project management agreement because funds would be held in the trust account in the name of the owner and to be used to pay subcontractors.
The project management agreement contemplated that obligations would arise between the owner and the subcontractors. It is therefore difficult to comprehend the meaning of subclause 6.4.2 except that it is a means by which the owner intended to keep strict control over expenditure. The subclause refers only to the obligation to make further payments despite the fact that, for subclause 6.4.1, the payment was not intended to create any contractual relationship between the owner and the subcontractor. It may be assumed that such a contractual relationship was in contemplation but it was to be treated as being no more than a single contract from time to time.
This appears to be consistent with the two other obligations arising under the Deed of Variation. Those two matters are that the owner was never responsible to pay any more than $123,741.50 over and above the amount that it had already paid and any amount that it did pay directly to subcontractors was to be deducted from that figure. All of the costs of completion over and above that figure now had to be paid directly by Rova. This is consistent with clause 4 of the agreement and in particular subclause 4.7 where there is an obligation upon the company to complete the building work within 2 months of the 28 February 2007 and in the event of failure, Rova as the project manager would pay to the owner a liquidated damages sum.
In the end, the first obligation of the owner was to pay the sum of $53,741.50 within 24 hours of completion of the building work and the issue of a Certificate of Occupation.[27]
[27] Deed of Variation 22 February 2007 paragraph 5.
The owner also agreed to pay to the company the sum of $70,000 plus GST in full settlement of any variation claim within 24 hours of the conditions referred to in clause 4.8 having been satisfied. Those conditions were to procure a Certificate of Occupation at the time of practical completion of the building work.[28]
[28] Ibid at paragraph 5.2.
In variation of previous arrangements, the owner made an arrangement to pay subcontractors directly within 7 days of the completion of work, presumably of the subcontractors. In order to do that, the owner was to deposit money into the trust account of the company’s solicitor but these funds were to be held in the name of the owner. The solicitors were to hold the funds in trust for the owner and the amount of those funds (based on what was said to the owner by Rova) was, according to Rova, to be sufficient to meet the obligations of subcontractors.[29]
[29] Ibid subparagraphs 6.1 and 6.2.
The payments to subcontractors would be made from funds of the owner held in trust by the solicitors upon written authorisation having first been obtained from the owner. There was a limit of the amount to be paid to any of the specific subcontractors from the trust fund. That total amount to be paid was in the sum of $123,741.50 being the total of the amount unpaid on the first contract price ($53,741.50) and the amount of $70,000 in respect of variation claims.
In the result, the owner’s obligation was to provide $123,741.50 to the trust account of Winters Solicitors who, upon written authorisation of the owner, would make payments to subcontractors.
There were further stipulations within the 22 February 2007 agreement.[30] No contractual arrangement would be established between the owner and any subcontractor. On one view, this was a variation of the project management agreement because in that contract, Rova acted as the agent of the owner to make contracts between the owner and subcontractors. Second, it was a term that the owner would not be liable to either Rova or to the subcontractor to make any further payments to the subcontractor. This is consistent with the earlier terms of the agreement that, over and above the $123,741.50, all payments to subcontractors would be made by Rova. Ultimately, there was a set off arrangement made between Rova and the owner whereby any payments made to subcontractors would be set off against any liability of the owner to the company to the limit of $123,741.50.
[30] Clause 6.4.
I will deal later in this judgment in detail with the question of the establishment of the trust fund, the significant features of that trust arrangement, the interests of the beneficiaries (if any) and any other personal entity (if any) in that trust fund and the obligations of the solicitors. However, I think it may be stated at this juncture that the terms of the Deed of Variation document disclose that the solicitors acting for Rova are prepared to accept money into their trust account and to hold those funds in trust for the owner. This position also requires the solicitors to comply with the Legal Practitioners Act 1981[31] and other obligations in relation to maintaining trust accounts for monies paid into that trust account by the owner.
[31] s31—Disposition of trust money
On the evidence before me no account seems to have been given by the solicitors to a potential conflict of interest due to the fact that although they were solicitors acting for and on behalf of Rova, by an arrangement between Rova and the owner, those solicitors were to be obligated to create a new trust account and hold funds for and on behalf of the owner in respect of obligations entered into by the owner with the solicitor’s own client, Rova. This difficulty is compounded by the fact that under particular circumstances the fund held by the solicitors could be the subject of a claim for payment by the client, Rova, but that payment out was always subject to the discretion of the owner.
In my view, Winters Solicitors potentially held the funds under a number of obligations: first, in trust for the owner pending the owner’s directions in relation to the disbursement of the trust account to various subcontractors; second, for the subcontractors themselves who (if this is the case – and it appears not to be), in the knowledge of the existence of the trust account, entered into obligations with the company to do work upon the site. No thought appears to have been given to the difficulties created by the establishment of this trust account.
Despite the best intentions of the parties by their agreement under the Deed of Variation dated the 22 February 2007, it was not long before the relationship soured again.
By 26 March 2007, Mr Barrett was telephoned by Mr Glynn Pretty. Mr Barrett made a telephone note of the conversation.[32] Mr Pretty complained that Kenneth Cheuk was un-contactable, that work was very slow, that the air-conditioning contractor had not been paid, that he had not received any proper accounts, that the finishing time as suggested was not attainable and that the liquidated damages penalties would be matters to be taken into account. The note records that Mr Pretty also said that Andrew Taplin would pay immediately on getting the list of creditors. The list of creditors was referred to in clause 4.6 of the Deed of Variation of 22 February 2007.
[32] T69.
Matters had not progressed by 30^th March 2007.[33] On that occasion, Mr Barrett received a telephone call from Mr Pretty who had identified that the company had only paid creditors totalling $66,000 out of the $290,000 that had been paid by the owner to Rova. The owner wished to know where the rest of the $296,103.95 had gone.[34] As well, Mr Pretty complained that he had not received any relevant accounts and he had received no trust details from the firm of solicitors.
[33] Evidence of Mr Barrett T70.
[34] Exhibit P5.
That was followed up by an email from Mr Pretty to Kenneth Cheuk and a copy to Mr Barrett. It is an important email which I set out hereunder:-
“Attention: Kenneth Cheuk
Re: 337 South Terrace, Adelaide
After many requests I am at last in receipt of a list of sub contractors and monies paid by you. I note that you have only paid a sum of $67,250.32, Kenneth I have paid you $296,258.50 + GST. In our deed of variation dated 22^nd February 2007 and in a letter from your solicitors dated 20^th February 2007, you committed to pay all outstanding debts in full.
This has clearly not been done, my property will never be finished if you do not pay money owed as you will not be able to get sub contractors back on site and more delays will occur. I remind you that completion dated [sic] is supposed to be 22^nd April 2007.
I have committed to pay sub contractors only for work being done after the signing of our deed of arrangement on 22^nd February 2007. I cannot do this if I am not presented with detailed accounts from you or your lawyer. Also I have not been given details of the trust account number to transfer funds to.
Kenneth I am finding it very frustrating at not being able to communicate with you, it is a waste of time me talking to James as he cannot make any decisions. I have had numerous phone calls from sub contractors that are owed money asking me how to get in contact with you. Could you please contact me immediately on 0417 851 815 so we can discuss the above matters.
Regards
Glynn Pretty”

In a telephone conversation of the same date, after receipt of the email,[35] Mr Pretty reaffirmed to the solicitor that the money that he was now providing was not meant to be used to pay previous creditors and he would not do so. Mr Barrett gave evidence that the attitude of Mr Pretty was very firm and clear: that the new arrangements from the 22 February 2007 were to be a new beginning. It is to be recalled that the contract was originally to be completed by 30 October 2006 and, by March 2007, there had been no further progress in completion since 22 February 2007.
[35] T71 evidence of Steven Barrett.
Following the communications from the defendant to the firm of solicitors, Mr Barrett had a telephone conversation with Kenneth Cheuk. The note of that telephone conversation is at Exhibit P2 tab 9. There are a number of pertinent features of the note but the two principal ones are that Kenneth Cheuk has confirmed that he now has money to finish the South Terrace contract and to pay his creditors so that some of the money coming from the defendant to the solicitor’s trust account can be used to pay the company and not the creditors. Mr Barrett correctly informed Kenneth Cheuk that once the money was in the solicitor’s trust account, it could not be released without approval from all of the parties as per the 22 February 2007 agreement.
On 2 April, arrangements were made for the defendant to pay $20,000 into the solicitor’s trust account. There were a number of conversations between Mr Barrett and Mr Pretty on that day.[36] In particular, Mr Pretty was prepared to pay the account of Ted’s Plumbing in relation to South Terrace.[37] This account was in the order of $4,631.40. Following that payment, Mr Pretty sent to the solicitors an email the contents of which is as follows:-
“Attention: Stephen Barratt
Stephen,
this [sic] morning I have deposited $20000 in to the Winters trust a/c to be used to pay sub contractors who are working on the South Tce site.I [sic] will deposit further funds as they are needed.
As per our agreement dated 22^nd. Feb 07 all accounts will have to be submitted to me for acceptance and no funds are to be dispursed [sic] until I have given my permission in writing.
Glynn Pretty.”[38]
[36] Compare T43, 44 and T69-71. See especially T71.25.
[37] Exhibit P2 tab 11.
[38] Exhibit P2 tab 12.
In my view, there could be no doubt in Mr Barrett’s mind what the intentions of Mr Pretty were in relation to these funds. In that context, Mr Pretty continued to send to Mr Barrett accounts to be paid.[39] In that period, Mr Barrett did confirm to Mr Pretty the amounts that he was paying.[40]
[39] See Exhibit P2 tab 13 and 14.
[40] Exhibit P2 tab 14; T45.1.
By an email of 10 April 2007, to the solicitors, Mr Pretty confirmed to Mr Barrett that pursuant to the 22 February 2007 agreement he was not obligated to pay any overdue accounts to subcontractors but that he has elected to pay some contractors who are providing ongoing work to the site in order to avoid any delays. He agrees to pay a Tec Services account but not the accounts from Chan Fui Yap.[41] And consistent with the position of the owner, on 10 April 2007 the owner placed a further $20,000 into the solicitor’s trust account.[42]
[41] Exhibit P2 tab 15; T72.
[42] Exhibit P2 tab 16.
The next day, Mr Pretty sent an email to Mr Barrett the terms of which are as follows:-
“Stephen,
I have just transferred a further $20000 to your trust A/C. The total now is $80000.
I have only sighted and agreed to pay $3761.10 to Cosywrap/Boral.
There is discrepancy of $913.90.Could you please furnish me with the account for approval.
I have sent via fax to you a further six accounts to be paid totalling $29230.45.The amount paid out of your trust account on my behalf including the disputed amount of $919.90 should now be $70387.54.
Stephen would you please, again, inform your client that by the terms of clause 4.8 of our agreement dated 22^nd. [sic] February I am not obligated to pay any funds until the practical completion of the building work.I [sic] have done so in order to expediate matters.As [sic] I have said before by the terms of clause 4.5 your client should have paid a number of the accounts that I have paid.
It is obvious to me that building works will not be complete by the due date of 22^nd.April [sic] 2007.In view of the amount of work still to be done and the costs this will occur I cannot be expected to pay all sub contractors as this would exceed the amount of funds I have agreed to pay.
Regards,
Glynn”
Mr Barrett also confirmed in evidence[43] that in a conversation with Mr Pretty on 11 April 2007 Mr Pretty said the owner was not going to pay any more, that Kenneth Cheuk was not keeping his end of the bargain and that the building could not be finished within the time stipulated. Notwithstanding, Mr Pretty continued to pay accounts as they arose for subcontractors.[44]
[43] T45.
[44] Exhibit P2 tab 19.
By document dated 12 April 2007 directed to Rova[45] the owner set out its position and sought completion of the project. In particular the threat was raised that liquidated damages would apply at the rate of $400 per day and that the project would not be completed by June 2007.[46]
[45] Exhibit P2 tab 20.
[46] “Dear Stephen,
We write this letter on behalf of the Registered Proprietor, Pretty Nominees Pty Ltd. We are very concerned and frustrated with the lack of progress at the above site. As you know our client has made available to your Trust account monies as and when they have been requested despite your client still not honouring a number of terms in accordance with the signed Deed.
The areas of great concern are as follows:
1.On numerous occasions we have requested a meeting with the Principal, Kenneth Cheuk. Regrettably such a meeting has not taken place and instead his employee James attends meetings but is not in a position to answer questions as his authority has been limited by Kenneth. This has resulted in getting no clear answers and this is frustrating the building program. We request an immediate urgent meeting be held with all parties.
2.You would be aware that the Deed provides for your client’s company to provide our client liquidated damages of $400 per day. We have carried out an independent assessment of progress and based to [sic] current performance the advice we have received would indicate that the site may not be completed until June 2007. This would result in your client being liable for considerable liquidated damages.
Our client simply wishes to see the project completed in accordance with the terms of the agreed Deed.
We look forward to a response in respect to an urgent meeting in order to resolve the outstanding issues.
Regards
ANDREW TAPLIN”
That email appears to have been the catalyst for a meeting of the parties which took place on Friday 13 April 2007 at 337 South Terrace Adelaide. Present at the meeting were Glynn Pretty, Andrew Taplin, Kenneth Cheuk and someone called James from Rova.
A document in the nature of a minute was prepared following the meeting. It was sent to Mr Barrett.[47] It appears to have been sent on 24 April 2007. There was no explanation for the delay. After covering a number of issues, and after the company advised that $80,000 inclusive of GST had been paid to the Winters trust account and $70,000 of that sum had been authorised to be released, it records that it was resolved as follows:-
“No further payments would be made until the company (Rova) provides a detailed and comprehensive list of:-
a)   What is due to subcontractors;
b)   What portion is to be paid by the owner (such payment not to exceed amounts set out in the Deed);
c)   What portion is to be paid by the company (Rova).”
[47] T74-75.
There was then a reaffirmation that the owner would be willing and able to make payments under the terms of the Deed within 24 hours once a satisfactory and comprehensive list has been provided. There was an undertaking given by Kenneth Cheuk to provide the list. I am unable to accept the submission by Rova that the document at tab 21 must be read as doing no more than reaffirming the 22 February 2007 agreement and that the reference in that document to “no further payments” is a reference to no further payments in the trust account as opposed to no further payments out to subcontractors. The meaning of the document, read as a whole, is that nothing is to be paid by the owner until such time as the matters set out in subparagraphs (a), (b) and (c) are resolved. The document ends in the following terms:-
“Glynn Pretty and Taplin reinforced that they are willing and able to make payments within 24 hours in accordance with the terms of the Deed and once the satisfactory and comprehensive list has been provided.”
The list is the list of subcontractors and what is due to those subcontractors. The issue is the amount to be paid by the owner and the amount to be paid by Rova. I am therefore also unable to accept the argument put by Rova that when the document of 13 April 2007 (tab 21) is considered together with the document of 24 May 2007 (tab 28) it means that the document of 24 May 2007 was to lift a “suspension” as may have been agreed in April for the same reasons.
Soon after the 13 April 2007 meeting Mr Pretty was again in contact with Mr Barrett because he could not make contact with Kenneth Cheuk. The matter communicated was the possible legal action anticipated by the owner and the refusal to cooperate further until Rova honoured its part of the bargain. That was followed up by a further telephone conversation of 24 April 2007 between Mr Barrett and Mr Pretty.[48] Mr Barrett said in his evidence that Mr Pretty again confirmed that he had not received the list of subcontractors to be paid by them. [49] This was a matter that was supposed to be attended to after the 13 April meeting and subcontractors were continued to be retained on the site.
[48] Exhibit P2 tab 23.
[49] T76.
One exception appears to have been the roofing contractor. Authority was given by the owner to pay the roofing contractor the sum of $10,879. The evidence was not made clear why it is that the roofing contractor was paid.
A further email was sent from the owner to the firm of solicitors dated 26 April 2007. It discloses a growing sense of frustration of the owner. It recorded the breaches by Rova and then said as follows:-
“It would appear to me now that your client should undertake to pay all subcontractors in order to facilitate a speedy completion of the building work. We will be happy to promptly pay monies that are due in accordance with the Deed signed.”
The document was signed by Mr Glynn Pretty.
The 24 May 2007 meeting
Following that email and following a further telephone conversation between Glynn Pretty and Stephen Barratt,[50] a meeting was held on 24 May 2007. Mr Barrett was at the meeting and his recollection was that the meeting took place on that day at the office of Taplins at Glenelg. Mr Andrew Taplin[51] could not remember any meeting at his premises. He remembered attending such a meeting at the office of the solicitors. The evidence led on this matter leaves the position unclear. It is sufficient to decide that a meeting occurred and that decisions were made and commitments entered by the parties.
[50] Exhibit P2 tab 26; T46.
[51] Evidence of Stephen Barrett T87.
There were a number of items that were discussed at the meeting. In no particular order they were: the failure by Rova to finish by April notwithstanding the money put into the trust account by the owner; the failure of Rova to pay the subcontractors; the failure of Rova to continue works and concerns about losses being sustained by the owner because of a failure to be able to provide premises to a potential lessee; that $70,000 had been paid under the 22 February 2007 agreement and there was about a further $53,000 to be paid into the solicitor’s trust account, and that Kenneth Cheuk said that Rova does not need the money at present because he had made other arrangements to take care of the costs of completion.[52] In particular, a question was asked by Andrew Taplin as to whether Kenneth (Cheuk of Rova) had sufficient money in reserve to pay the subcontractors now, and there was confirmation that Rova could make these payments (actually or impliedly from its own sources).
[52] Evidence of Stephen Barrett T123.5.
A document of agreement was signed on that day. It was described by Mr Dal Cin on behalf of Rova as being merely a reaffirmation or a recommitment (actually and morally) to the 22 February 2007 document.
I am unable to agree with that characterisation of the document for the reasons that I have set out earlier in these reasons.
The final signed document reads as follow:-
“MEETING 24 MAY 2007 AT WINTERS SOLICITORS
After discussion of issues and with the intent of completing the South Terrace job it has been agreed in principle between the parties as follows:-
1.   Pretty agrees to pay an amount of approximately $43,741.50 into Winters Trust Account;
2.   The money held in the Winters Trust Account is to be held in Trust until the completion of the project and no payment out of that amount shall be made by Winters unless authorised in writing by Pretty;
3.   Rova undertakes to complete the building works as per the plans and contract;
4.   Rova undertakes to complete the building works as per the Schedule provided at the meeting (the completion schedule).
5.   Rova agrees to pay sub-contractors all due entitlements and to ensure continued goodwill of sub-contractors;
6.   The terms of the Deed of Variation made on the 22^nd of February 2007 remain in effect and the obligations therein are ongoing.
7.   SIGNED THIS 24^TH DAY OF MAY 2007”
There were a number of iterations of the document.[53] Paragraph 4 refers to a completion schedule. There is evidence that there was a list circulated before the meeting showing the works to be done.[54] No such list has been discovered or tendered by either party. Some evidence was given by Mr Taplin of the content of the list but the quality of that evidence depended upon the vagaries of his memory.
[53] Exhibit P2 tab 27.
[54] T104.
Paragraph 5 of the signed document provides that Rova agrees to pay subcontractors all due entitlements and to ensure continued goodwill of subcontractors. This is after paragraph 1 in which the owner agrees to pay an amount of $43,741.50 into the Winters trust account and that money is to be held in trust until the completion of the project; no payment out of that money was to be made by Winters Solicitors unless authorised in writing by the owner.
The change of the arrangements
In my opinion, properly construed, this document (of 24 May 2007) discloses a different position than the 22 February 2007 document. It places the burden of paying subcontractors entirely upon Rova. A (further) specific sum is now to be paid into the Winters trust account (by the owner) and that money is to be held in the trust account pending completion. It also requires a completion of the building work as per a schedule put before the meeting. Having stipulated all of those further matters, it requires that the terms of the Deed of Variation made 22 February remain in effect. In my view, it is at the least implicitly (and probably actually) the position that paragraph 6 is a recognition that subject to the matters set out in the 24 May 2007 document, the Deed of Variation of 22 February 2007 remains in effect and the obligations upon the parties are recorded as ongoing.
In my opinion, the document of 24 May 2007[55] is evidence of a further change of arrangements between the parties and became the third iteration of the parties’ agreements from and including the 22 February 2007 agreement. It stipulates in particular that Rova must pay all subcontractors all due entitlements and to ensure continued goodwill of subcontractors because expressly or impliedly, the owner’s money will not be used for that purpose.
[55] Exhibit P2 tab 28.
Properly understood it requires that the money held in the Winters trust account is to remain there until the completion of the project. The amount in the trust account can be diminished if specific permission has been given to the solicitor by the owner. Implicitly Rova has no say in that matter but whatever is paid by the owner from the fund reduces any entitlement of Rova. The owner is able to have and exercise full control of the fund. The entitlement, if any, of Rova to those funds is dependant entirely upon completion of the project and the only way that the payment can be made is by authority in writing signed by the defendant. A further discretion reposes in the owner to make any payment earlier than completion but this is at the discretion entirely of the owner.
It is my opinion that this arrangement changes the nature of the fund held in the Winters trust account. In my view, whatever argument there may have been in relation to subcontractors interest in that fund up to and including the 24^th of May 2007 (including in respect of those subcontractors who were retained by Rova with the implicit permission of the owner), the position now becomes that the subcontractors must look only to Rova for payment of their claims for payment as subcontractors. Any payment to come out of the fund in the trust account will only be paid at the discretion of the owner without any input from Rova (apart, perhaps, from a request). In those circumstances, it is my opinion that the nature of the fund now held in the solicitor’s trust account has again changed.
At the time that terms of what became the executed contract meeting of 24 May 2007 at Winters Solicitors were being negotiated[56] contemporaneous notes were being made by Mr Barrett and he also made some notes of the matters that were agreed between the parties.[57] Mr Barrett gave evidence about these notes.[58] He said that he did not draw or have typed the final signed form of document[59] and that he only summarised the discussions that were occurring.[60] His memory was that the document that was signed by the parties of that date and being the type written form, was prepared by the agent Mr Taplin and he thought that it was prepared in the agent’s office on the day of the meeting, 24 May 2007. There is one significant feature about these handwritten notes.[61] Item 6 of the handwritten notes reads:-
“(6) Other terms of deed 22/2/07 remain…”
[56] Exhibit P2 tab 28.
[57] Exhibit P2 tab 29 page 92.
[58] T88-97; T99.
[59] Exhibit P2 tab 28.
[60] T90-91.
[61] Exhibit P2 tab 29.
The typed document at number 6 reads:-
“6. The terms of the Deed of Variation made of 22^nd of February 2007 remain in effect and the obligations therein are ongoing.”
The significant feature self evidently is the omission from the typed document of the word “other” to be found in the notes of Mr Barrett. It appears implicit, if not explicit that paragraph 6 of the signed typed document is what may loosely be described as a “carry over” provision. It may sensibly be read as meaning that, except to the extent of the matters described in paragraphs 1, 2, 3, 4 and 5 of that signed document, the terms of the Deed of Variation of 22 February 2007 remain in effect. In my view, on a reading of the document as a whole this is clearly the meaning of clause 6 of the typed agreement of 24 May 2007.
Mr Barrett also records at Exhibit P2 tab 29 page 93 that there was general discussion about the list of tasks before the meeting. It was identified that this list omitted matters that were in the contract. Two items were raised namely landscaping and an alarm system. Those matters had to be attended to and again this is consistent with the parties agreeing to variations to their existing arrangements.
On the day of the meeting and in accordance with the requirements of the 24 May 2007 written agreement, the owner transferred to Winters’ trust account the sum of $43,741.50 and confirmed that in total, the owner had now deposited to the trust account of the solicitors the sum of $123,741.50 calculated in accordance with the Deed of Variation dated 22 February 2007.[62]
[62] Exhibit P2 tab 31.

It is not in contest that by 22 February 2007 the project was incomplete. It is known that it was completed (by another builder) in March or April of 2008.
The Deed of Variation was agreed and executed by the parties in the context of that factual background. Under paragraph 4 of the recitals of the Deed of Variation, Rova says that it will ensure that the building works are completed as set out in this Deed and the contract. That is after recital 2 announces that the completion of the building work has been delayed and is not progressing. At that stage, the owner had paid to Rova some $296,258.50 of a total contract price of $350,000.
Under paragraph 4 of the contract proper, Rova warranted to the owner that it would execute and complete the building work. Under subclause 4.7, Rova undertakes to complete the building work and to procure a certificate of occupation at the time of practical completion of the building work within 2 months from 28 February 2007. As a matter of insurance, Rova undertakes that in the event that the work is not completed by that date, then liquidated damages will be paid at a rate of $400 per day up to a total of $10,000 per month.
It is not in contest that Rova never ensured that the building works were completed by the prescribed date (or at any time after that). Those works remained delayed and did not progress. The lack of progression of that building work was the responsibility of Rova. That occurred because Rova did not pay its subcontractors and was unable to bring subcontractors onto site to carry out the work. Despite the content of the agreement of 22 February 2007 and the obligations upon Rova which were breached, the owner continued to pay money into the trust account of the solicitors in accordance with its obligations under that agreement.
For reasons which have already been canvassed, disaffection between the owner and Rova grew over time so that, by 13 April 2007 a site meeting was held at which the defendant “vented” its dissatisfaction about the failure by Rova to comply with the terms of the project agreement or the Deed of Variation of February 2007.
I am satisfied on the whole of the evidence that this meeting resolved that no further payments would be made by the owner to the solicitors until Rova provided a detailed and comprehensive list of what was due to subcontractors, and what portion was to be paid by the owner and what portion was to be paid by Rova.
My view is that the document of 13 April 2007 and the matters referred to therein as the issues resolved between the parties does not purport to amend the obligations of Rova under the building contract or the variation agreements. It does reflect the fact that the owner is dissatisfied with the failure of Rova to comply with all of the terms of the variation agreement of February 2007. It is important to identify that the last issue discussed at the meeting was that Kenneth Cheuk of Rova undertook to provide the list as required by the document at his earliest possible convenience.
As late as 12 April 2007 and certainly before that time, the owner identified to Rova that the rate of performance of Rova could not comply with the Deed of Variation of February 2007 and that the works may not be able to be completed before June 2007, the relevant factual circumstances gave rise to potential claims for liquidated damages. Those matters were being discussed and documents were being exchanged between the parties about those topics, in the days and weeks leading up to 13 April 2007 and certainly subsequent to that date. For example on 24 April 2007 (Exhibit P2 tab 22), the anger of the owner is palpable when, communicating with the solicitors, the owner identified that no one was on site, work had stopped and legal action was possible. I also refer to Exhibit P2 tab 22 and tab 23.
Soon thereafter, the meeting of 24 May took place. I have already expressed the view that the first 5 paragraphs of the documents signed on 24 May 2007 by the owner and Rova are to be understood as an agreement standing aside from but varying the obligations of both parties under the Deed of Variation and the building contract.
For that purpose, it is only necessary again to refer to paragraph 2 where, in this instance, the money held in the Winters Trust Account is not to be paid out but is in fact to be held until the completion of the project without any payment out being made except as authorised in writing by the owner. There is then a reiteration of the undertaking by Rova to complete the building works in accordance with the plans in the contract. Notwithstanding the stated intention, it was impossible for Rova to complete the building works as per the plans and contract because the target completion date had passed, there was no final completion and the matter had not progressed to a point where the time stipulation under the Deed of Variation (namely on or about 28 April 2007) could be met.
In that instance, Rova was to provide to the owner with a schedule, and further, Rova was to pay subcontractors all due entitlements.
Very soon after that agreement, and on the same day, the amount of $43,741.50 was paid by the owner to the solicitors’ trust account in accordance with its obligations under the 24 May 2007 agreement. A further amount of $20,174.50 was paid in on 28 May 2007 and permission was given to release $5,000 to Rova in order to allow it to pay a tax debt.
Notwithstanding that the owner observed its obligations under all agreements, Rova failed to fully observe and comply with its obligations under any of the agreements. Also, in regards to paragraph 4 of the agreement of 24 May, the completion schedule disclosing the date prescribed by Rova for completion of the building works is not tendered in evidence. I understand that it could not be found. Nothing changed in the context of the failures by Rova and that position did not change throughout July of 2007.
On 20 August 2007 the owner through its solicitors, Cowell Clarke Commercial Lawyers, delivered a letter of the same date to the firm of solicitors. It contained a document entitled Notice to Show Cause (Exhibit P2 tab 45). That document was also dated 20 August 2007.
The Notice to Show Cause relevantly reads:-
“WHEREAS the Principal and the Contractor entered into an agreement in writing dated 20 June 2006 for the Contractor to provide Project Management Services and Building Works in relation to the re-fit of premises owned by the Principal at 337 South Terrace, Adelaide in the said State and WHEREAS the Agreement was varied by a written Deed of Variation entered into between the Principal and the Contract dated 22 February 2007 (“the Agreement”).
The Principal, by this Notice given under the Agreement, hereby notifies the Contractor that it has committed a substantial breach of the Agreement in that the Contractor has:
(1)   Suspended the work under the Contract.
(2)   Failed to proceed with due expedition and without delay.
(3)   Failed to complete the Building Works by 28 April 2007.
(4)   Failed to procure a Certificate of Occupation by 28 April 2007.
The Principal requires the Contractor to show cause in writing why the Principal should not exercise its rights to take the whole of the remaining Works yet to be completed under the Agreement out of its hand and to terminate the Agreement.
Unless the Contractor by 4 p.m. on Thursday, 23 August 2007, shows cause why the Principal should not exercise the right to terminate the Agreement, the Principal will terminate the Agreement.
The Principal, in any event, claims liquidated damages from the Contractor at the rate of $400 per day or $10,000 per month from 28 April 2007.
Dated: 20 August 2007.”
It is noteworthy that the document does not mention the 24 May 2007 agreement. It does not mention the lists and it relies upon a failure to comply with the time limits as prescribed by the 22 February 2007 agreement.
Notwithstanding, it may immediately be noted that the notice does not comply with the content of clause 26 of the building contract (Exhibit P2 tab 1). It does not provide a 20 day period. The period is less than three days because it requires the contractor by 4:00pm on Thursday 23 August to show cause why the principal should not exercise the right to terminate the agreement.
It is not necessary for me in this matter to identify the document that, in my opinion, should have been delivered. The notice to show cause appears to be a hybrid attempt to identify what may be considered to be intermediate matters or alternatively breaches of essential terms that would justify giving the notice. However, time is not made of the essence by the notice and the notice does not purport to terminate the agreement on the basis of the alleged repudiatory conduct of Rova. Rather, it gives Rova three days notice to show cause why the principal should not exercise the right to terminate the agreement.
As a matter of history, the agreement was terminated on 27 August 2007. On one view, because of the way this matter has developed, it is not necessary to make any particular findings in relation to termination or the correctness thereof.
The contract was brought to an end at a meeting of the parties on 27 August 2007 on site. It was done by an announcement by Andrew Taplin on behalf of the owner that the contract with Rova was to be terminated and a new builder appointed.
Some 7 days later, on 3 September 2007 an administrator was appointed to Rova.
No challenge has ever been raised by Rova to the termination of the contract. That matter has largely fallen by the wayside because of the effluxion of time. However, in deference to the arguments that had been put to me, I need to canvass some issues in relation to the question of the entitlement, if any, of the owner to terminate the agreement.
In argument I was referred to a number of well known authorities concerning the termination of contracts.[122] The decision of the High Court in Neeta (Epping) Pty Ltd concerned a contract for the sale and purchase of land. Particular and specific rules apply in relation to making time of the essence of such contracts. As well in such contracts presumptions arise in equity about the absence of time being of the essence unless it is made of the essence by either the terms of the parties themselves or by a notice by one party to the other under the contract for sale and purchase of land. Because of the unique nature of those matters I do not need to consider them further. I gain no assistance from that decision.
[122] Carr v JA Berriman Pty Ltd [1953] 89 CLR 327 at 348-350 (Carr v Berriman); Neeta (Epping) Pty Ltd v Phillips [1974] 131 CLR 286 at 297-298, 299 and 302-303 (Neeta(Eppings)).
Turning to the Carr v Berriman decision, the focus of the Court there was whether or not time was of the essence of the contract in circumstances where the contract was terminated. One consideration was whether or not the conduct by the promisor with respect to his promise (the failure by the promisor) amounted to a refusal to be bound by the contract meant that it would be plainly understood that the promisor intended to take steps towards the performance of his duty under the contract if and when it suited him and not before. That is, that the promisor did not intend to be bound by the contract. The termination would not be deemed wrongful. These are all questions of fact.
All of these authorities were considered by the High Court in its decision in Koompahtoo Local Aboriginal Council and Anor. v Sanpine Pty Ltd and Anor. (2007) 233 CLR 115. The facts in Koompahtoo are well known. The respondent Sanpine entered into an agreement with Koompahtoo as the owner of property under an arrangement called a Joint Venture Agreement for the development and sale of the property which was to be self funded. Koompahtoo contributed the land and Sanpine, which had no other business was to manage the project, and it was to have a 50% interest in the joint venture. There was difficulty obtaining finance for the project and in the course of a 5 year period, Sanpine incurred liabilities of in excess of $2,000,000.00 which was secured by mortgage over the land.
An administrator was appointed to Koompahtoo, the mortgagee went into possession of the land and the administrator tried to obtain all relevant information concerning the joint venture but was unable to procure that information. The failure to provide that information including proper books of accounts, financial records, details in relation to the activities of the joint venture and details in relation to borrowings, loans and other matters were not provided by Sanpine. There was no development programme, there was no regular update to a development programme, there were no bookkeeping and accounting services and generally, the whole project was in disarray. At first instance, Campbell J upheld Koompahtoo’s right to terminate the agreement on the basis of Sanpine’s breach of the joint venture agreement which fell into four categories:-
1.   The rezoning obligations which Sanpine had failed to perform;
2.   Sanpine’s failure to produce relevant documents and maintenance;
3.   Sanpine’s failure to properly record banking and spending of money; and
4.   (concomitant with 3) Sanpine’s failures to maintain proper books and records.
The conduct relied upon by Koompahtoo did not identify a term that may be described as essential, according to the trial Judge.[123] Koompahtoo relied upon a series of breaches of what were described as intermediate terms. That is, terms which did not fall within the classification of essential terms or conditions of the contract but rather were a collection of breaches of the contract by Sanpine which Koompahtoo relied upon to justify its decision to terminate the contract.
[123] There must be some doubt about that matter having regard to the important obligation to keep proper books and records in relation to the joint venture business though this does not need to be decided here.
In its decision, the High Court took the opportunity to summarise the position in relation to both the question of breach of intermediate terms and the question of what may constitute a condition for essential terms, so that any breach of such term would justify termination. The High Court was careful to identify that it rested its decision not upon the ground of breach of an essential obligation but upon application of the doctrine respecting intermediate terms. The task therefore is to identify what may constitute the doctrine of intermediate terms.
The principles as summarised by the High Court may be stated as follows:-
1.   Repudiation may be evidenced by:-
a.   Evidence of an unwillingness or inability to render substantial performance of the contract (an intention no longer to be bound by the contract or to fulfil it only in a matter substantially inconsistent with a party’s obligations). This test is objective namely whether a reasonable person in the situation of the other party would understand the conduct of the other party as to convey that the party in breach is renouncing either the contract as a whole or some fundamental obligation under it.
b.   Some breach of contract which justifies termination by the other party.
2.   Those cases where a failure to perform some particular obligation under a contract, which obligation does not fall within what may be commonly understood as an essential term of the contract still may be understood as being the manifestation of an unwillingness or inability to perform the contract in such terms where the other party is, subjectively and objectively entitled to conclude that the contract would not be performed substantially in accordance with the requirements of that contract. This is usually apparent when the time for performance arise and nothing occurs. The High Court described this as “…actions speaking louder than words…”[124]
3.   Although damages are ordinarily the remedy for breach of a contract there will be those circumstances where an ongoing relationship between the parties cannot be justified such that, in due course, an award of damages may be made between one and the other. Usually this is a matter of fact and degree and if a party is so in breach of a contract that its ongoing maintenance is untenable, then the termination of the agreement would be available.
4.   As commonly understood there are two circumstances where a breach of contract will entitle the other to terminate. They are:-
a.   When the obligation is such that the failure to comply with the agreement has been in respect of a term that may be described as essential. Another method of expression of the same concept is to describe the clause of the contract as “a condition”. Conditions or essential terms are to be contrasted with warranty. Sometimes the expression of essential and inessential terms is used. It is also often the case that either from the intention of the parties expressed in the language of their contract or alternatively by the very terms used within the contract, an essential term may be identified so that a breach of that term would justify termination.
b.   The second relevant circumstance is a serious breach of a non-essential term. That is, a breach of a non-essential term is to be contrasted with a serious breach of a non-essential term. Leaving aside matters that concern breaches of matters that are considered to be trivial, Courts will make a distinction, within a consideration of what are non-essential obligations, between significantly serious breaches of a non-essential term which would justify termination and any other breaches of those non-essential terms. That is, there will be some breaches of non-essential terms that are so serious that the party not in default will be substantially deprived of the whole of the benefit that was intended to be obtained by that party under the terms of the contract. These are all questions of fact and degree including an ascertainment of the whole of the circumstances surrounding the breach and the consequence of the breach itself. The non-essential term breaches which may be so significant as to give rise to a justification for termination are now described as intermediate or innominate terms.
[124] Koompahtoo at [44].
As a result of Koompahtoo, a breach of an intermediate or innominate term of such a serious nature may or will give rise to a right of termination ordinarily. Such breaches, because they must be so serious, are often described as going to the root of the contract but this requires a discourse about the terms of the contract, the nature of the relationship, the nature of the term, the kind and degree of the breach and the consequences of the breach for the other party. In general, in respect of such breaches, damages cannot be an adequate remedy for the breach.
In the view that I have formed, and having regard to the relevant authorities, it is plain that time was not made of the essence in the contract for the date for completion of the obligations of Rova. That is either the original project management agreement, the Deed of Variation or the 24 May agreement. It follows that it is my opinion that the document entitled “Notice to Show Cause” was largely irrelevant and certainly did not, of itself, give rise to any common law rights in relation to the contract.
Despite those views, it is also my view that having regard to the whole of the history of this matter, the owner was justified in terminating the contract because of the accumulation of the breaches by Rova in failing to pay subcontractors, bring subcontractors onto site, complete the works, complete the works in a timely fashion and to comply with any of the further agreements made between the parties. The owner properly exercised its right to terminate the contract.
In those circumstances, I am of the view that notwithstanding the failure of process by the owner (through its solicitors), the owner was justified in terminating the contract. Its termination of the contract was made in circumstances and in the facts of the matter that did not give rise to any right in Rova to claim wrongful repudiation and damages. In those circumstances, I am unable to accept the submissions of Rova in that regard.

I dismiss the plaintiff’s claim.
I will hear the parties in relation to the question of costs.

If the Court orders under section 233, 459A, 459B or 461 that a company be wound up, the winding up is taken to have begun or commenced:
(a) if, when the order was made, a winding up of the company was already in progress--when the last-mentioned winding up is taken because of this Division to have begun or commenced; or
(b) if, immediately before the order was made, the company was under administration--on the section 513C day in relation to the administration; or
(c) if:
         i) when the order was made, a provisional liquidator of the company was acting; and
            ii) immediately before the provisional liquidator was appointed, the company was under administration;
        on the section 513C day in relation to the administration; or
(d) if, immediately before the order was made, a deed of company arrangement had been executed by the company and had not yet terminated--on the section 513C day in relation to the administration that ended when the deed was executed; or
(e) otherwise--on the day when the order was made.

(1)Subject to subsection (2), a legal practitioner must, as soon as practicable after receipt of any trust money in the course of practice, deposit the money in a trust account and must not withdraw or permit it to be withdrawn except as authorised by this Part.
(2)Where at or before the time that a legal practitioner receives trust money the practitioner is given a written direction by the person entitled to the money to dispose of it in a manner specified in the direction, it is lawful for the legal practitioner to act in accordance with that direction.
(3)A legal practitioner may withdraw trust money from a trust account—
(a)for payment to the person entitled to the money or in accordance with the direction of that person; and
(b)     for satisfaction of a claim that the practitioner has against the person on behalf of whom the money is held for legal costs; and
(c)     to satisfy the order of a court of competent jurisdiction against the person on behalf of whom the practitioner is holding the money; and
(d)     if the money is subject to an instrument of trust, for making a payment in compliance with the terms of that instrument; and
(e)     for dealing with any unclaimed money in accordance with the Unclaimed Moneys Act 1891; and
(f)     for making payments to the Society under Part 4 for the credit of the combined trust account; and
(g)     for making any other payment authorised by law.
(4)The legal practitioner must keep detailed accounts of all trust money received, and of any disbursement or other dealings with the money in a manner—
(a)     that accurately discloses the state of any trust accounts maintained by the legal practitioner; and
(b)     that enables the receipt and disposition of trust money to be conveniently and properly audited.
(5)The legal practitioner must keep detailed accounts of any trust money received that is, by virtue of a direction to which subsection (2) relates, not paid into the practitioner's trust account, and of any disbursement, or dealing, affecting that money.
(6)A legal practitioner—
(a)     must not, without the approval of the Supreme Court, permit trust money to be intermixed with other money; and
(b)     must not, without the approval of the Supreme Court, keep a trust account at an ADI, or a branch of an ADI, outside the State; and
(c)     must, unless approval has been given under paragraph (b) to keep a trust account outside the State, keep it at an ADI that is prepared to pay interest on the account at a rate equal to or above the rate determined by the Society.
(6a)The Society may make a determination for the purposes of subsection (6)(c) and may revoke or vary a determination made by it under that subsection.
(7)An approval under subsection (6) may be given on such conditions as the Supreme Court thinks fit.
(7a)A legal practitioner who receives trust money in the course of acting in a matter must provide the person who instructed him or her in the matter with trust account statements in accordance with the regulations.
(8)A person who contravenes this section or a condition imposed by the Supreme Court under this section, is guilty of an offence.
Maximum penalty: $10 000.
(9)A legal practitioner who fails to deposit trust moneys in a trust account as required by this section is (apart from any penalty incurred under subsection (8)) liable to pay the Society interest on the amount of those trust moneys at the prescribed rate for the period of the default.
(10)The Society may, for proper reasons, remit interest payable under subsection (9) wholly or in part.
(11)Any interest received or recovered by the Society under subsection (9) must be paid into the statutory interest account.