Creggan Holdings Pty Ltd as trustee for the Gwendoline Trust v Rizzi as trustee for the Boston Investment Trust
[2022] WASC 6
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: CREGGAN HOLDINGS PTY LTD AS TRUSTEE FOR THE GWENDOLINE TRUST -v- RIZZI AS TRUSTEE FOR THE BOSTON INVESTMENT TRUST [2022] WASC 6
CORAM: ARCHER J
HEARD: 14, 15 & 16 SEPTEMBER, 20, 21, 22 & 28 OCTOBER 2021
DELIVERED : 14 JANUARY 2022
PUBLISHED : 14 JANUARY 2022
FILE NO/S: CIV 1670 of 2020
BETWEEN: CREGGAN HOLDINGS PTY LTD AS TRUSTEE FOR THE GWENDOLINE TRUST
First Plaintiff
GRANT STREET PTY LTD AS TRUSTEE FOR THE SECOND JOHN THOMPSON SUPERANNUATION FUND
Second Plaintiff
AND
RICCARDO RIZZI AS TRUSTEE FOR THE BOSTON INVESTMENT TRUST
Defendant
RICCARDO RIZZI AS TRUSTEE FOR THE BOSTON INVESTMENT TRUST
Plaintiff by counterclaim
CREGGAN HOLDINGS PTY LTD AS TRUSTEE FOR THE GWENDOLINE TRUST
GRANT STREET PTY LTD AS TRUSTEE FOR THE SECOND JOHN THOMPSON SUPERANNUATION FUND
Defendant by counterclaim
Catchwords:
Joint development - Order for sale - Order for an account
Legislation:
Nil
Result:
Orders made for sale and for an account to be taken
Counterclaim dismissed
Category: B
Representation:
Counsel:
| First Plaintiff | : | GD Cobby SC & J Moore |
| Second Plaintiff | : | GD Cobby SC & J Moore |
| Defendant | : | In Person |
| Plaintiff by counterclaim | : | In Person |
| Defendant by counterclaim | : | GD Cobby SC & J Moore |
Solicitors:
| First Plaintiff | : | Roe Legal Services |
| Second Plaintiff | : | Roe Legal Services |
| Defendant | : | Not Applicable |
| Plaintiff by counterclaim | : | Not Applicable |
| Defendant by counterclaim | : | Roe Legal Services |
Case(s) referred to in decision(s):
De Campo Holdings v Cianciullo [1977] WAR 56
Fazio v Fazio [2012] WASCA 72
Gebauer Nominees Pty Ltd v Cole [No 2] [2008] WASCA 41
Jones and Anor v Dalcon Construction Pty Ltd and Anor [2006] WASCA 205
Marcolong v Mattiussi [2000] NSWSC 834
Nullagine Investments Pty Ltd v Western Australian Club Inc [1993] HCA 45; (1993) 177 CLR 635
Pateman and Anor v Daw Koh and Anor [2007] WASCA 85
R v McKay; ex parte Cassaniti [1992] 2 Qd R 95
Rowe v National Australia Bank Ltd (2019) 56 WAR 1; [2019] WASCA 140
Squire v Rogers (1979) 39 FLR 106
Waterways Authority of New South Wales v Coal & Allied Operations Proprietary Limited [2007] NSWCA 276
Table of Contents
Introduction
Issues
Witnesses
Mr Thompson
Mr Gregson
Mr Stolsavljevic
Mr Rizzi
Facts
Development Agreement
Subdivision Agreement
Factual matters in dispute
Builder's Fee
The evidence
Conclusion
Was the defendant released from the obligation to do the builder's fit‑out?
Did the defendant refuse to do the builder's fit-out on buildings C and D?
Alleged indemnification agreement
Alleged agreement in October 2020
Order for sale?
Legal Principles
Analysis
Order for an account
Agreed categories
Qualifications
Disputed categories
Subdivision costs
Builder's fit-out costs
Joint ownership costs
Should an account be ordered?
Counterclaim
Orders
ARCHER J:
Introduction
The director of the plaintiffs (Mr Thompson) and the defendant have been involved in business for over 20 years. Mr Thompson has an accounting qualification. The defendant is, among other things, a builder. Through different corporate entities, they developed a number of properties. They worked well together and made money.
In 2011, the first plaintiff (Creggan, by Mr Thompson) and the defendant agreed to develop one of the properties they then[1] owned, being 3 Sarich Way, Bentley (Sarich Way). They agreed to build a large building which they would then lease. They agreed to share the costs and share the rental income. They agreed that the defendant would be appointed as the builder and would oversee the construction of the building, including the 'builder's fit-out',[2] for a fee (Builder's Fee). I will refer to this agreement as the 'Development Agreement'.
[1] Later, in 2013, the first plaintiff transferred part of its interest to the second plaintiff.
[2] Sometimes referred to as the 'base build fit-out'.
The Development Agreement was put into effect. By 2014, the building had been constructed to 'shell-stage'. However, due to a downturn in the market, the parties agreed to temporarily halt the construction of the building.
Later that year, the parties agreed to build a display unit to attract prospective tenants.
In the meantime, Creggan sold part of its share of Sarich Way to the second plaintiff.
In 2016, the parties agreed to subdivide Sarich Way and, in effect, take half of the building each when the subdivision was completed (Subdivision Agreement). The plaintiffs were to take the western half, being buildings C and D. I will refer to the western half of the building as 'the plaintiffs' half' (or similar terms) for ease of reference, even though it remains jointly owned because the subdivision has not been completed. For the same reason, I will refer to the eastern half of the building as 'the defendant's half' (or similar terms).
Around 2018, disputes arose between Mr Thompson and the defendant. Those disputes led to these proceedings.
The first dispute related to the builder's fit-out. Although the defendant had agreed to do the builder's fit-out, he did not do it. Mr Thompson claims that he asked the defendant to undertake the builder's fit-out on the plaintiffs' half of the building, but that the defendant refused. Mr Thompson says that he then engaged another person to undertake the builder's fit-out on the plaintiffs' half of the building.
The defendant admits that the parties had agreed that he was to be paid the Builder's Fee for, among other things, doing the builder's fit‑out. However, he says that the parties later varied that agreement. This is disputed by the plaintiffs. The defendant also asserts that he was never asked to undertake the builder's fit-out on the plaintiffs' half of the building.
The defendant further alleges that the plaintiffs agreed to indemnify him against any loss that the builder's fit-out may cause him. (This alleged loss is part of the defendant's counterclaim, which I will explain shortly). The plaintiffs deny agreeing to indemnify the defendant for any loss. They say that Mr Thompson agreed to make the defendant 'whole' only in relation to any increase in stamp duty.
Problems also arose in relation to the subdivision.
Mr Thompson claims that the defendant refused to pay his share of the costs of the subdivision and the ongoing ownership costs. Mr Thompson further claims that the defendant became obstructive in relation to the subdivision.
The defendant says that, when the costs are added up, he does not owe the plaintiffs any money. The defendant also denies he was obstructive in relation to the subdivision.
After these proceedings were commenced, the parties sought to settle their disputes so that the subdivision could proceed. This gave rise to yet another dispute. The defendant alleges that a concluded agreement was reached in October 2020 to vary the Subdivision Agreement. He alleges that the plaintiffs agreed to pay all of the subdivision costs. The plaintiffs deny a concluded agreement was reached.
As a result of the disputes between them, the plaintiffs seek an order that Sarich Way be sold. The defendant opposes an order for sale and seeks instead that there be an order for partition.[3]
[3] ts 625.
The plaintiffs also seek an order that an account be taken between the parties once findings are made as to the terms of the agreements. The defendant agrees.[4] There is a dispute between the parties as to whether particular items should be brought to account and, if so, how they should be treated.
[4] ts 625.
The most significant item in dispute is the amount of the Builder's Fee.
The plaintiffs submit that the parties agreed that the Builder's Fee would be $1 million, to be paid by way of a credit of $1 million towards the defendant's share of the costs.
The defendant submits, in effect, that the parties agreed that Creggan would pay him $1 million (so that, but for the fact the defendant was also one of the owners, the total of the Builder's Fee would be $2 million; being $1 million from each owner).
The defendant also counterclaims against the plaintiffs.
The defendant alleges that the builder's fit-out on the plaintiffs' half of the building has increased the value of the land. The defendant alleges that this will lead to an increase in the various rates and taxes that he will have to pay when the property is subdivided. The defendant says that, as the fit-out is on the plaintiffs' side of the building, he will not receive the benefit of the increased value when the property is subdivided. He submits that the fit-out will therefore cause him to suffer a loss.
The plaintiffs point out that the defendant did not prove that the fit-out increased the value of the land (although accepted it could readily be inferred) nor that there would be an increase in rates or charges. The plaintiffs also point out that, if the land is not subdivided but is simply sold, the defendant will not lose the benefit of any increase in value, and will therefore not suffer a loss.
Due to the ill health of Mr Thompson, her Honour Smith J ordered that Mr Thompson's evidence-in-chief was to be adduced by affidavit. Smith J also ordered that the trial commence as soon as practicable to enable Mr Thompson's evidence to be taken.
The trial took seven days. The defendant elected to represent himself. It became apparent during the trial that very few matters were in dispute.
For the reasons that follow, I would allow the plaintiffs' claim and dismiss the counterclaim.
Issues
The issues that arise on the plaintiffs' claim are:
1.What did the parties agree as to the amount of the Builder's Fee and how it would be paid?
2.Did the parties later vary their agreement as to what work was required to be done in exchange for the Builder's Fee, so as to release the defendant from his obligation to do the builder's fit‑out?
3.If the defendant was not released from his obligation, did the defendant refuse to do the builder's fit-out?
4.Did the plaintiffs agree to indemnify the defendant for any loss caused to him by the builder's fit-out?
5.Was the Subdivision Agreement varied in a meeting in October 2020?
6.Should an order for sale be made pursuant to s 126 of the Property Law Act 1969 (WA)?
7.What should be the scope of items to be taken into consideration in the taking of any account?
8.Should an account be ordered?
Witnesses
Mr Thompson
As a witness, Mr Thompson was irritable at times. In my view, this was understandable given the duration and content of the cross‑examination. Mr Thompson gave evidence over three days. After about five minutes of examination-in-chief on the first day, the defendant cross-examined Mr Thompson for the rest of that day, all of the second, and for a short period on the third. The cross-examination was repetitive and argumentative.
Putting aside the displays of irritation, Mr Thompson was plainly attempting to assist the court. He did his best to answer the questions honestly. I am satisfied he was a credible witness.
Mr Thompson's memory of events was imperfect. The plaintiffs submitted that medical treatment he was currently undergoing may have impacted on his evidence. There was no evidence of this and I would not draw that inference without evidence. I do, however, accept that he was describing events that had happened some time ago. Nevertheless, there was a contrast between what Mr Thompson had sworn to in his affidavits and what he was able to recall in his evidence. I bore this in mind when evaluating his evidence.
With that qualification, I am satisfied that Mr Thompson was a credible and reliable witness.
Mr Gregson
The plaintiffs called one of their solicitors, Mr Gregson, in relation to the alleged agreement to vary the Subdivision Agreement in October 2020.
The defendant did not challenge Mr Gregson's account, and I accept his evidence.
Mr Stolsavljevic
The plaintiffs called Mr Stolsavljevic as a witness. He was the person the plaintiffs engaged to carry out the fit-out on their half of the building when, on the plaintiffs' case, the defendant refused to do this. The plaintiffs also engaged Mr Stolsavljevic to assist in the subdivision.
The defendant did not challenge Mr Stolsavljevic's account, and I accept his evidence.
Mr Rizzi
The defendant was an unsatisfactory witness.
First, the defendant made unfounded assertions under oath.
One example of this was his claim to be a 'chartered member' of the Institution of Engineers Australia. Under cross-examination, the defendant agreed that the institution's website did not record him as a member. When asked when he had last past fees, he said that he could not remember, and agreed he had not paid fees in the last three years at least.[5]
[5] ts 509 - 510.
Second, the defendant appeared to change his evidence based upon what he thought would best advance his case.
An example was when he sought to justify failing to discover a document he had given evidence about on the basis he might have dreamt the document existed. This unusual claim unfolded as follows.
In evidence-in-chief, the defendant claimed there was a document that supported his case that he had not been able to find.[6] Although he said his memory of it was vague, he gave specific details of it:[7]
I have a - I have a vague memory, your Honour, that there was a substantial document - sorry, a small document, that specifically says that Creggan would pay $3 million, and Rizzi would pay $1 million. I remember the document, because it was original - the original - my part of the document was black, his respondent [sic] was in blue, and it clearly defined how the fee was to be paid.
[6] ts 458 - 459.
[7] ts 460.
In cross-examination, it was put to the defendant that he understood, when swearing his discovery affidavits, that he needed to refer to any documents that he could not find. This exchange then occurred:[8]
Would that include these letters that you can't find?---No, because I could have quite easily have dreamt it. I have a vague recollection of a memory of a document which I have searched for everywhere, because it would prove my case. I cannot find that document, and perhaps I just dreamt it. I don't know if that document exists.
You just dreamt it?---Pardon?
You may have just dreamt it?---Well, I have a recollection of it, yes.
[8] ts 516.
Nothing in the defendant's demeanour suggested he was being facetious. These answers, from a witness under oath, are troubling.
Another example, in a similar context, relates to the defendant's attempts to justify his failure to discover his diaries.
In cross-examining Mr Thompson, the defendant put to Mr Thompson that the Development Agreement had been reached over 21 meetings.[9] In his evidence-in-chief, the defendant said the two of them had met 21 times.[10]
[9] See, for example, ts 266.
[10] ts 452.
When the defendant was being cross-examined, he was asked how he knew that they had met 21 times. This exchange occurred:[11]
[11] ts 511.
How do you know there were 21?---Because I went to my diary. I diarised each and every one of those meetings and I put it into a ledger.
Did you discover that diary in these proceedings?---I haven't disclosed any of my diaries.
Do your diaries show the dates that you say that you met with Mr Thompson?‑‑‑Yes.
And you say that in these proceedings that you met with Mr Thompson more than once over which these agreements you say were made. Is that right?---Yes.
So when you met - you understood that when you met with Mr Thompson was something that you were going to give in evidence?‑‑‑No.
You weren't going to ask Mr Thompson 'Had we met on 21 days?' did you not realise that?---I believe I did. I believe I did.
And did you understand that you were going to ask Mr Thompson that question before the case started?---No.
Before the trial started you didn't understand you were going to ask Mr Thompson that question?---Not before the trial started, no.
When the trial started did you think to yourself you were going to ask Mr Thompson how many times have we met about this?---Never occurred to me.
Never occurred to you?---That I would ask that question and - - -
Senior counsel for the plaintiffs then asked the defendant what had caused him to look up his diaries. The defendant admitted that it was in the two weeks prior to the trial when he was preparing his list of questions for Mr Thompson.[12] The exchange continued:[13]
So from that I can understand that in the 13 days or so before the start of the trial on 14 September you checked your diaries to see when you met with Mr Thompson?---I did, yes.
So you understood you were supposed to discover all relevant documents in your possession?---I did not - I did not disclose my - my diaries, yes. That's correct.
So you didn't give proper discovery?---If it was mandatory for me to produce the discovery of the diary if they were relevant - - -
Well, they were relevant because you were going to ask Mr Thompson questions based on what they said, weren't they?---Not based on what they was [sic] said. I was looking for the dates that we actually met.
[12] ts 511 - 512.
[13] ts 512.
Third, the defendant was often unresponsive or argumentative.
For example,[14] he was taken to an email of 20 August 2019 in which Mr Thompson had written:[15]
Although you agreed that the cost of the recent valuation would be a shared cost, I have received no notification from the valuer that you have met your commitment to that cost…
[14] For other examples, see ts 589 and 595.
[15] Exhibit 3.186.
This exchange occurred:[16]
Had you actually paid half of the valuer's bill?---I had paid the first valuer's bill, $4400, and then Mr Thompson paid the second valuer's bill, which I believe was a similar amount.
So is the answer to my question no?---The question was, did I pay for the first one? The answer is yes.
In relation to the question that's asked here:
Although you've agreed the cost of the recent valuation would be a shared cost, I've received no notification from the valuer that met your commitment to that cost -
you hadn't made that payment, had you?---No, I had not.
[16] ts 567.
Another example was when he was being cross-examined about a meeting in which he had called Mr Thompson a 'piece of shit'. This exchange occurred:[17]
[17] ts 587 - 588.
And at the end of that meeting, it was said that the subdivision was to move forward only in writing, with no more meetings or discussions?---Possibly.
Because the meeting had been acrimonious, hadn't it?---In what regard?
Well, it wasn't a friendly meeting, was it?---I've only - the bulk of my meetings with Mr Thompson have always been extremely friendly.
Well, would you describe the meeting on 20 September as a friendly meeting?---Is that the meeting where I called him a piece of shit?
Is that the meeting where that occurred on 20 September?---I don't think it was.
What date do you think it was?---I think that that meeting that - when I called him that - was actually a little bit- perhaps even earlier, maybe by [sic] a little bit earlier.
What do you base that on?---Just my memory. But it could have in fact been that meeting. There was one meeting I vividly remember, where I was pretty upset. It's [sic] actually extremely upset. And I for the first time ever called Mr Thompson a piece of shit.
So can we accept then that whatever meeting that was, it wasn't a friendly meeting?---That - the meeting when - no, actually, quite the opposite.
It was a friendly meeting where you called Mr Thompson a piece of shit?---Absolutely.
Seriously?---Yes. I would use that - your Honour, I would use that terminology. I would express my opinion and I am businesslike. I would have gone back and conducted the business that needed to be conducted.
… Mr Rizzi, you're supposed to be telling the truth. Is that your evidence?---I am telling the truth.
It's a businesslike meeting where you call someone a piece of shit?---I think on that one particular occasion when I did use that terminology, I expressed my opinion. I would have then perhaps closed off the business and then perhaps - I have a system, your Honour, where when I get upset, I just don't talk to people. It's my release process. And I think from that date, we went through a period where I didn't talk with Mr Thompson for a while. But at all times I kept lines of communication through [Mr Stolsavljevic] and we definitely progressed the project, definitely. And if I may continue with that, your Honour.
There were other occasions when the defendant's answers did not appear to be those of a witness seeking to assist the court. For example, this exchange occurred in cross-examination when senior counsel mistakenly referred to Mr Thompson as Mr Creggan:[18]
And Mr Creggan had told you that the way that he had paid that million dollars was to offset it against costs, wasn't it?---Mr Creggan told me nothing.
Sorry, Mr Thompson?---Thank you.
So the answer to the question as corrected is - - -?---Sorry, I missed the question. Could you repeat it for me, please?
[18] ts 533 - 534.
Fourth, the defendant exaggerated.
For example, he gave evidence that the project costs schedule did not reflect some significant items to be credited to him:[19]
I believe that once the tabulation is done, it will be so close to even - there is approximately $140,000 credit to me for the display suite. There's approximately $140,000 credit for the - the rental from Horizon Power. That's already 280,000. There was another $20,000 credit for the subdivision.
[19] ts 542.
In cross-examination, the defendant admitted that he was only entitled to claim half of the cost of the display suite and for the rent from Horizon Power.[20]
[20] ts 572 and 574.
His answers to being pressed on his claim to $20,000 credit for the subdivision revealed another instance of the defendant having made an unfounded assertion:[21]
[21] ts 573.
And you said there is another $20,000 credit for the subdivision?---Yes.
That's not right either, is it?---No, you're wrong. It is right.
Why?---Because Mr Thompson has agreed to pay the first $20,000 towards the subdivision cost.
So that can't be a credit for you, can it?---It means it comes off the ledger, yes.
It's not on the ledger, is it?---It's on the ledger somewhere, yes.
Could you show me where?---No, I cannot.
Do you know whether it is?---No, I do not.
Did you look to see whether it was?---I have looked for the ledger, yes.
Have you looked for - I'm not asking about the ledger, Mr Rizzi. I'm asking you about the entry relating to the $20,000 for the subdivision cost for which you claim a credit. Did you look for it?---Yes, I have looked for it.
Well, where is it, then? Can you point – go to exhibit - - -?---I haven't found it.
- - - 266[22] - so - - -?---I haven't found it. I haven't found it.
Did you not find it because it's not on there?---On all of the documents that I'm looking for, I have not found it on a ledger.
So you haven't found it in a ledger?---No.
Does that imply to you that Mr Thompson hasn't charged that to you?---On the project cost schedule, yes.
And, even if it was, that wouldn't be a credit for you generally, would it?‑‑‑It would be ‑ ‑ ‑
It would be solely assigned to Mr Thompson, wouldn't it?‑‑‑Yes.
So that's another $20,000 that doesn't count, isn't it?---It does count.
[22] This was a reference to tab 266, exhibit 4.266, which was the project costs schedule.
For these reasons, I do not accept the defendant's evidence unless it is corroborated or against his interest.
Facts
Unless otherwise indicated, the following matters are common ground[23] and I find them to be facts.
Development Agreement
[23] Unless otherwise footnoted, it can be seen that the matters that follow are common ground by reference to the Plaintiffs' List of Proposed Findings filed 26 October 2021 (Plaintiffs' Proposed Findings) and ts 618 ‑ 623.
Creggan (by Mr Thompson) and the defendant agreed to develop Sarich Way. (The plaintiffs' case was the agreement was made in a meeting in or about 2011 in the Dome café in Cottesloe (2011 Dome meeting). The defendant's case was that the agreement was reached over a number of meetings.)
It was agreed the parties would construct a building of approximately 4000 sqm on Sarich Way.
It was agreed that the building would be leased to tenants. The building was designed to accommodate a number of smaller tenants or a single larger tenant. It was agreed that any rental income would be shared equally.
It was agreed that the costs of construction would be shared equally.
It was agreed that the building would be completed to the stage of a 'builder's fit-out' (sometimes called a 'base build fit-out'). (The defendant admits that the parties had agreed to this. However, he claims that this aspect of the agreement was later varied. This will be discussed later).
It was agreed that the defendant would be the builder and would oversee the construction of the building, including the builder's fit-out, in exchange for the Builder's Fee.[24] The Builder's Fee was payable by Creggan and the defendant. (The amount of the Builder's Fee and how it was to be paid is in dispute, and will be discussed later).
[24] The defendant agreed that he personally was appointed the builder, but sought to distinguish that from his capacity as trustee. There is no such distinction at law - see Gebauer Nominees Pty Ltd v Cole [No 2] [2008] WASCA 41 [49] - [51].
The building constructed was a two story building comprised of four modules known as A, B, C and D. Modules A and D had a footprint of approximately 400 sqm each and modules known as B and C had a footprint of approximately 600 sqm each.
In or about August 2012, the parties arranged for a joint venture agreement to be drafted by a lawyer. However, the parties did not agree with its contents, did not sign it, and did not progress it further.[25] Despite this, the defendant pleaded that the draft agreement formed part of the agreement between the parties.[26] In cross-examination, the defendant conceded that the parties had not agreed with the contents of the draft agreement and that they had 'abandoned' it.[27] When asked if he therefore agreed that it did not form part of the agreement between the parties, the defendant said he did not know whether it did as a matter of law.[28] Given his own evidence, it plainly did not.
[25] See ts 526. See also ts 457 - 458, 524 - 528, 620 - 621.
[26] Amended Defence filed 4 September 2021 (Defence) [3] - [4].
[27] See ts 526. See also ts 457 - 458, 524 - 528, 620 - 621.
[28] ts 620 - 621.
In 2014,[29] the building was constructed to shell stage. The parties then decided to halt the construction of the building (instead of proceeding to the builder's fit-out stage). This was due to a downturn in the rental market.[30] (Much later, in 2018, Mr Thompson sought to have the builder's fit-out completed. There is a dispute about whether the defendant was responsible for doing this job and whether he refused. This will be discussed later).
[29] The date comes from rows 11 and 12 of the Plaintiff's Draft Chronology of Events filed 13 September 2021 and ts 466 - 467.
[30] In addition to the defendant's agreement with items 13 - 14 of the Plaintiffs' Proposed Findings, see ts 497 ‑ 498.
At or around the same time,[31] the parties agreed to construct a display suite and share equally the costs of the construction.
Subdivision Agreement
[31] See ts 498 - 499.
In early 2016, the plaintiffs and the defendant agreed to subdivide Sarich Way with a freehold title.
It was agreed that Sarich Way would be split equally and each would take half. The plaintiffs were to take the western end, containing buildings C and D. The defendant was to take the eastern end, containing buildings A and B.
As originally built, the two ends were physically connected. The parties agreed to split them, and this work was done by the contractor who had been engaged to demolish an existing building on the land.[32]
[32] See ts 594 - 595.
At the time the parties agreed to subdivide Sarich Way, there was no discussion of the provision of any indemnities. (The defendant claims that the plaintiffs later agreed to indemnify him. This will be discussed later).
The plaintiffs and defendant agreed that the costs of the subdivision would be shared equally between them. (The defendant admits that the parties had agreed to this. However, he claims that the agreement was later varied. This will be discussed later). The defendant was aware of the estimated costs of the subdivision.
Later, the defendant delayed the execution of the application for approval of the subdivision of Sarich Way to the Western Australian Planning Commission (WAPC). Mr Thompson asked the defendant to sign the application in May 2019.[33] He ultimately signed it on or about 20 September 2019.
[33] See exhibits 3.145 and 3.145A.
Between those two dates, on 12 July 2019,[34] the defendant lodged a development application for approval to use what was to be his half of the building as a medical centre.
[34] See ts 561.
Factual matters in dispute
Builder's Fee
The plaintiffs submit that the parties agreed that the Builder's Fee would be $1 million. They submit that the defendant was to receive a credit of $1 million towards his share of the costs and expenses upon the taking of an account between the parties at the completion of construction for his work in overseeing the construction of the building.
The defendant submits, in effect, that the parties agreed that Creggan would pay him $1 million (so that, but for the fact the defendant was also one of the owners, the total of the Builder's Fee would be $2 million; being $1 million from each owner).
The plaintiffs accept that Mr Thompson made a number of statements in various documents, and in instructing his solicitors, that are inconsistent with their case. The plaintiffs say, in effect, that the agreement was as they contend, but that Mr Thompson was confused as to how to reflect that in the books and was confused when instructing his solicitors.[35] When I queried that in view of my understanding that Mr Thompson was an accountant, senior counsel for the plaintiffs said that Mr Thompson had accounting qualifications but there was no evidence as to his accounting experience beyond that he had worked in a bank.[36]
[35] See, for example, ts 654 - 655.
[36] ts 655 - 656.
It was within the power of the plaintiffs to adduce evidence of Mr Thompson's qualifications and experience (or lack thereof) and they did not do so. Nevertheless, as will become apparent, the documents compel a conclusion that Mr Thompson was indeed confused.
That said, for the reasons that follow, I am not satisfied that the agreement was as the plaintiffs contend.
The evidence
The evidence on this topic consists of:
1.emails exchanged between the parties in 2012;
2.a 'project costs schedule';
3.worksheets which appear to have been created in recent years.
4.a draft witness statement of Mr Thompson's; and
5.the testimonial evidence of Mr Thompson and the defendant.
As the evidence is conflicting, I consider it is useful to analyse it by the date on which the evidence was 'created'.
2012 emails
In June 2012, there was an email exchange between Mr Thompson and the defendant in relation to the Builder's Fee.[37] Mr Thompson's email address in these exchanges was an email address connected to his former employment (SGS email address). He no longer has access to those emails and was unable to get them from his former employer. The defendant discovered this email exchange on 26 August 2021,[38] less than three weeks before the start of the trial.
[37] Exhibits 1.16A and 1.16B.
[38] Exhibit 5.4 [11].
The relevant exchange began in an email from the defendant to Mr Thompson on 27 June 2012, in which the defendant wrote '[p]lease also confirm by return email my fee at the agreed amount of $ 1 M'.
Mr Thompson replied:
Thanks for your message.
Re the arrangements between ourselves.
The arrangement I accepted, on behalf of Creggan, was that both of the owners should pay the builder $1 million each in recognition of his services and in lieu of his profit on the contract.
As is obvious, one of the owners is the builder so it is pointless for him to pay himself.
Effectively then, the cost (out of pocket) contribution of the non builder 50% owner, Creggan, will be $1 million more than the cost (out of pocket) contribution of the builder being the other 50% owner, Ric [the defendant] (or associated parties). And this differential will be in recognition of, and compensation for, the intellectual and other efforts of the builder in the planning, execution and completion of the project being the building of the new building at 3 Sarich Way.
In practical terms the way the arrangement works out is that
For example, if the building costs $7M, the contribution from Creggan becomes $4m and the contribution from Ric (or associated parties) becomes $3m and going forward the land and buildings at 3 Sarich way are owned 50/50 between the two owners.
Similarly, if the building costs $6M, the contribution from Creggan becomes $3.5M and the contribution from Ric becomes $2.5M and going forward the land and buildings at 3 Sarich Way are owned 50/50 between the two owners.
Hopefully the above concurs with your understanding of the arrangements.
The defendant responded to this email on 28 June 2012. That email is not in evidence. However, Mr Thompson replied to the defendant's email, and inserted comments in red. This email was in evidence. In the reproduction below, matters that were in red font have been bolded:
Ric
Please have a look at the following. I made a mistake in my message to you. But I hope the following presents a clearer picture.
Please note comments in red.
Regards
John
From: Riccardo Rizzi …
Sent: …
To: Thompson, John…
Dear John.
Thank you for your confirmation.
My understand is you are to put in the first $ 2M. then we go 50/50.
This is not correct. (But I have to say there is a logic error in my message below)
If the building costs $7 M then you go the first $ 2 M then we go $2.5M each. This equates to you paying me $1 M. Your contribution is $ 4.5 M and mine is $ 2.5 M.
This line above is not our deal. If the building costs $7m (out of pocket), I pay $4.5m and you pay $3.5m and we finish up at a 50/50 ownership ratio (i.e $8m) That is we have participated equally in the out of pocket cost of the building ($7m) and I have paid you an incremental $1 million for Creggan's share of your builders contribution.
This relates to you giving me $ 1 M then we go $ 1 M each = $ 2M. Then $ 2.5 M each = $ 7 M.
This line represents my understanding, in this situation, the building has cost $7m out of pocket, I have paid $3.5 ( $2.5m +$1 million) , you have paid $3.5m ( $2.5m+ $1 million) and I have paid an additional $1 million as Creggan's share of your builders contribution.
I hope my rational all works.
Thank you.
The defendant responded to this email on 29 June 2012:
Dear John.
Thank you for your email.
Please review your calculations. You are effectively paying the syndicate ( and not me ) the $ 1m fee.
I think its all a lot easier if you please pay directly to me the $1 M fee.
I will send you an invoice for the work completed to date which will be about $ 640,000. I will invoice in equal amounts on a monthly basis the remaining $ 360,000 over the remaining 18 months of the construction period.
We can then each contribute equally for all costs on site.
I understand your comments below however you retain 50% ( via the syndicate) of my $1 M fee. In your analogy you are paying not me but the syndicate.
JT gives to RR $ 1 M. RR and JT give $1 million each to the syndicate. The net result is $ 2m in the syndicate sourced from JT.
My understanding is you will pay me a fee of $1 million to build your 50% of the building.I think we need to document the arrangement to avoid any future discrepancies.
…
On 12 August 2012, the defendant sent the following email to Mr Thompson:[39]
[39] Exhibit 1.18.
Dear John,
I realise we have spoken about a JV agreement but I wish to confirm I have not made any final decision about the form of the agreement.
I am thinking a very simple agreement which will include.
…
4. Project funding.
I propose you provide the first $2 million all recorded in the Creggan books, then you provide an equivalent amount to what cash I have contributed currently about 150,000 and growing daily then we bank finance. What needs to be said here is I sourced the project, raised your Involvement from 30% to 50% by removal of my friends. I have paid for everything since December 2011 until your recent financial contributions. The project from my work involvement is now 65% complete. I have done my share and I believe you can reciprocate with the $2 million.
…
The effect of the emails can be summarised in this way:
1.The defendant said that they had agreed the fee would be $1 million (but did not specify whether this was $1 million from Creggan or the total to be received from both owners).
2.Mr Thompson said they had agreed that both owners would each pay $1 million (consistent with the agreed fact that the Builder's Fee was payable by both Creggan and the defendant, but inconsistent with the plaintiffs' contention as to the fee being only $1 million credit).
3.Despite that statement, Mr Thompson's initial examples reflected a payment of only $500,000 by each owner (by referring to a $1 million difference between their respective contributions in the final account).
4.Mr Thompson's second set of examples also referred to a $1 million difference between their respective contributions in the final account. However, he went on to refer to this equating to him having 'paid you an incremental $1 million for Creggan's share of your builders contribution' and as having 'paid an additional $1 million as Creggan's share of your builders contribution'. (The examples were consistent with the plaintiffs' contention, but at least the first of these statements was not).
5.The defendant's example reflected a payment of $1 million by Creggan to him (so that, but for the fact the defendant was also one of the owners, the total of the Builder's Fee would be $2 million, being $1 million from each owner, which would result in a $2 million difference between their respective contributions in the final account. This was consistent with the defendant's contention).
6.The defendant's statement that it would be easier if Mr Thompson paid him the $1 million directly was to similar effect.
It is significant that, in the first email to raise the Builder's Fee, the defendant asked Mr Thompson to confirm 'my fee at the agreed amount of $1 million'.[40] Although the defendant may have meant what Creggan was to pay him, on its face the statement supports the plaintiffs' contention.
[40] Exhibit 1.16B page 3.
However, Mr Thompson's response suggests he understood the defendant was talking about Creggan's share of the fee. Mr Thompson responded that it was agreed that 'both of the owners should pay the builder a million dollars each'. This supports the defendant's contention. Oddly, given Mr Thompson has accounting qualifications, Mr Thompson's examples in that email are inconsistent with what he had said the agreement was.
The defendant's response, in the 28 June 2021 email, that he understood that the plaintiffs 'are to put in the first $2 million, then we go fifty‑fifty' supports the defendant's contention.
Senior counsel for the plaintiffs contended that this response related to a different topic. He said, in effect, that it was not about the quantum of the Builder's Fee, but was rather the defendant's attempts to get Creggan to pay all the costs first and the defendant would pay later. Senior counsel said this was supported by the 12 August 2012 email.[41]
[41] ts 646 and 649 - 650.
I accept that the defendant was trying to get Creggan to pay the first $2 million. However, I do not accept this was unrelated to the defendant's claim that the Builder's Fee was $2 million. The very next sentences written by the defendant in the 28 June 2012 email was (emphasis added), 'If the building costs $7 M then you go the first $ 2 M then we go $2.5M each. This equates to you paying me $1 M. Your contribution is $ 4.5 M and mine is $ 2.5 M'. I agree that in both emails the defendant is talking about the timing of what he said would be a $2 million difference between the parties. However, he is still asserting his understanding that the agreement was that there would be a $2 million difference. In my view, the defendant was talking about the Builder's Fee throughout these emails, including the 12 August 2012 email.
Senior counsel also sought to explain Mr Thompson's statements of having 'paid you an incremental $1 million for Creggan's share of your builders contribution' and as having 'paid an additional $1 million as Creggan's share of your builders contribution'. Senior counsel submitted this could be seen as a reflection of Mr Thompson's understanding that he would pay the first $1 million in costs, and then the parties would share the cost equally. I accept that this is a possible interpretation. It is, however, not the only interpretation. In my view, it is more likely that Mr Thompson simply did not understand that agreeing that Creggan would pay the defendant $1 million was not the same as agreeing to pay $1 million more of the shared costs.
Senior counsel also submitted that, if the defendant's contention is correct, it is odd that the defendant did not ask for the money to be paid to him directly and immediately. I do not accept this. The defendant was asserting in the emails that the agreement was that he would be paid $1 million by Creggan, which would be paid by there being a $2 million difference in their respective contributions to the costs. He was asserting that he understood that this would be achieved by the plaintiffs putting in the first $2 million. When Mr Thompson disagreed, the defendant said, 'I think its [sic] all a lot easier if you please pay directly to me the $1 million fee'.[42]
[42] Exhibit 1.16A page 1.
Senior counsel further submitted that it is odd that there are no further emails after these exchanges. He pointed out that, on the evidence, the plaintiffs did not have access to emails sent to and from the SGS email address, but the defendant did. I accept that one might expect there to have been a further email exchange. I also accept that the defendant did not properly discharge his discovery obligations.[43] However, given the extent to which the parties communicated verbally until more recently, I would not readily conclude it was odd that there was no further email produced.
[43] See the examples given in the discussion of the defendant as a witness.
Project costs schedule
During the course of the development and subdivision, a number of ledgers were created by Mr Thompson to record expenses. One such document was called 'the project costs schedule' and was tendered in evidence.[44]
[44] Exhibit 4.266.
At the end of the project costs schedule, a 'final position' is shown as at 13 May 2021. It records what is described as 'Rizzi fee adjustment'. Under the column for the defendant, there is an entry of $1,500,00. Under the column of Creggan, there is an entry of $500,000.
In his second affidavit, Mr Thompson sought to explain this as follows:[45]
[45] Exhibit 5.2 (Mr Thompson's second affidavit) [29].
29.I refer to the PCS [Project Costs Schedule]. I also refer to paragraph 46 of my First Affidavit. I confirm that the $1,000,000 project management fee was to be a credit to Mr Rizzi of $1 million towards his share of the costs. The PCS incorrectly records the 'Rizzi Fee Adjustment' as being $1,500,000 and records an additional expense adjustment for Creggan of $500,000 to increase its contribution. This would mean that project management costs were accounted for as being $2,000,000 and not the agreed $1,000,000. This is an error on my part. The correct entry should be simply a $1,000,000 adjustment to the contribution of Mr Rizzi. The correct entry for contributions of the parties would thus be $1,940,183.66 for Mr Rizzi and $3,173,611.42 for Creggan. The differential remains the same.
In other words, Mr Thompson deposed that, on its face, the entries in the project costs schedule support the defendant's contention that the Builder's Fee was to be $2 million.
In cross-examination, Mr Thompson gave a different answer. He said that the entries sought to account for 'the million dollar fee'. He said he thought the entries were correct.[46]
[46] ts 212.
The entries in the project costs schedule are difficult to fathom. The schedule does not appear to be the type of document that requires double-entries. In my view, the entries, and Mr Thompson's different answers in explaining them, suggest that Mr Thompson's understanding of financial accounting is imperfect.
Worksheets
A worksheet titled 'Dollar value of claim on Rizzi' was tendered in evidence.[47] It recorded, under the heading 'Project Costs Summary', the contribution each of the owners had made. It showed a deduction of $2 million from the contributions Creggan had made, described as being 'Less adj for Rizzi fee'.
[47] Exhibit 4.278A.
In cross-examination, Mr Thompson agreed he had prepared the worksheet. He agreed it showed a Builder's Fee of $2 million. Mr Thompson said he had created the worksheet sometime around or after mid-2019. He said it was based on his 'initial understanding of the numbers', but said that his initial understanding was wrong.[48] He agreed he had given the worksheet to his solicitors, but said he had later retracted it.[49]
[48] ts 210.
[49] ts 211.
It appears that he did retract the worksheet. Another document tendered in evidence appeared to be an amended version of it. It had been sent by the plaintiffs' solicitors to the defendant in May 2021. It recorded a Builder's Fee adjustment of only $1 million.
The initial worksheet is consistent with the defendant's contention. The amended worksheet is consistent with the plaintiffs'.
Draft witness statement
By the mistake of the plaintiffs' solicitors, drafts of two witness statements of Mr Thompson's were listed in the plaintiffs' discovery, inspection was permitted and copies were provided. Senior counsel for the plaintiffs did not seek to contend that privilege had not been waived.[50]
[50] ts 179 - 180.
One of those drafts became exhibit 6. It included tracked changes showing additions and deletions. It relevantly said (additions shown by underlining, deletions shown by strike throughs):
31.39. It was further said by me in the discussions that Creggan would pay Rizzi aflatfee, as per the New JVD model, of $1,000,000 for his expertise and effort in the design, and buildingand builders fit outof the building as the project manager. So that when, for example, a total of $4,000,000 had been spent, the accounting would show that Mr Rizzi had paid invoices of $1,000,000, and received a nominal $1,000,000 fee and invested it back into the project. In cash terms though Rizzi would have paid $1,000.000 towards the cost of the project, and Creggan would have paid $3,000,000, being their own contribution as 50% of the $4,000,000 ($2,000,000) plus the cash equivalent of Mr Rizzi's fee being $1,000,000. In effect Rizzi was paid $1,000,000 as a fee for his consultancy to build the whole building and act as project manager. The situation would be quite different in the hypothetical anticipated future building of the builders fitout, as contributions would be 50/50, as Creggan's acquittal of Mr Rizzi's fee would have been complete.Creggan paid $2,000,000 to build the building. Rizzi put $1,000,000 of his own funds in to build the building. The total actual costs to build were therefore $3,000,000. Although Rizzi's $1,000,000 should have been recorded in the PCS as a cost of the project, and thus a cost to be shared between myself and Rizzi, it was never recorded in the PCS. To this effect, Creggan has paid 75% and Rizzi 25% of the costs of the building.40.To clarify, it has always been my understanding that we would proceed on the basis that:
a.the building would cost $4,000,000 to build to shell stage. On this basis, we were to put in $2,000,000 each on a hypothetical cost basis.
b.The actual financial transactions would be on the basis that Rizzi would receive a $1,000,000 'credit' from me, being his consultancy fee. As such. Creggan would have to pay $3,000.000, and Rizzi $1,000,000 being the actual costs for the building, but in recognition of Rizzi's services by way of his for his fee, the building would have been contributed to equally at $2,000,000 each.
c.Thereafter each party would provide equal funding for the completion of the building from shell stage to builders' fitout stage.
In cross-examination, Mr Thompson said he did not recognise the draft witness statement. He said he had not seen the document before, but agreed it contained some details that he recognised.[51]
[51] ts 182, 206 - 209.
In relation to [40(b)], Mr Thompson said that it 'is nothing that I would ever say'.[52] He said that what was written in [40(b)] was not correct.[53] He said that part of [40(a)] was correct, and part incorrect. He said he did not know if [40(c)] was correct.[54]
[52] ts 182.
[53] ts 207.
[54] ts 208 - 209.
Mr Gregson gave evidence that he had prepared the draft witness statement on the basis of Mr Thompson's instructions. He said there were 11 drafts.[55]
[55] ts 446, 448.
I infer from this that Mr Thompson gave instructions to his solicitors, at least at one point, to the effect that the parties agreed that Creggan would pay a Builder's Fee of $1 million, and this would be reflected by a $2 million difference in what each owner contributed to the costs in the final account.
This is consistent with the defendant's contention.
Mr Thompson's evidence
In his first affidavit, sworn 28 July 2021, Mr Thompson said:[56]
[56] Exhibit 5.1 [46].
It was further said by me in the discussions that Creggan would pay Mr Rizzi a fee, as per the New JVD model, of $1,000,000 for his expertise and effort in the design, and construction of the building as the project manager. In the meeting I asked Mr Rizzi if for the $1,000,000 project management fee he would oversee all construction of the building to builders' fitout stage and he said 'yes'. Mr Rizzi said that he thought it would cost approximately $6,000,000 to build to builders' fitout stage a building of 4,000sqm, and I said 'ok'. I said to Mr Rizzi that the $1,000,000 project management fee would not actually be paid to Mr Rizzi and that it would be offset against our shared expenses of the build. He said that was ok.
Mr Thompson's statement that Creggan would pay the defendant a fee of $1 million is consistent with the defendant's contention.
In discussing the project costs schedule, I included the explanation Mr Thompson gave for the Builder's Fee entry in his second affidavit (which was sworn a month after his first affidavit). In that explanation, Mr Thompson set out what he said the agreement had been in relation to the Builder's Fee, consistently with the plaintiffs' contention at trial.
In his fourth affidavit, sworn 13 September 2012, Mr Thompson again deals with the Builder's Fee issue.[57] As senior counsel for the plaintiffs frankly acknowledged, the affidavit includes argument. I will ignore the argument. In my view, all that remains is Mr Thompson's evidence that he no longer has access to the SGS email account that he used in the 2012 email exchanges set out above.[58]
[57] Exhibit 5.4 [8] - [15].
[58] Exhibit 5.4 [11].
In cross-examination, Mr Thompson's evidence was clear. He said the defendant wanted a fee of a million dollars, and wanted it to go into his contribution to the building costs rather than a cash payment. Mr Thompson was adamant that the agreed fee was for $1 million, and that this would be reflected by a $1 million credit in the costs.[59]
[59] ts 163 - 164. See also ts 172, 178, 208 - 212 and 268.
Mr Thompson did not agree that the 2012 emails showed that there was 'ambiguity' about the Builder's Fee. He said that the 2012 emails reflected 'confusion' not ambiguity. He said there was no ambiguity in his mind. He said the Builder's Fee was agreed in the 2011 Dome meeting.[60]
[60] ts 233 - 235. See also ts 167, 176, 231 - 241.
The defendant's evidence
The defendant gave evidence that the parties agreed that the Builder's Fee would be $2 million, being $1 million from Creggan and $1 million from the trust he acted for. The defendant said that it was agreed that this would be reflected by Creggan paying $3 million and the defendant paying $1 million, to meet the anticipated $4 million cost.[61]
[61] ts 455 - 460, 529 - 535.
Conclusion
A Builder's Fee that was, in effect, $2 million for a building that was to cost $4 million seems excessive. However, it is open to parties to agree to pay excessive fees.
I accept Mr Thompson's evidence that the Builder's Fee was agreed at the 2011 Dome meeting. I do not, however, accept his evidence as to what the agreement was. I have no doubt about Mr Thompson's honesty. I am satisfied he was entirely honest in his evidence. However, I consider it likely that Mr Thompson intended that the Builder's Fee be $1 million, and simply mistakenly thought that this would be achieved by an agreement that each owner would pay the defendant $1 million, or that Creggan would pay him $1 million. I consider that, due to the passage of time and his intention to have made a different agreement, he has reconstructed his recollection of the agreement such that it fits with what he had intended to agree to.
Determining what the parties agreed is an objective exercise. Mr Thompson's subjective intention is not relevant.
The 2012 emails are admissible in evaluating the terms of the oral agreement.[62] They are not entirely supportive of either side's contention. However, I consider that, taken as a whole, they support the defendant's contention. There are clear statements that both Creggan and the defendant would each pay $1 million to the builder, or that Creggan would pay $1 million to the defendant.
[62] Fazio v Fazio [2012] WASCA 72 [193] (Murphy JA, with whom Newnes JA agreed), [10], [13] (Pullin JA).
The original worksheet prepared by Mr Thompson and the instructions he gave to his solicitors that led to what was contained in the draft witness statement cause me to doubt the reliability of Mr Thompson's recollection of what was agreed in the 2011 Dome meeting. This, combined with the 2012 emails, causes me to be unable to accept his evidence on this point.
Objectively assessed, and having regard to the evidence as a whole, I find that the parties agreed that the Builder's Fee would be $2 million. I find that they agreed it was to be paid by Creggan paying $1 million of the defendant's share of the costs, so that ultimately Creggan would have paid $2 million more than the defendant.
Was the defendant released from the obligation to do the builder's fit‑out?
The defendant admits that the parties agreed that the work for which he was to receive the Builder's Fee was to include the builder's fit-out.[63]
[63] ts 631.
The defendant asserts, however, that the agreement was varied to release him from that obligation. He asserts, in effect, that the parties' agreement (in 2014) to halt construction due to the downturn in the rental market had that effect.[64]
[64] See, for example, ts 498 - 499, 519 - 522.
This assertion is inconsistent with Mr Thompson's evidence,[65] whose evidence I largely accept. I also note that, even on the defendant's version, the defendant provided no consideration for the alleged variation.
[65] See, for example, ts 141 - 142, 247 - 248 and exhibit 5.4 [20] - [23].
As I have explained, I do not accept the defendant's evidence unless it is corroborated or against his interest. I do not accept he was released from his obligation to do the builder's fit-out as part of the work for which he was to receive the Builder's Fee. I accept Mr Thompson's evidence that there was no such variation to the original agreement.
Did the defendant refuse to do the builder's fit-out on buildings C and D?
Mr Thompson gave evidence that he asked the defendant to do the builder's fit-out on the plaintiffs' side of the building.[66] It appears that this would have been around 2018.[67] The defendant initially denied having been asked by Mr Thompson.[68] Later, however, he said he could not remember being asked.[69]
[66] ts 246 - 247, 250, 256 - 258.
[67] See exhibit 2.99.
[68] ts 520.
[69] ts 523.
I accept Mr Thompson's evidence and find that the defendant refused to undertake the builder's fit-out on the plaintiffs' side of the building.
It is common ground that the builder's fit-out was done on the plaintiffs' side of the building, and that it was not done by the defendant.
Alleged indemnification agreement
The defendant pleads that on 13 June 2019 the plaintiffs agreed to provide a written undertaking to the defendant containing an indemnity against any loss that the builder's fit-out may cause the defendant.[70]
[70] Defence [15].
Mr Thompson denied agreeing to indemnify the defendant for any loss that might occur. He said he agreed (in September 2019) to make the defendant 'whole' in relation any increase in stamp duty.[71]
[71] See, for example, ts 284 - 285.
I accept Mr Thompson's evidence on this issue. It is consistent with the contemporaneous documents.[72]
[72] See, in particular, exhibits 3.197 and 4.244.
In any event, as will be seen, I will order that the property be sold. As I will later explain, if the property is sold, the defendant will not suffer any loss from the builder's fit-out.[73]
[73] The reasons for this are set out in my discussion of the counterclaim.
Alleged agreement in October 2020
The defendant alleges that the parties reached an agreement on 8 October 2020 as to the terms on which the subdivision would continue. The plaintiffs dispute this.
On 8 October 2020, the parties attended a directions hearing at the Supreme Court. Prior to the hearing, Mr Thompson and the defendant went into a room to attempt to settle their differences. Mr Thompson's solicitor, Mr Gregson, was in the room most of the time.
Although this was a settlement discussion, the parties gave evidence about what occurred. This was because the defendant alleges that a concluded agreement was reached. The plaintiffs also tendered documents exchanged by the parties in the days following. Such documents are admissible in evaluating whether a binding oral agreement was in fact made and, if it was, identifying its necessary terms.[74]
[74] Fazio [193] (Murphy JA, with whom Newnes JA agreed). See also Pullin JA [10], [13].
Mr Thompson's evidence was to the effect that, during the meeting, he had thought that they had agreed the terms on which the subdivision would proceed, subject to putting it in writing. However, the defendant had then said that he 'wished for further compromise' from Mr Thompson, referring again to the indemnities he sought and also wanting Mr Thompson to agree that he would not do anything without the defendant's prior written agreement as to cost, protocol and methodologies.[75]
[75] Exhibit 5.4 [47] - [48].
Mr Thompson said:[76]
[76] Exhibit 5.4 [48].
I did not agree to any of what Mr Rizzi was asking for. I did not respond to him at all as I realised Mr Rizzi did not agree with my proposal discussed at the beginning of the meeting. I felt that Mr Rizzi was again bullying and driving his agenda. I rapidly lost interest in the conversation and wanted it to end. I said to Mr Gregson to agree to the matter being adjourned sine die.
Mr Gregson gave evidence to the effect that Mr Thompson had said that he wanted everything put in writing before the subdivision proceeded.[77] Mr Gregson did not give evidence about the defendant raising the indemnities again. However, Mr Gregson had left the room more than once.[78] The defendant said that Mr Gregson was not in the room when the discussion about indemnities occurred.[79]
[77] ts 441.
[78] See ts 441 - 442 and 445.
[79] ts 501.
That Mr Thompson would have expressed a need for documentation is not surprising. Later, I will discuss some of the difficulties Mr Thompson had had in dealing with the defendant in relation to the subdivision.[80] The plaintiffs had also unsuccessfully sought to resolve their differences prior to the meeting on this day.[81] In the circumstances, it would have been quite extraordinary if Mr Thompson had not insisted on any agreement being documented.
[80] See, for example, the events discussed below under the sub-heading 'Analysis' under the heading 'Order for sale?'.
[81] See the exchanges discussed by Mr Gregson at ts 439 - 441.
The defendant did not cross-examine Mr Thompson about this meeting at all.[82] Despite this, the defendant gave evidence that the parties had reached an agreement on 8 October 2020, including that Mr Thompson would indemnify him for stamp duty and capital gains tax.[83]
[82] He also did not cross-examine Mr Gregson about what had been discussed in the meeting, and said he agreed with Mr Gregson's account - see ts 499.
[83] ts 500 - 502.
The emails exchanged subsequently are inconsistent with an agreement having been reached on 8 October 2020.
On 9 October 2020, the defendant sent an email to the plaintiffs' solicitors, referring them to notes he had attached. The notes relevantly read:[84]
[84] Exhibit 4.258E.
Deed of Settlement Rizzi & Thompson (DoS).
"WITHOUT PREJUDICE"
1.These notes are prepared by Rizzi in an attempt to resolve the main issues and items required in the SECOND DRAFT of the DoS. The final draft will need to be settled by the appointed Rizzi Lawyer.
...
7. We will need to investigate if an undertaking, indemnity and or Consent Orders will be required in support of the DoS. The DoS needs to be 100% binding.
8.The DoS to include all outstanding issues including financials originating for the Original development (Zero Outstand [sic] from both sides).
…
14.The Court action is to be discontinued when all the terms and conditions associated with the DoS are finalized.
On 13 October 2021, the plaintiffs' solicitors replied (emphasis in original):[85]
[85] Exhibit 4.258F.
Dear Mr Rizzi
We refer to your email sent 9 October 2020 at 11:39AM to me (below) attaching a document with proposed terms to be added to the draft Deed of Settlement and Release currently being contemplated by the parties. Our client is prepared to enter into discussions with you in respect of the proposed terms. Before our client enters into any further negotiations over the terms of the Deed of Settlement and Release with you, we are instructed that we first be provided with the following, to be held in escrow for the parties:
1.the Certificate of Title/Title Deed for 3 Sarich Way (CT); and
2.the sum of $32,500 being half the estimated amount to be paid by you for the concreting of the old NEC building site, and now allocated to car parking under the conditions of the relevant subdivision approvals (Rizzi share of Car park Concreting).
…
Please confirm by 4.00PM on Friday, 16 October 2020 that the above proposal is acceptable, and on the basis that the Title Deed and the sum of $32,500 is to be received at our office by 1.00 PM Monday, 19 October 2020.
The defendant responded:
Dear Mr. Gregson.
No thank you to your proposal.
WITH Thanks
I accept the evidence of Mr Thompson and Mr Gregson (for those parts he was present for) as to what occurred during the meeting on 8 October 2020. The defendant's email of the following day confirms that the parties were still negotiating the terms on which the subdivision would proceed, as well as other issues in dispute. The solicitor's response expressed a willingness to continue to negotiate, but sought that the defendant first provide two things. The defendant rejected that offer.
Accordingly, I find that the parties did not reach a concluded agreement in October 2020.
Order for sale?
Legal Principles
Section 126 of the Property Law Act 1969 (WA) relevantly provides:
(1)Where in an action for partition the party or parties interested, individually or collectively, to the extent of a half share or upwards in the land to which the action relates request the Court to direct a sale of the land and a distribution of the proceeds, instead of a division of the land between or among the parties interested, the Court shall, unless it sees good reason to the contrary, direct a sale accordingly.
(2)The Court may, if it thinks fit, on the request of any party interested, and notwithstanding the dissent or disability of any other party, direct a sale in any case where it appears to the Court that, by reason of the nature of the land, or of the number of the parties interested or presumptively interested therein, or of the absence or disability of any of those parties, or of any other circumstance, a sale of the land would be for the benefit of the parties interested.
(3)The Court may also, if it thinks fit, on the request of any party interested, direct that the land be sold, unless the other parties interested, or some of them, undertake to purchase the share of the party requesting a sale; and, on such an undertaking being given, may direct a valuation of the share of the party requesting a sale.
(4)On directing a sale or valuation to be made under subsection (3) the Court may give also all necessary or proper consequential directions.
…
The authorities considering this provision establish the following:[86]
[86] See De Campo Holdings v Cianciullo [1977] WAR 56, 58 - 59; Nullagine Investments Pty Ltd v Western Australian Club Inc [1993] HCA 45; (1993) 177 CLR 635, 645; and Pateman and Anor v Daw Koh and Anor [2007] WASCA 85 [40].
1.In an action for partition, there are two options - sale or partition.
2.A sale is to be ordered unless the court sees good reason to order partition.
3.In determining which to order, the court should consider what is the better course for all parties.
4.The onus of showing that partition is better is upon the person opposing a sale.
Analysis
The defendant opposes an order for sale and seeks instead an order that the property be subdivided.
This is entirely inconsistent with his pleaded defence.[87] Putting that aside, the question is whether there is good reason to order partition rather than a sale.
[87] Initially, the remedies sought by the plaintiffs included specific performance of the Subdivision Agreement, or alternatively an order that the property be partitioned, or, if not partitioned, that it be sold. In paragraph 25 of his defence, the defendant denied that the plaintiffs were entitled to any of the relief they claimed. Accordingly, the defendant is seeking an order from the court that he denied the plaintiffs were entitled to obtain.
The defendant seeks that the property be subdivided because he says that the process of subdivision is well advanced and would not take much more time or cost to achieve.[88]
[88] ts 625 - 627.
I am not satisfied that this is a sufficient reason. I accept that the process of subdivision is well advanced. However, this is primarily due to the persistence and efforts of the plaintiffs, despite the obstacles thrown up by the defendant.
An example of such an obstacle was the defendant's refusal to sign the application to the WAPC for subdivision approval.
Mr Thompson asked the defendant to sign the application in May 2019.[89] The defendant refused.[90] He did not sign it until 20 September.[91]
[89] See exhibits 3.145 and 3.145A.
[90] Exhibit 3.149.
[91] Exhibits 3.193 and 3.197 (Although the meeting is said to have been on 23 September, it was on 20 September - see exhibit 5.1 [128]).
In cross-examination, the defendant said he had thought that the application should not be made until it was known whether the Minister would give his approval.[92] I do not accept this was why the defendant refused to sign the application.
[92] ts 557.
First, the cost of the application was estimated to be $15,000.[93] This was less than the money that the defendant had agreed, prior to the Minister's approval being received, should be spent in separating the two halves of the building.[94] The defendant had also expended time and (I would infer) money in attempting to obtain approval to use his half of Sarich Way as a medical centre, prior to the Minister's approval.
[93] ts 557.
[94] ts 594 - 595.
Second, in the period between the defendant being asked to sign the application and when he did sign it, the defendant began to demand an indemnity from the plaintiffs.[95] It is unclear when the defendant first began to make this demand, but the evidence suggests it was no later than 4 July 2019.[96]
[95] And see ts 581 - 582.
[96] See exhibit 3.162 (notes made by the defendant, titled 'as at 4 July 2019') and ts 563 - 564. See also exhibit 3.179 (email from Mr Thompson referring to a demand in late May 2019) and exhibit 5.1 [119] ‑ [125] (in relation to the meeting in September 2019 in which the defendant eventually signed the application).
Third, the defendant finally agreed to sign the application after Mr Thompson had agreed to pay the first $20,000 of the cost of the application.[97]
[97] See exhibit 5.1 [119] - [125] (Mr Thompson's evidence). See also ts 367 - 369 (Mr Stolsavljevic's evidence) and exhibit 3.197 (minutes of a meeting). See also ts 584 (the defendant's evidence).
In my view, the defendant initially refused to sign the application to pressure the plaintiffs into making some concession. It worked.
Another example of the defendant's obstructive behaviour was his direction that the subdivision works should stop.[98]
[98] The defendant admits he did this - see the Plaintiffs' Proposed Findings item 30 and ts 622. See also ts 480 ‑ 486.
In addition to his obstructive behaviour, the defendant has demonstrated he cannot be relied upon to engage with the plaintiffs in a reasonable way. An example of this is the correspondence he exchanged with the plaintiffs' solicitors in 2020.[99] If I was to order that the property be partitioned, it is highly likely that further disputes would arise.
[99] See exhibits 3.218, 3.219, 3.221, and 3.222 and ts 597 - 604.
The defendant claims he will be financially disadvantaged if the property is sold. This appeared to be because he believes it would not be sold for its true value.[100] There is no evidence of this. In any event, if he is financially disadvantaged by the sale, as distinct from a partition, he would have been the cause. His behaviour obstructed the subdivision and led to the institution of these proceedings.
[100] ts 507.
I am not satisfied that there is good reason not to order a sale. In my view, the better course for all parties is for the property to be sold.
Order for an account
Both parties sought an order for an account to be taken. I will later explain why I consider an account should be ordered. Before doing so, I will identify those items that should be included in the taking of the account.
The plaintiffs prepared a list of the categories of items they contended should be considered in the taking of the account. The defendant agreed with a number of those categories, but disagreed with others.
Agreed categories
The defendant agreed with the following categories:[101]
[101] See 'Items to be taken into consideration in the taking of Account Defendant's Response' filed 27 October 2021 (Defendant's Response to Account).
1.the costs of the design and construction of the buildings known as Building A, B, C and D upon the land known as 3 Sarich Way, Bentley;
2.those costs associated with the display suite erected within building C in or about 2014;
3.the rent received by the plaintiffs or defendant from Pfizer and Horizon Power in respect of the use of car bays;
4.the costs associated with the joint ownership of 3 Sarich Way including:
4.1 land tax;
4.2 council rates;
4.3 water rates;
The defendant qualified his agreement to the first three categories.
Qualifications
Design and construction costs
The payment to Mr Martin
The defendant objected to the inclusion of a payment made to a Mr Martin on 17 September 2015. He claims that Mr Thompson paid Mr Martin when Mr Martin had already been paid. He says that, because he (the defendant) had not 'vouched' for Mr Martin's invoice, he should not have to share the cost.[102]
[102] ts 627 - 628.
I do not accept this. Mr Thompson's evidence was that the defendant was having a dispute with Mr Martin, who was an electrician. Mr Thompson said that the defendant had made an unsuccessful claim in court against Mr Martin. Mr Thompson said that the issue was bothering the defendant and that the defendant also had some personal issues at the time. Mr Thompson said that the defendant had asked him (Mr Thompson) to resolve the issue. Mr Thompson said he looked into the issue and concluded that Mr Martin was owed money, would not 'go away' and would cause trouble wherever he could. Mr Thompson concluded that the best thing to do was to pay Mr Martin and so he did. He obtained a release from Mr Martin. Mr Thompson said that, when he emailed the defendant to explain what he had done, the defendant was angry. Mr Thompson said he had used his best judgment and believed he had the defendant's approval to solve the problem.[103]
[103] ts 186 - 187. See also exhibit 5.1 [130].
The defendant put to Mr Thompson that Mr Martin had already been paid and that Mr Martin had therefore been paid twice.[104] Although Mr Thompson did not know that that had occurred, he accepted it.[105]
[104] See ts 187 - 188.
[105] See ts 188 and ts 223 - 224, 289 - 290.
I accept Mr Thompson's evidence. In the circumstances, it is appropriate that the payment to Mr Martin be taken into consideration in the account.
Matters of form
The defendant also made submissions as to the way in which the ledger should be described, how items should be recorded and on what ledgers items should be recorded.[106] None of these submissions are relevant to the task before me.
[106] See the qualifications to item 1 in the Defendant's Response to Account.
Display suite costs
The defendant submitted that half the value of the display suite should be credited to him. This would be relevant if the property was to be partitioned. It is not relevant given it will be sold.
Car bay rent
The defendant sought to add 'NEC rent collected on 3 May 2019'. This was a reference to income received from NEC which Mr Thompson had entered on to the project costs schedule.[107] The defendant objects to the manner in which it has been recorded. Matters of form are not relevant. However, the funds should be taken into consideration in the taking of the account on the basis of my finding (reflecting what was common ground) that the owners were to share equally in any rental income.
[107] ts 223 and 628.
Disputed categories
The defendant disagreed with the following categories:[108]
[108] See Defendant's Response to Account.
1.all costs associated with the subdivision works on 3 Sarich Way, Bentley, excluding (to a maximum of $20,000) the costs of the application to the West Australian Planning Commission;
2.all costs associated with the builders fit out to buildings C and D on 3 Sarich Way, Bentley including an adjustment in favour of the plaintiffs in respect of the project management fee paid to Buildwell Group;
3.the costs associated with the joint ownership of 3 Sarich Way including:
3.1 electricity bills;
3.2 insurance;
3.3 landscaping and gardening;
3.4 fencing;
3.5 maintenance;
3.6 property management costs;
3.7 valuation costs.
Subdivision costs
As noted earlier, the plaintiffs and defendant agreed that the costs of the subdivision would be shared equally between them. The defendant claims that the agreement was later varied. He claims that, in the meeting on 8 October 2020, the parties agreed that the plaintiffs would pay all of the subdivision costs. Based on this, the defendant submits that the subdivision costs should not be taken into consideration in the account.
I earlier explained why I do not accept that a concluded agreement was reached on 8 October 2020. Accordingly, the only variation to the Subdivision Agreement was the plaintiffs' agreement[109] to pay the first $20,000 of the costs of the application to the WAPC. That amount aside, the costs were to be borne equally.
[109] The plaintiffs were, in effect, forced to agree to this so that the defendant would sign the subdivision application. Despite this, the plaintiffs did not seek to resile from this agreement.
For these reasons, all costs associated with the subdivision works, excluding (to a maximum of $20,000) the costs of the application to the WAPC, should be brought to account on the basis of my finding that the costs were to be shared equally.
Builder's fit-out costs
As noted earlier, the parties agreed that the defendant would be the builder and would oversee the construction of the building, including the builder's fit-out, in exchange for the Builder's Fee.
In around 2018, the plaintiffs asked the defendant to carry out the fit-out to the plaintiffs' side of the building, but the defendant refused. The plaintiffs then organised and paid for the fit-out to be done on their side of the building. The defendant did not agree to those costs being incurred.
The plaintiffs accept that, as co-owners with the defendant, they are not entitled at law to require the defendant to contribute to those costs. However, if the fit-out increased the value of the property, and if the property is sold, equity requires that the plaintiffs receive an allowance for the expenditure to the extent to which it increased the value of the property. The allowance cannot be more than the expenditure, nor more than the amount to which the expenditure increased the value of the property.[110]
[110] Squire v Rogers (1979) 39 FLR 106, 125 - 127.
The cost of the builder's fit-out was approximately $1.5 million.[111] It included electrical wiring, carpets, wall cladding, ceiling grids, lighting, bathrooms, window treatments, and fire protection.[112] I would infer it increased the value of the property.[113]
[111] ts 248.
[112] See exhibit 2.133.
[113] The defendant urged me to draw this inference, see ts 505.
Given that I will order that the property be sold, the increase in value caused by the fit-out will benefit both parties.
In the circumstances, the costs of the builder's fit-out should be taken into consideration in the taking of the account. It will be a matter for the registrar to assess whether the work did increase the value of the property and the extent to which, if it did, it is appropriate to make an allowance for that.
Finally, the defendant did not complete the work he agreed to do in exchange for the Builder's Fee. The work he was to do included the builder's fit-out. Because the defendant refused to do the fit-out, the plaintiffs engaged Mr Stolsavljevic (through Build Well group) to organise it, and paid for that. Therefore, there should be an adjustment in favour of the plaintiffs for the project management fee it paid to Build Well to supervise those works.[114]
[114] See Jones and Anor v Dalcon Construction Pty Ltd and Anor [2006] WASCA 205 [35]; R v McKay; ex parte Cassaniti [1992] 2 Qd R 95, 99; Waterways Authority of New South Wales v Coal & Allied Operations Proprietary Limited [2007] NSWCA 276 [221].
Joint ownership costs
Electricity bills
The defendant submits that electricity bills should not be included 'because Mr Thompson incurred that cost through his exclusive use of the display suite with the exception of an allowance for the common and shared bore pump'.
This is no reason not to include electricity costs in the items to be considered by the registrar. It will be up to the registrar to decide the extent to which electricity costs should be taken into consideration.
Insurance
The defendant submits that insurance is not a shared cost because the plaintiffs only insured their half of the building.
There is no evidence of this. In any event, this is no reason not to include insurance costs in the items to be considered by the registrar. It will be up to the registrar to decide the extent to which these costs should be taken into consideration.
Fencing
The defendant accepts that the temporary fencing was a shared cost. He appears to object to any other fencing on the basis that, if it was related to the subdivision, the plaintiffs had agreed to pay all of the subdivision costs.[115] I have already rejected this contention. The fencing should be brought to account on the basis of my finding that all development and subdivision costs were to be shared equally.
[115] See ts 630.
Landscaping and gardening
The defendant accepts that landscaping and gardening costs were shared costs, but submits that, after May 2018, the parties agreed to each be responsible for their own halves.
This is no reason not to include these costs in the items to be considered by the registrar.
Maintenance
The defendant makes the same submission in relation to maintenance, and I make the same ruling.
Property management costs
The defendant objects to Mr Thompson being paid for his management. The plaintiffs clarified that they meant, by 'property management costs', to refer to the costs of external agents who will be involved in the sale or leasing of the property. Such costs should be taken into consideration in the taking of the account.
Valuation costs
The defendant appears to agree that one valuation is a shared cost but contend that the other is not. There is no reason why account should be taken of only one of the valuations. The cost of both valuations should be brought to account on the basis of my finding that the costs were to be shared equally.
Should an account be ordered?
An order for an account can be made only if liability to account is established.[116]
[116] Rowev National Australia Bank Ltd (2019) 56 WAR 1; [2019] WASCA 140 [56], [85] (Murphy JA and Sofronoff AJA).
This has been established in this case, in two ways. Accounting parties include tenants in common[117] and those engaged in joint ventures.[118] The parties in this case were tenants in common of Sarich Way. They were also in a joint venture to develop and, later, subdivide the property. They were therefore in an accounting relationship.
[117] Rowe [59].
[118] Marcolong v Mattiussi [2000] NSWSC 834 [71].
It has been said that it is not a precondition to the exercise of the jurisdiction that a finding be made that some amount is owed.[119] Nevertheless, I am satisfied that the plaintiffs will be entitled to some amount from the defendant once an account has been taken. This is despite my finding that the Builder's Fee was to be $2 million. My reasons are as follows.
[119] Rowe [7] (Quinlan CJ). See also [89] (Murphy JA and Sofronoff AJA).
First, I have found that the defendant refused to carry out the builder's fit-out, and that, as a result, there should be an adjustment in favour of the plaintiffs for the project management fee it paid to Build Well to supervise those works.
Second, I have found that the money spent by the plaintiffs on the builder's fit-out on the western side of the building is likely to have increased the value of the land. If it did, the plaintiffs would be entitled to have that expenditure taken into consideration (up to the amount of the increase in value).
Third, the defendant did not deny having refused to contribute to the subdivision and ongoing ownership costs.
Fourth, the project costs schedule indicates that, as at 13 May 2021, Creggan had contributed over $2 million more than the defendant.[120]
[120] Exhibit 4.266 page 1744.
I am satisfied that I have the power to order an account. I am also satisfied that I should exercise my discretion to do so. Both parties seek an account and it is likely to be the most efficient way to finally end the dispute between the parties.
Counterclaim
Mr Rizzi's counterclaim alleges that the builder's fit-out[121] to the plaintiffs' side of the building increased the value of the land. He alleges that the increase in value will increase the stamp duty and capital gains tax payable when it is sold, and may increase the council and water rates. He says, in effect, that, as the fit-out was to the plaintiffs' side of the building, he will not get the benefit of the increased value when the property is subdivided. He says that he will therefore suffer a loss.[122]
[121] This was the 'unauthorised improvements' pleaded by the defendant - see ts 623.
[122] The defendant admits that he has not yet suffered any loss - he agrees with item 37 on the Plaintiffs' Proposed Findings - see ts 622.
As I have decided that the property should be sold, Mr Rizzi will share in the benefit of any increase in value caused by the fit-out. In those circumstances, he would not suffer any loss as a result of the fit-out. Accordingly, I dismiss the counterclaim.
Orders
For the reasons I have given, I would order that the property be sold, that an account be taken and that the counterclaim be dismissed.
I will hear from the parties as to the form of the final orders to reflect these reasons (including orders as to powers of the registrar and appropriate directions to the parties and the registrar) and as to costs.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
AG
Research Associate to the Honourable Justice Archer
12 JANUARY 2022
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