CVC v Howship
[2000] NSWSC 1189
•15 December 2000
CITATION: CVC v Howship [2000] NSWSC 1189 CURRENT JURISDICTION: Equity Division
Commercial ListFILE NUMBER(S): SC 50170/1999 HEARING DATE(S): 20/11/00, 21/11/00, 22/11/00, 23/11/00, 24/11/00, 27/11/00, 28/11/00, 29/11/00, 30/11/00, 01/12/00 JUDGMENT DATE: 15 December 2000 PARTIES :
CVC (Newcastle) Pty Limited - Plaintiff
Howship Holdings Pty Limited - DefendantJUDGMENT OF: Rolfe J
COUNSEL : Mr S.D. Rares SC/Mr P.J. Dowdy - Plaintiff
Mr T.E.F. Hughes QC/Mr P.W.J. Gray - DefendantSOLICITORS: Coudert Brothers - Plaintiff
Clayton Utz - DefendantCATCHWORDS: Misleading and deceptive conduct - Unconscionable conduct: - Relief granted against Heads of Agreement entered into in consequence of such conduct - Affirmation: Held no affirmation arising in the context of "without prejudice" correspondence aimed at achieving a settlement LEGISLATION CITED: Trade Practices Act 1974 CASES CITED: Tutt & Anor v Doyle & Anor (1997) 42 NSWLR 10
Akron Securities Limited v Iliffe (1997) 41 NSWLR 353
Henjo Investments Pty Limited & Ors v Collins-Marrickville Pty Limited (No 1) (1988) 39 FCR 546
Gould v Vaggelas (1985) 157 CLR 215
Huntsman Chemical Company Australia Limited v International Pools Australia Limited (1995) 36 NSWLR 242
Sargent v ASL Developments Limited (1974) 131 CLR 634
Haynes v Hurst (1927) 27 SR (NSW) 480
Brown v Smitt (1924) 34 CLR 160
Greig & Davis "Law of Contract" p.868DECISION: 1. Declarations in accordance with paragraphs 1 and 5 of the Further Amended Summons filed on 20 November 2000; 2. Orders in accordance with paragraphs 2 and 6 thereof; 3. The defendant pay the plaintiff's costs of the proceedings; 4. Exhibits be returned at the expiration of twenty eight days (allowing also for the long vacation period), unless, within that time, an appeal against this judgment has been brought.
PARAIntroduction 1
A Short Consideration 13
(a) The Issues 14
(b) Uncontested Or Established Facts 23The Pleadings 26
The Evidence Of Mr Gould 87
My View Of Mr Gould’s Evidence 182
The Evidence Of Alexander Damien Harry Beard 186
The Evidence Of Mr Peter Gordon West 230
The Evidence Of Mr Baird 300
The Evidence Of Mr Keel 372
My Conclusions Thus Far 418
A Return To Mr Keel 427
The Evidence Of Caroline Mary Lovell 430
The Evidence Of Mr Fidler 481
A Consideration Of The Evidence 482
The Defence Of Affirmation 483
Conclusions 511
Declarations And Orders 513
THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LISTROLFE J
FRIDAY, 15 DECEMBER 2000
50170/1999 - CVC (NEWCASTLE) PTY LIMITED v HOWSHIP HOLDINGS PTY LIMITED
JUDGMENT
HIS HONOUR:
Introduction
1 The plaintiff, CVC (Newcastle) Pty Limited, for which Mr S.D. Rares of Senior Counsel and Mr P.J. Dowdy of Counsel appeared, commenced proceedings against the defendant, Howship Holdings Pty Limited, for which Mr T.E.F. Hughes of Queen’s Counsel and Mr P.W.J. Gray of Counsel appeared, by a Summons issued on 24 December 1999. The proceedings went forward on the basis of an Amended Summons, which was filed on 26 October 2000, and the Further Amended Defence, which was filed in Court on 16 November 2000.
2 Mr Vanda Russell Gould is a chartered accountant by profession and the chairman of Continental Venture Capital Limited, (“CVCL”), which is a publicly listed company of which the plaintiff is a subsidiary. He is highly experienced as an accountant and as a businessman. Mr John Leaver is the plaintiff’s managing director. He played no part in the circumstances giving rise to this litigation, so far as the evidence disclosed, and did not give evidence.
3 The plaintiff carried on, relevantly for present purposes, the business of a property developer and financier. Mr Alexander Beard, who is also a chartered accountant and is employed as an investment manager by another company in the CVCL Group, had the day to day control of the relations with the defendant. He was subject to the overall control of Mr Gould, who, on any view of the evidence, exercised a close supervisory role.
4 In about April 1991, the defendant, the directors of which were, at all material times, Mr Terence Peter Baird and Mr Tony Fidler, acquired about 500 acres at Fern Bay near Port Stephens, being Lot 16 in Deposited Plan 255840. It seems that there were three lots comprising the whole or that the land could be subdivided into three lots. It was zoned Rural 1A, which meant that it could only be subdivided for rural subdivision. The purchase was effected with funds borrowed from Mytian Pty Limited to which it gave a first mortgage, whereafter it embarked on having the land re-zoned for residential purposes. It was ultimately successful, the re-zoning being gazetted on 17 March 1995. The defendant then commissioned various studies necessary for the lodgement of a Development Application.
5 The defendant had to re-finance the loan from Mytian Pty Limited, which it did by obtaining a loan of $3m, which included two years’ pre-paid interest, from clients of Gray & Perkins, a firm of solicitors. On or about 23 August 1995 the first mortgage to Mytian Pty Limited was discharged and replaced by a registered first mortgage to the clients of Gray & Perkins. The defendant later borrowed further amounts from them and, by October 1998, it was under extreme pressure to repay that loan, which had increased to approximately $6.35m, including approximately $350,000 outstanding interest.
6 In about October or November 1998, Mr David Kennedy, a former solicitor, who is now an independent property developer with whom CVCL had worked from time to time, communicated with Mr Gould and asked him whether he would be interested “in looking at a development north of Newcastle”. He gave Mr Gould some details and, upon his expressing some interest, it was arranged that Mr Gould and Mr Leaver should meet with Mr Baird and Mr Fidler.
7 This occurred on or about 17 November 1998 and Messrs Gould and Leaver were told that the defendant had purchased the property, which would be developed for residential housing, and that eventually it would result in the sale of some one thousand lots over a period of approximately ten years with a projected profit of about $50m. They were advised that whilst all necessary approvals were about to be received, the defendant had been involved in extensive litigation in the Land and Environment Court in relation to the development and that its financial position was such that it needed an investor or joint venture partner to proceed with the development. During the meeting Mr Baird explained that the defendant was under “massive pressure” from the mortgagees to either pay the overdue interest or retire the debt, but could not “even pay” the interest. He explained that both he and Mr Fidler had pressing personal debts and owed the latter’s father-in-law $300,000 and Holstac Pty Limited, (“Holstac”), $700,000 plus accrued interest. Holstac was a company related in some way to a person, who had won a considerable amount from Lotto, or was a vehicle through which that person invested the winnings. The precise nature of that relationship was not explored and is not relevant to the issues raised, save that there was no suggestion that sufficient funds were available from this source to complete the development. He said that the defendant was also indebted to contractors and consultants in relation to the development of the land thus far. In the result the defendant had land with obvious subdivision potential and, ultimately, the prospect of making substantial profits, but it could not afford to pay the debts it had already incurred, nor, obviously enough, to proceed with the development on its own. These facts alone show that its bargaining position was weak; a situation which was exacerbated by demands being made by the first mortgagees, default in compliance with which could have led to a sale by them.
8 Mr Gould and Mr Leaver were interested in the project and from then until March 1999 there were extensive discussions and negotiations between the plaintiff’s and the defendant’s representatives as to the terms of the joint venture arrangement. Mr Gould was not only a highly experienced businessman. My perception of him is that he would have appreciated the defendant’s financial vulnerability and pressed for the best possible deal for the plaintiff. I do not say this critically of Mr Gould, who was discharging his obligations to the plaintiff. However, this approach clearly led to resentment on the part of Messrs Baird and Fidler, which may or may not have been justified, and, I believe, assisted in the quite speedy breakdown in the relationship between the parties. At some stage there were suggestions, which were never implemented, that the defendant would seek to have the joint venture documents, which became known as the Transaction Documents, set aside as having been procured by duress and unconscionably. I should add that the defendant’s entitlement to any such relief has been, at all times, denied by the plaintiff.
9 It is not in issue that on 19 March 1999 the plaintiff and the defendant entered into the Transaction Documents, providing for the development of the land in staged residential subdivisions. The Transaction Documents were a Development Management Agreement between the parties; a Development Funding Facility between the parties; a second registered mortgage given by the defendant to the plaintiff over the land; a registered Charge granted by the defendant to the plaintiff over certain of its assets; and a Deed of Priority between the clients of Gray & Perkins and the parties. Under the Deed of Priority it was agreed that the securities over the property should rank first as to the mortgage granted by the clients of Gray & Perkins for an amount not exceeding “the First Priority Amount”, which was defined; second, as to the mortgage over the property in favour of the plaintiff; and third, as to the first security to the extent of all money, the payment of which it secured in excess of the First Priority Amount.
10 It is alleged by the plaintiff and not admitted by the defendant that pursuant to the Transaction Documents since 19 March 1999 the plaintiff has advanced to the defendant $1,263,292.13 in relation to the project, and that interest of approximately $235,260.14 has accrued.
11 Soon after the Transaction Documents were entered into disputes arose between the parties concerning, speaking generally for the moment, the competence of the person employed by the defendant to supervise the development. The plaintiff had no confidence in him, and Mr Beard agreed that he had little time for Mr Baird or his business acumen. On 12 May 1999, Mr Beard wrote to the directors of the defendant:-12 On 26 May 1999, the plaintiff wrote to the defendant giving formal notice, pursuant to clause 12 of the Development Management Agreement, of its alleged default under clauses 2.2(b) and (c), 3.4 to 3.7, 4.2(c), 8.2 to 8.4, and 9.1 and 9.2. The letter stated that the Notice of Default was in addition to the notice given of the plaintiff’s dissatisfaction with the progress of development in the letter of complaint sent by facsimile transmission on 29 April 1999, and that specific matters raised in that letter had not been resolved to its satisfaction. It continued that in accordance with the provisions of the Development Management Agreement, the defendant had ten Business Days to rectify each of the matters referred to in the letter, which time expired on 10 June 1999, and that failure to rectify:-
“I have had the opportunity to reflect further on this morning’s meeting and to discuss various issues with both David & Vanda.
As discussed, we do not believe that the project management services delivered by Howship to date satisfactorily meet the requirements of the Development Management Agreement. Further, as demonstrated by this morning’s meeting, we do not believe that Howship currently has the necessary capability to adequately meet the commitments required by the Development Management Agreement. Terry’s health and general availability are also relevant issues.
Further, we believe that a potential conflict of interest arises in your need to maximise the profit impact of the 2% to provide funding of your creditors. We suspect your broad policy of minimising the costs of consultants to carry out Howship’s obligations will potentially be to the detriment of the project. We however need to obtain the best professional advice whilst a window of opportunity still remains with the present economy and before council elections.
We realise that you require cash flow from the project to meet Howship’s creditors. In order to facilitate this cash flow we would be prepared to remunerate Howship through an agreed level of consultancy fees on a monthly basis, as part of a package resolution to the present impasse, as clearly Terry’s breadth of knowledge is still essential. We believe that our lack of confidence may be capable of rectification as we move further into the project, however at this stage it is crucial that the project is given momentum. We believe that this will only be achievable through the appointment of external professional project managers for the first stage.
In view of our difference of opinion in relation to the above, we believe that there are only two practical alternatives available:
1. We appoint an external professional project manager to the project for the first development stage. This will enable you to better understand what is required for a commercial partnership and does not preclude Howship resuming full responsibility once you gain the understanding of what is involved in a large scale joint venture development; or
2. Howship arrange for CVC Newcastle’s interests in the development to be acquired by a third party.
In relation to the budget for the project, CVC Newcastle will not approve a budget that forecasts less than the entire extinguishment of CVC Development financing indebtedness after the completion of the first stage (utilising the sales value projections provided to Metway of $81,250). Accordingly I again request that in relation to the forecast cash flow that the numbers are again revised to reflect feasibility within the parameters of the Metway budget.
We would like to discuss these issues with you as soon as possible.”
13 I propose to adopt the course of noting briefly the issues, certain matters which were not in issue and others which I consider have been established, before dealing in detail with the pleadings, pursuant to which the case was fought, and the evidence, which founds the conclusions to which I have come.
“.. will result in the immediate termination of Howship as Development Manager pursuant to clause 12, and 12.4 of the Development Management Agreement …”
A Short Consideration
The letter then set out in some detail the matters about which complaint was made.
(a) The Issues
14 The plaintiff sought to have Heads of Agreement for settlement, into which it entered with the defendant on 16 July 1999, set aside as being void ab initio, or from some other time declared by the Court, (although in the way the case was fought no other time was suggested), or as being in equity such that it was entitled to avoid them, which it has done. In those circumstances it sought an order that they be set aside. No submission, save perhaps for the one of affirmation, was made that the plaintiff had not sought to avoid the Heads of Agreement.
15 The plaintiff based its case on the provisions of the Trade Practices Act and the general equitable principle expounded by the Court of Appeal in Tutt & Anor v Doyle & Anor (1997) 42 NSWLR 10. The essential factual foundation for each case was the same.
16 The plaintiff alleged that the defendant by making misrepresentations to it; by failing to provide it with correct information to which it was entitled pursuant to the Transaction Documents in breach of them and pursuant to its fiduciary duty as a joint venturer; and by either silence or a failure to advise the plaintiff of its relationship with another prospective joint venturer until after the Heads of Agreement were executed, constituted conduct proscribed by s.52 of the Trade Practices Act or unconscionable conduct entitling it to the equitable relief claimed.
17 The relief under the Trade Practices Act was grounded in s.87(1). It was not ultimately in issue that the defendant’s conduct, if established and relied on, was such as would cause or was likely to cause the plaintiff damage, such as to satisfy a precondition of that section. Mr Hughes made that express concession in his closing address.
18 I have referred to the only relief sought under the Trade Practices Act both as pleaded and in the way in which the case was fought. This, I consider, acquits me of the obligation of considering all the various other relief provided by that section: Akron Securities Limited v Iliffe (1997) 41 NSWLR 353, although a scanning of it does not indicate to me that, in the exercise of my discretion, some relief different from that sought by the parties would be appropriate.
19 In the end, the defendant did not contest that much of the conduct of which the plaintiff complained had been established. It could hardly have done so as its principal witness, Mr Terence Peter Baird, admitted or conceded a substantial part of the conduct.
20 The principal defences were that:-
(a) at all material times the plaintiff was aware that an entity would be taking its place, indeed it had so suggested in its letter of 12 May 1999, and that it could not, in those circumstances, complain about that entity being a person such as a major Queensland developer, Kurts Developments Limited, through a company related to it, Forrester Kurts, to which I shall refer, save where a distinction needs to be drawn, as “FK”;
(b) in any event, any representation or conduct by Mr Baird ceased to have effect by 16 July 1999 by which time the plaintiff had been seeking warranties or assurances that there was no such developer or developer/financier involved, for which it did not press; its concern by then being about the existence of a purchaser “in the wings”;
(c) in the circumstances, the plaintiff had not proved, to the high standard required within the civil onus having regard to the gravity of the allegations and with sufficient specificity, that the plaintiff had relied on any representations or conduct, which was necessary for both ways in which the case was propounded by the plaintiff;
(d) reliance was placed on a number of representations and various conduct, none of which was sufficiently clearly stated to allow the Court to find that it had occurred or had the effect for which the plaintiff contended; and
(e) the Heads of Agreement were subsequently affirmed.
21 So far as reliance was concerned the plaintiff submitted, and the defendant did not contest, that the relevant principles were stated in the well known passage of Lockhart J, with whom Burchett and Foster JJ agreed, in Henjo Investments Pty Limited & Ors v Collins-Marrickville Pty Limited (No 1) (1988) 39 FCR 546 at pp.558-559, in which his Honour also referred to the oft quoted principle enunciated by Wilson J in Gould v Vaggelas (1985) 157 CLR 215 at 236, that the representation need not be the sole inducement provided “it plays some part even only a minor part in contributing to the formation of the contract”.
22 The real defence, in addition to affirmation, was whether the plaintiff had proved, to the extent necessary, reliance on the defendant’s conduct. This is, obviously enough, essentially a question of fact. Prima facie, where there is found to be misleading and deceptive conduct and a party acts conformably with it being true, the reasonable inference, even if there is no positive evidence, is that there is reliance: Huntsman Chemical Company Australia Limited v International Pools Australia Limited (1995) 36 NSWLR 242. One question is whether that inference has been displaced in this case. Another is whether the plaintiff has proved reliance other than by the inference.23 1. It was clear by May 1999 that the parties would not be able to
(b) Uncontested Or Established Facts
2. The joint venture relationship created by the Transaction Documents brought into existence between the parties a fiduciary relationship and, pursuant to clause 11.2(c) of the Development Funding Facility Agreement, the defendant was obliged to give the plaintiff, upon demand, “any other information in the possession or under the control of” (the defendant) “which in” (the plaintiff’s) “reasonable opinion is relevant to the Transaction Documents”.
continue in any form of joint relationship. The critical issue for each was how the relationship created by the Transaction Documents should be terminated.
3. By its letter of 12 May 1999, the plaintiff offered, as an alternative, that its interests in the development be acquired by a third party. I am satisfied that the defendant was not merely being given the opportunity to repay the moneys lent by the plaintiff, but also of finding a party which would acquire all the plaintiff’s benefits under the Transaction Documents.
4. I am also satisfied that both parties realised that those benefits could have differing values depending on the nature of any further agreement the defendant was able to arrange. It is necessary to keep in mind that when the plaintiff became involved the defendant was at the end of its financial tether. Therefore, the plaintiff understood, and I am satisfied that Mr Baird understood, that depending on the arrangements made by the defendant, so would depend the value of the plaintiff’s interest.
5. Accordingly, if the defendant did nothing further with the land, the most for which the plaintiff could hope, on a buy-out, was a return of the money it had lent and interest, and some compensation for the loss of the investment. But it was hardly likely the defendant would do nothing. It had at least two alternatives. One was to sell immediately one or several of the lots and thereby generate sufficient cash to pay out its debts and proceed with the development of the balance. If this course were taken the plaintiff wanted, as part of its value of the development, a share of any profit on that sale. The value, on that basis, would have been reasonably modest. The second alternative was for the defendant to reach an agreement with another developer which would, in effect, replace the plaintiff. If this were to occur, and I am completely satisfied that both parties understood this, the value of the plaintiff’s interest would increase substantially. The plaintiff would not be prepared to be bought out for an amount which did not reflect substantially the present value of its share of the ultimate profit element which would accrue from the development, such figure taking account of the length of time to achieve the profit and the risks inherent in doing so. It was the potential involvement of a major developer about which Mr Baird made misrepresentations to the plaintiff and which he took active steps to conceal it. His purpose in doing so was to seek to buy-out the plaintiff at the lowest possible figure. After these representations had been made and this conduct had been engaged in the plaintiff, whilst unaware of it, signed the Heads of Agreement. Once the misrepresentations and concealment were revealed it refused to settle and stated that it wanted the Heads of Agreement set aside
6. By May 1999, Mr Baird was seeking to interest FK in the project. The negotiations were, in effect, proceeding at two levels. Firstly, FK may be prepared to provide the finance to enable the defendant to buy-out the plaintiff. Secondly, FK may, and this was subject at least to a due diligence the parameters of which were never settled proving satisfactory, replace the plaintiff.
7. I am satisfied that the defendant understood that if the plaintiff learned of the negotiations with FK its approach to exiting the agreement would have been quite different from that which it adopted, and that that understanding was correct. With that knowledge the plaintiff could have demanded far more to terminate the relationship. Once it learnt of the true situation, it refused to proceed with the Heads of Agreement, the amount in which was predicated on the false basis put forward.
8. In these circumstances, I am satisfied that the defendant, through Mr Baird, engaged in a deliberate course of conduct to conceal the negotiations with FK, which the correspondence between the defendant and FK of 1, 2 and 3 June 1999 shows had reached a reasonably developed stage by them.
9. The conduct of Mr Baird involved:-
(a) Answering certain questions, which had been posed by the plaintiff, in a letter which he wrote on 15 June 1999 in a deliberately untrue manner to mislead the plaintiff. The questions were directed, essentially, to ascertaining where the defendant was obtaining the money for the buy-out, and whether the defendant had entered into any negotiations with any developer. The first was answered by stating that financial assistance was being received from Holstac and Mr Fidler’s father-in-law. The second, beside the third bullet point on page 1, which he agreed at Tp.205 was not true, was:-
“A statement of all discussions, negotiations or understandings between Howship and any party in relation to the current or any contingent financing, development management or sale of the property.
Obviously we will have to pursue an arrangement with either a financier or some other party in order to further the development. However, there are no agreements with or arrangements in place between Howship and any party for the financing, development or management or sale of the property.”
The final question required correspondence between the defendant and any potential purchaser of the land or any part thereof, to which Mr Baird replied:-
“Howship is not negotiating with any potential purchaser of the property and has no intention of wanting to sell the property other than as a developed state as individual lots in the future.”
By then the defendant had offered to sell part of the property to FK for $9.5m, which he agreed at Tp.208 was a serious proposal, although it had been rejected out of hand.
(b) The letter of 15 June 1999 was sent, notwithstanding the advice of the defendant’s solicitor, Mr P.J. Keel a partner of Clayton Utz since 1991 and an experienced litigation solicitor, that it should not be.
(c) By letter dated 17 June 1999, the defendant advised the plaintiff “for more abundant clarity” that it had “neither commenced nor concluded, either on behalf of Howship or the venture partnership, arrangements to sell any land either developed or undeveloped”, and invited the plaintiff to communicate with the solicitors for Holstac to confirm the assistance that “they are giving us”. The first part of the letter was clearly untrue having regard to the negotiations for sale with FK. The second part was obviously intended to lull the plaintiff into a false sense of security: Tpp.228-229.
(d) Mr Baird conceded that he set out to bring about a situation in which the plaintiff parted with its interest, without it fully realising what was going on, and that he was trying to retain the benefit of the Heads of Agreement knowing that he had set out to deceive the plaintiff to enter into them on the basis of false information he provided: Tpp.230-231.
(e) Although a bank guarantee, which disclosed the involvement of FK, was received on or about 30 June 1999, Mr Baird gave instructions that it should not be provided to the plaintiff’s solicitor, Mr Peter West, a partner of Norton Smith & Co, which changed its name to Coudert Brothers as from 1 July 1999. Mr Baird sought unsuccessfully to have FK amend the bank guarantee to delete reference to it, and maintained the position that it not be handed over until settlement. This attitude was adopted so that the plaintiff would not be made aware of the true position with FK such that his deception would be exposed: Tp.242, and, in the desperate hope that on settlement the effect of the bank guarantee would either not be appreciated or would be overlooked, thus allowing settlement to go forward: Tpp.248-249.
(f) None of these representations was ever sought to be corrected prior to the entry in the Heads of Agreement of 16 July 1999.
10. Mr Gould was curious where the defendant was obtaining the money to achieve the buy-out. This curiosity was understandable in the light of its previous parlous financial position. I am satisfied that Mr Gould and Mr Beard accepted the truth of the assertions made in the letter of 15 June 1999 and that the detailed negotiations proceeded on that basis. I am also satisfied that they came to the view that the only way in which finance could be obtained was by a purchaser of some or all of the land being “in the wings” and that Mr Baird was prepared to foster this understanding and to deny, in various ways, that that was the case.
17. On one view it may be said that this evidentiary conflict does not matter and that it posed an unfortunate conundrum for the defendant. If I had accepted the plaintiff’s evidence that “developer” or “developer financier” had been referred to there would have been a clear obligation on Mr Keel and/or Ms Lovell to ensure that the position was put right and to stop the negotiations proceeding on a false premise. If, as I think is the preferable view, the plaintiff’s representatives were only concerned with a purchaser I am satisfied that is because the misrepresentations and conduct of Mr Baird led them to the honest belief that there was no developer or developer/financier involved.
11. For reasons I shall explain when I deal with the evidence, I am not satisfied that all the evidence of Mr Gould and Mr Beard was completely reliable. But I am satisfied that they were led to believe by Mr Baird, and did believe, that there was no developer or financier of the nature of FK involved, and that Mr Baird’s conduct in bringing them to that conclusion was a materially contributing factor causing Mr Gould to enter into the Heads of Agreement on 16 July 1999, which, had he known the true facts, he would not have done. I have not the slightest doubt that Mr Gould would not have allowed the additional financial advantage, which on any view the plaintiff could have obtained as the price for exiting the joint venture if he had known that FK was potentially involved, slip through his fingers had he not been deceived by the conduct of Mr Baird.
12. I am satisfied that there is positive evidence of reliance, which I accept. Although I have some doubt about some of Mr Gould’s evidence, I accept his evidence that he did rely, essentially because it is corroborated by the strong probability that had he not he would have sought a far more advantageous financial deal. Further, his pre-occupation with a purchaser in the wings is only explicable by his abandonment of there not being a substantial developer or developer/financier, which is all corroborated by the refusal to settle when the bank guarantee was belatedly handed over and revealed the true position.
13. In my opinion, the evidence leads me to the conclusion that the high standard of proof, within the civil onus, has been met.
14. There was a high conflict of evidence as to whether, at the meetings to seek to achieve a settlement on 15 and 16 July 1999, reference was made to a developer or developer/financier as well as to a purchaser, as the plaintiff’s witnesses contended, or only to a purchaser, as those for the defendant maintained. On this aspect, I am satisfied that the defendant’s witnesses should be accepted. The submission was made, of course, that if I came to that view serious doubt was cast on the credibility of the plaintiff’s witnesses, such that I should not accept, for example, their evidence as to reliance.
15. The probabilities, in my opinion, favour the view to which I have come. Mr Keel was acutely aware that Mr Baird had sent the letter of 15 June 1999, contrary to his advice, and that it was incorrect. I do not accept that he would have allowed any statement to be made at the meeting which relied on the truth of what Mr Baird had written, nor that he would have made any himself. I consider that Ms C.M. Lovell, a senior associate solicitor at Clayton Utz assisting Mr Keel, in so far as she was aware of all that had gone on, would not have allowed the matter to proceed on a false basis. I am satisfied that neither of them was, in any way, a party to Mr Baird’s reprehensible conduct and that they were acutely aware of the narrow negotiating position in which they were placed.
16. My rejection of the plaintiff’s evidence on this point is not fatal to its case. Obviously a Court may reject some and accept some of the evidence of parties. As I have sought to show the evidence of the conduct of Mr Baird was not really in issue and, in my opinion, the plaintiff’s evidence of reliance should be accepted. Whilst the evidence of what happened at the meeting does little credit to Messrs Gould and Beard, it does not cut down, relevantly, the evidence of reliance. In so far as Mr West asserted that developer or developer/financier was used, I am satisfied that he was genuinely mistaken. I found him to be a frank and truthful witness, although in this respect I do not accept his evidence, for the reason I have given.
18. A matter of probability, which concerned me for some time, was that the entry into the Heads of Agreement would be otiose if, at the settlement which was proposed, the bank guarantee showing the involvement of FK was handed over, whereupon, as happened, the plaintiff would refuse to settle. Why would the defendant go to all the trouble of having such an agreement hammered out if it knew it was doomed to failure? I have ceased to be troubled by that. The evidence satisfies me that Mr Keel, who I also found to be a truthful witness, never directed his mind to the potential effect of handing over the bank guarantee. Therefore, he was not troubled that the Heads of Agreement would not lead to a settlement for that reason. I am also satisfied that Mr Baird was in a desperate situation. He was, in my opinion, prepared to gamble that by keeping the bank guarantee away from the plaintiff and its representatives for as long as he could, which he did, when ultimately settlement came around the plaintiff may not notice that FK was involved, or, if it did, would not pursue the point. The simple fact is that he had no option. He had to use the bank guarantee to settle; FK would not accede to his request to change it; and, notwithstanding some evidence about the availability of another bank guarantee, time did not permit it to be obtained. Therefore, Mr Baird had to gamble. The gamble failed.
19. Mr Hughes submitted that there was clear distrust and suspicion between the parties, which I accept, and that distrust and suspicion are totally at odds with reliance. I have given careful consideration to this point. I have come to the conclusion that the evidence of reliance is so strong, in the sense that but for reliance the plaintiff would have bargained for more, that the position by 15 and 16 July 1999 was not related to distrust and suspicion about that point, but about the only point Messrs Gould and Beard considered could be an issue and in respect of which they negotiated, viz that there was a purchaser in the wings.
20. I shall return to the defence of affirmation, which, in my opinion, fails.
24 The plaintiff also gave written notice to the defendant on 26 May 1999 that its defaults under the Development Management Agreement constituted defaults under the Development Funding Facility Agreement.
25 Thus the scene was set for continuing disputation between the parties to which it will be necessary to refer in more detail.
The Pleadings
26 A number of the matters to which I have referred thus far are not substantially in dispute on the pleadings. Nor is the matter alleged in paragraph 10 of the Amended Summons, viz that after 26 May 1999 negotiations took place between the parties with a view to the defendant’s arranging for the plaintiff’s interest in the project to be acquired.
27 In paragraph 11, the plaintiff pleaded that during the negotiations it formed the view, and it was the case, that the value of its interest in the project, and thus the amount it would accept from the defendant for that interest, depended, in part, on whether the defendant would continue to manage and finance the project after the plaintiff’s interest had been acquired or whether the plaintiff’s interest would be acquired “by an experienced developer with access to substantial funds”. It was further pleaded that the plaintiff formed the view, and it was the case, that its interest, in the event of an experienced developer with access to substantial funds acquiring it, was considerably more valuable than if the defendant continued to manage and finance the project.
28 The defendant responded by pleading that the plaintiff well knew that there was no possibility that it would finance the project after the plaintiff’s interest had been acquired; that in any event any views formed by the plaintiff were not conveyed to the defendant; and otherwise did not admit the balance of the allegation.
29 The point the plaintiff was seeking to make was that it required to be informed truthfully what entity would carry on the development, for that would affect the value of its interest and hence the amount it required to exit the transaction. On 3 June 1999, Mr Baird wrote to Mr Gould stating that the defendant was in a position to exercise the second option in the plaintiff’s letter, namely “arrange for CVC Newcastle’s interests in the development to be acquired by a third party”.
30 The letter continued that based on figures furnished by Mr Beard, the defendant calculated the principal payable as $913,191 with interest accruing on a daily basis at the rate of thirty per cent per annum, being $769.55 per day, from 19 March 1999.
31 On 7 June 1999, Mr Baird wrote to Mr Gould in response to the following facsimile transmission from Mr Gould to him:-
“I refer to our telephone conversation of Tuesday, June 1, 1999 and as indicated to you in our meeting of May 25, 1999, CVC has not accepted any proposal put forward by Howship Holdings Pty Limited as implied in your facsimile of June 3, 1999.
You appear to be under a misapprehension that CVC is merely a mortgage lender.
As outlined to you at our meeting on May 25, 1999 it is my current recommendation to the Board of CVC that a receiver and manager should be appointed if the default continues.”
32 Mr Baird’s letter in reply stated that the threat was unwarranted, given all the circumstances, and that Mr Keel had been asked to speak with Mr West “to ascertain exactly what you wanted as it is obvious that the Joint Venture partners cannot work in harmony”. He said Mr West undertook to seek instructions and respond to Mr Keel, and that as outlined in earlier correspondence, the defendant had elected to accept the second of the two alternatives in the letter of 12 May 1999. The letter concluded that the defendant was ready, willing and able to settle, and that all it required from the plaintiff was confirmation of the amount and reasonable notice of a time and place for settlement.
33 On 7 June 1999, Mr Gould wrote to the defendant, for the attention of Mr Baird, referring to his facsimile transmission of 3 June 1999 and confirming that the balance of moneys advanced by the plaintiff as at 3 June 1999, in relation to the project, totalled $963,292.13 before interest. The letter stated that the plaintiff had a casting vote whilst there were moneys owing or secured under the Facility Agreement, and that it may consider the settlement of all principal and interest outstanding as a way “of moving forward”. The letter continued that upon receipt of the principal and interest outstanding the practical outcome would be that the plaintiff would no longer have the casting vote in the Development Control Group Meetings, but would continue to have all other rights conferred in the documentation between the parties, and:-34 On the following day Mr Gould wrote again to the defendant stating that he believed it was appropriate to clarify the second alternative in the letter of 12 May 1999. He said:-
“It is important that CVC confirms that Howship has reached agreement with a suitable provider of development finance including agreement with a financier capable of servicing the Gray & Perkins facility, as we are anxious not to be associated with a commercial failure caused by the failure to provide adequate working capital. The history of Howship exhibits the problems associated with attempting a piecemeal approach to finance.”
“In order that there is no confusion as to what is meant by the sentence referred to above, I set out in bullet form below CVC’s requirements to exit its interest in the development.
1. Full repayment of principal monies advanced, and
2. Full repayment of interest accrued on those monies up to the date of settlement, and
3. Financial compensation for foregoing CVC’s entitlement to profits over the life of the project.
As you are aware, but may not appreciate, CVC has expended considerable time and effort in attempting to progress and ensure the financial success of this development. CVC has directed significant resources to initially structure the arrangement, to finance the arrangement, to manage the project and to enhance the project. You will further appreciate the fact that CVC, as projected by Howship, had expected substantial progress to be made towards physical delivery of initial lots. Howship’s failure to progress the project in terms of the agreements in place between CVC and Howship is at a significant opportunity cost to CVC.”
The letter concluded by saying that the plaintiff had given no instructions to Mr West, which he had conveyed to Mr Keel, and, moreover, that Mr West had advised Mr Keel that he believed that in the first instance it was best for the parties to negotiate directly.
35 On 8 June 1999, the defendant sought “a formal response” to the “financial compensation” being sought by the plaintiff, and suggested that it was in the best interests of both parties to terminate the arrangements amicably and as quickly as possible.
36 On 10 June 1999, Mr Gould told Mr Baird that he believed that Mr Leaver would accept $500,000 as financial compensation and, on 10 June 1999, Mr Baird wrote to Mr Gould stating that he had spoken “with the people providing financial support”, who had agreed to pay the additional $500,000 together with the principal sum of $963,292.13 and interest. The letter stated that at settlement those people required a discharge of the registered second mortgage, a release of the fixed and floating charge, and a release from the Development Management Agreement.
37 On 11 June 1999, Mr Baird wrote to the defendant setting out an interest calculation and stating that the proposed settlement terms were subject to the plaintiff’s Board approval. It is to be noted at this stage that Mr Gould had put forward the figure of $500,000 and that there was no suggestion of Board approval. However, in paragraph 17 of his statement, Exhibit A, Mr Gould said that throughout the first two weeks in June 1999 he recalled having a number of discussions with Mr Baird and, in one which occurred on or about 10 June 1999, he told him that he needed to know where the money was coming from and who was financing the defendant. He said Mr Baird responded by saying that it was coming from personal contacts as he had already told him, to which Mr Gould replied by asking whether a developer was standing behind the plaintiff, because it struck him as odd that the money was suddenly available that was not available in March 1999. He continued that Mr Baird said that he was an honest and reputable person; that his word was his bond; and that he could assure Mr Gould that he had no other dealings with any developers. In the light of Mr Baird’s communication to Clayton Utz of 10 June 1999, Exhibit 8, and Mr Baird’s general lack of credibility, I accept Mr Gould’s evidence that all this was said.
38 On 11 June 1999, there was various correspondence, the plaintiff asserting that Mr Gould had expressly told the defendant that any suggestions he had made to resolve the matter needed both the approval of Mr Leaver and the Board of the plaintiff, and that the defendant’s offer could not be considered until the information sought in the facsimile transmission of 11 June 1999 had been provided.
39 On 11 June 1999, Mr Baird wrote to Mr Gould expressing his concern at the facsimile transmission of 11 June 1999; asserting that he had undertaken to respond to the offer within a specified period, which had occurred; and that the defendant had now given instructions to its solicitors to prepare the appropriate documents to complete settlement of the temporary facility “being made available to us in order that we can settle with you within the seven (7) working days period”.
40 On the same day, Mr Baird sent two further facsimile transmissions to Mr Beard seeking to progress negotiations and to obtain further information of the precise amount necessary for settlement.
41 On 11 June 1999, Mr Beard said that the defendant’s assertion that it had accepted an offer was incorrect, Mr Gould having expressly told Mr Baird that any suggestions to resolve the matter needed the approval of Mr Leaver and the plaintiff’s Board. He continued that the defendant had not provided the information requested in the facsimile transmission of 11 June 1999 “so that this matter can be considered by Mr Leaver and the Board”; and
“As advised in CVC’s facsimile of June 11, 1999 Howship has failed to respond to the Notice of Default within the ten business day default rectification period. The offer of settlement forwarded by Howship does not constitute a mechanism to rectify default. CVC is now at liberty to remedy the default in accordance with the Transaction Documents.”
42 On 15 June 1999, the defendant wrote to Mr Gould disputing that he had not agreed to settle on the basis of the payment of the total principal sum and all interest and a further sum of $500,000. The letter stated in answer to the plaintiff’s questions beside the bullet points:-
· “Details of the financier or financiers· Correspondence between the financier or financiers and Howship concerning the proposed transaction
We are receiving assistance from Holstac Pty Limited through its director and solicitor, Mr John Edmunds, of Barrett, Edmunds & Co, solicitors at Nelson Bay together with Tony Fidler’s father-in-law, Mr Mike Rowley, a director and shareholder of Fortuna Fishing Pty Limited.
· A statement of all discussions, negotiations or understandings between Howship and any party in relation to the current or any contingent financing, development management or sale of the property
There is no correspondence.
· Correspondence between Howship and any financier in relation to the subject property
Obviously we will have to pursue an arrangement with either a financier or some other party in order to further the development. However, there are no agreements with or arrangements in place between Howship and any party for the financing, development or management or sale of the property.
· Correspondence between Howship and any potential purchaser of the property or any part thereof
The last correspondence received by Howship from any financier was the offer of finance from Metway Bank dated 14 October 1998.
43 On 17 June 1999, Mr Baird wrote to Mr Beard stating:-
Howship is not negotiating with any potential purchaser for the property and has no intention of wanting to sell the property other than in a developed state as individual lots into the future.
Vanda, you would appreciate that this is a terribly difficult time for both Tony Fidler and the writer. We have pursued every possible opportunity to be able to meet the arrangements as discussed with you on Thursday morning last. We reiterate our wish to have an amicable termination and to that end look forward to your confirmation that you will be ready to settle by Tuesday, 22 June, 1999.”
44 On the same day, Mr Baird telephoned to speak to Mr Gould and, in fact, spoke to Mr Beard. Mr Beard, in his file note, said that he informed Mr Baird that it was not possible to speed up the progress of settlement as Mr Gould was tied up in meetings; that Mr Gould was not “fobbing him off”; “but that there were a number of matters that needed to be dealt with in the letter, that had been unanswered by Terry”. The file note continued that Mr Beard “specifically” told Mr Baird that the plaintiff needed to have details as to whether there had been indications or expressions of interest in relation to sales of any of the subject property, to which, he said, Mr Baird replied in the negative. Mr Baird, in answer to a further query, said there had been:-
“For more abundant clarity we wish to confirm that apart from making a number of builders aware of the emerging development at Fern Bay via the Marketing Presentation, a copy of which Peter Simpson gave you at our meeting on 9 April, 1999, we have neither commenced nor concluded, either on behalf of Howship Holdings or the venture partnership, arrangements to sell any land either developed or undeveloped. Had we realised that this was a concern to you we could have more succinctly addressed it in our response.
You are at liberty should you wish to contact Mr Edmunds of Barrett Edmunds & Co, solicitors to confirm the assistance that they are giving us but Sandy, please be aware we are conscious of the consequences of making an arrangement to settle and then not being in a position to do so.
We would be pleased, in order to avoid crisis management, if you could confirm settlement for Tuesday, 22 June 1999, as we are acutely aware of the massive interest burden under the existing facility.”
45 Mr Beard asked how matters had progressed with potential purchasers of bulk lots and “spec” builders, and noted that Mr Baird categorically stated:-
“.. no sales, options or expression of interests in a written form and that any discussion that had been, were verbal and inconclusive.”
“.. that there had been no expressions of interest or offers of sales in any form on any lots, or lots subject to delivery at a later stage. All discussions had been purely of a speculative nature and that in specific relation to Villaworld or any other like builder, the only offer that had ever been made was of 50 lots at a price of $80,000 for delivery some time over the next 12-24 months.”
Mr Beard said that Mr Baird said that this offer had been rejected, and that he regarded Villaworld as a builder of a similar quality to Long Homes, and:-
“He was categoric about this point and said that no form of sales had been accepted, the price was too low that had been discussed and that the quality of the homes would depreciate the value of the site. He said there was no scope for letting them on the site.”
46 Mr Beard asked about any other party, including Stocklands, and was told by Mr Baird that there were no potential offers for any part or potential part of the land.
47 His file note continued:-48 On 21 June 1999, Mr Beard wrote a “without prejudice” letter to the defendant, stating that he had been instructed to propose to it “a final settlement mechanism which has also been approved by John Leaver”. The next paragraph noted that the defendant had failed to provide details requested and promised by it in relation to financial capacity to complete settlement, and continued:-
“I then asked about not having received details of the capacity to settle and whether there was any ability from the financiers to service the Gray & Perkins debt. Terry informed me that Clayton Utz would be in a position to confirm to CVC by tomorrow, that sufficient funds were in place to settle the transaction. Terry said that Mike Roley (sic) of Fortuna Fishing had undertaken to be a surrogate provider of finance to service Gray & Perkins for a period of time. I expressed that this did not seem to address the issue and was more akin to deferring the problem to a later stage and that we would need to be satisfied of potential financing of the Gray & Perkins facility and development finance. Terry undertook to provide more information to enable us to form an opinion whether it is an acceptable settlement in terms of the information requested in my letter of 10 June 1999. Terry stated that he now had a better understanding of what we were looking for and would undertake to comply with our requests.”
49 The letter stated that the offer was subject to acceptance in writing by the defendant by 12 noon on 22 June 1999 and settlement by 5 pm on 24 June 1999, and concluded, as did much of the previous correspondence:-
“In view of your undertakings to Mr Gould, and based on discussions between CVC Board members I have set out below our final offer of an acceptable settlement:
1. Repayment of all monies advanced by CVC on behalf of the project, and
2. Repayment of interest on those monies, and
3. A sum of $500,000, and
4. A fee of 2% of the gross sale proceeds of any lots sold, or sale or part thereof of the subject property sold over the course of the development. Such fee is to be secured by means of a caveat.”
“Nothing in this letter, and nothing which CVC does, or fails to do in relation to the subject matter of this letter constitutes a waiver by CVC of any of its rights under the Development Management Agreement or the Development Funding Facility Agreement.”
50 On the same day Mr Keel wrote to Mr Beard stating that Clayton Utz acted for the defendant and referring to the copy “of your purported Notice of Default” to it. The letter continued that having taken instructions Clayton Utz were of the view that the notice was invalid and issued in bad faith, and that any steps to act upon it would lead to the defendant’s seeking an injunction or other appropriate orders from the Court. A copy was sent to Mr West.
51 On 23 June 1999, Mr Baird wrote to Mr Gould accepting the four specific points in the facsimile transmission from Mr Beard, and stating that if mortgage insurance could not be obtained due to circumstances beyond the control of either the plaintiff or the defendant a bank guarantee would be substituted with assistance from Mr Fidler’s father-in-law. The letter requested that, given the time constraint for settlement, the plaintiff’s solicitors prepare the appropriate discharge and releases and submit them in draft to Mr Keel, so that he could advise the defendant properly and attend to settlement.
52 On 23 June 1999, Mr Baird sent a facsimile transmission to Mr Bill Lambert of FK with the two facsimile transmissions from the plaintiff and noting the change in point 4 of that dated 22 June 1999.
53 Heads of Agreement between the defendant and FK were prepared, which recited the defendant’s ownership of the land; the incumbrances on it, and:-
“(c) The said land has the potential to yield a subdivision of one thousand four hundred building blocks.
(d) Howship have invited Kurts to joint venture with Howship in the development of the said land (hereinafter referred to as ‘the Development’).
(e) Howship has agreed to grant Kurts an option for ninety days to enable Kurts to do due diligence as to the viability of the Development.
(f) Kurts have agreed to advance monies secured by second Mortgage to Howship.”
54 The Heads of Agreement stated that if FK exercised the option in writing within ninety days from the date of the agreement, the parties would sign, execute and exchange a Joint Venture Agreement prepared by their legal advisers to incorporate and expand the matters referred to in these Heads of Agreement.
55 The Heads of Agreement contemplated that FK would lend money to the defendant to a limit of $2m, subject to the defendant’s granting FK a registered second mortgage and a registered fixed and floating charge over the land and its assets.
56 Under the heading “Development Costs” it was stated that FK would be responsible for all development, marketing and selling costs and would be paid a management fee of 1% of those costs.
57 The Heads of Agreement provided for the division of profits and that upon the exercise of the option the parties would sign all documents necessary to formalise the Joint Venture Agreement, which would incorporate and expand the provisions of the Heads of Agreement and include provisions for proper management and development, for resolution of disputes and for default and termination.
58 On 25 June 1999, valuers sent FK a valuation of the land in the sum of $15,750,000.
59 On 25 June 1999, Mr Beard had a telephone conversation with Mr Baird, who was very anxious in relation to settlement and asked specifically whether the matter “would settle on Wednesday”. Mr Beard said that so far as he was aware Mr West was preparing documentation and, subject to the parties completing that and the defendant’s being able to settle, “I would concede that the matter would conclude”.
60 On 25 June 1999, Mr Keel sent a facsimile transmission to Mr West referring to a deadline for settlement of 5 pm on 30 June 1999. Mr Keel stated that the defendant was ready, willing and able to settle by that time, the only impediment appearing to be the production of appropriate documentation by the plaintiff. Mr Keel asked for draft documentation.
61 On 28 June 1999, Mr West sent a facsimile transmission to Mr Keel confirming that from the plaintiff’s position the letter of 22 June 1999 was predicated on an assumption “which is, from our client’s point of view, fundamental to the arrangement”. It continued that the assumption was that the defendant intended to complete the development project and sell the sub-divided lots by retail sale, and:-
“Mr Terry Baird of Howship Holdings confirmed to Mr Vanda Gould of our client prior to our client’s letter of 22 June that this was the case, and that your client had no intention of selling off the whole or part of the property other than on a sub-divided, retail basis. It was then agreed between Mr Terry Baird and Mr Vanda Gould that if any sale on terms other than sub-divided retail sale terms was concluded, then a 50% profit share would apply to the benefit of our client.
This issue, as agreed, underlies the points set out in our client’s letter of June 22, 1999. It is fundamental to the arrangement. Your assertion that the profit share arrangement is not part of the “deal” between our clients, simply because it is not reflected in our client’s letter of June 22, 1999, is not correct. Our client’s letter does not purport to evidence the whole of the terms of any arrangements between the parties, but merely to set out the basis of an in-principle agreement having regard to the fundamental assumption discussed above. We refer you to the last paragraph of our client’s letter, on which our client continues to rely.”
62 Mr West reinforced that if the plaintiff was to be “taken out of the transaction”, it would require the defendant to enter into an agreement “which reflects the in-principle agreement discussed above”.
63 The facsimile transmission continued:-
“Other issues that will need to be addressed in that agreement include the following:
1. Your client is to pay our client’s legal costs, as your client is already obliged to do under the transaction documents.
2. Your client is to confirm in the agreement the various representations and warranties that it has made to our client regarding the progress of the development project. It is on the basis of these presently verbal warranties that our client is prepared to consider being taken out of the project. These warranties include:
(a) That your client has no plans to sell the property other than on a sub-divided retail basis;
(b) The status of the approvals and consents required for the project;
(c) The status of marketing and sales of the property; and
(d) That your client is not currently in discussions with any party, other than Mike Rowley and Holstac Pty Limited, regarding the refinancing, sale or restructure of the development project; and
(e) The other matters set out in your client’s facsimile of 15 June to our client.
3. Confirmation of the first mortgagee’s consent to the arrangements.”
64 It was stated that these issues were “fundamental to the proposal to settle”; that they were all the subject of prior discussions between the clients but were not superseded by the plaintiff’s letter of 22 June 1999, it being clear from that letter and the circumstances in which it was written “that it did not set out the exhaustive terms of an agreement between our clients”.
65 The facsimile transmission concluded:-66 On 29 June 1999, Mr Keel responded that the defendant was surprised at the contents of that facsimile transmission, and:-
“Should your client indicate that it is prepared to proceed on the basis set out above, our client has instructed us to draft the necessary documentation.
Should your client not so agree, then our client intends to proceed to enforce its rights under the transaction documents consequent upon your client’s fault.”
“1. It was never agreed between our clients that if any sale on terms other than the sub-divided retail sale terms was concluded then a 50% profit share would apply for the benefit of your client.
2. We do not simply say that the profit share is not part of the ‘deal’ because it is not reflected in the letter of 22 June 1999. In fact that was never agreed between our clients. That it was never agreed between our clients is evidenced by the fact that your client sent the letter of 22 June 1999 to our client. If it had been a term of the agreement, which was so fundamental, it would have been included in the letter of 22 June 1999.
3. It has already been agreed between our respective clients that a bank guarantee might be provided to secure the $500,000, and that the sum of that bank guarantee ought to be $575,000 in order to make provision for any interest that might accrue.
4. An agreement has been reached between our respective clients. Our client has no further obligations to your client and requires that settlement take place at 5 pm tomorrow, 30 June 1999.”
67 Mr West responded on the same day stating that the assertions made by Mr Keel were “rejected”. He relied on the matters in his facsimile transmission.
68 On 30 June 1999, Mr Beard wrote a “without prejudice” letter to the directors of the defendant for the attention of Mr Baird. It referred to the value of the land and to the plaintiff’s continued interest in the profitability of sales, and said:-69 The offer contained in the plaintiff’s letter of 22 June 1999, which was accepted in the defendant’s letter of 23 June 1999, was referred to at some length in the facsimile transmission from Mr West to Mr Keel of 28 June 1999, in which it was stated:-
“CVC’s efforts to settle the matter have been made on the assumption that Howship recognised that the project has a level of profitability which has a present value to CVC. In all efforts to settle this matter CVC has offered Howship the ability to settle the matter with a combination of up-front settlement amount and a deferred payment mechanism.
It is ludicrous to assume that CVC, a subsidiary of an ASX Listed Public Company, would accept settlement in total amounting to less than 50% profit share of the ‘as-is’ valuation provided by the valuer. This is clearly a proposition that would expose the Directors to ridicule from shareholders.
CVC has made all offers of settlement mechanisms on a Without Prejudice basis, as noted on the documents, in the assumption that the offer would form the basis of the key up-front components of settlement which would be expanded upon by final documentation.
I also note that in all discussions and correspondence Howship has requested approximately one week for preparation of final documentation in acknowledgment of the need to completely document the transaction.
I understand you expressly propose the warranty resolution discussed with you by Vanda Gould because of CVC’s concerns over you having a wholesale buyer in the wings which had caused you to want to dump CVC.
CVC reiterates its desire to settle this matter without the intervention of legal process, but also reiterates that it is prepared to take all measures to protect its interests.
We confirm that interest due to the first mortgagee continues to be paid by CVC as it is in neither of our interests to let this matter get out of hand.
Nothing in this letter, and nothing which CVC does, or fails to do in relation to the subject matter of this letter constitutes a waiver by CVC of any of its rights under the Development Management Agreement or the Development Funding Facility Agreement.”
“I confirm that the letter dated 22 June 1999 from our client to your client was predicated on an assumption which is, from our client’s point of view, fundamental to the arrangement. That assumption is that your client intends to complete the development project and to sell the sub-divided lots by retail sale. Mr Terry Baird of Howship Holdings confirmed to Mr Vanda Gould of our client prior to our client’s letter of 22 June that this was the case, and that your client had no intention of selling off the whole or part of the property other than on a sub-divided, retail basis. It was then agreed between Mr Terry Baird and Mr Vanda Gould that if any sale on terms other than sub-divided retail sale terms was concluded, then a 50% profit share would apply to the benefit of our client.”
The facsimile transmission continued that this was fundamental to the arrangement.
70 In paragraph 17 of the Further Amended Summons, it is pleaded that, on 22 June 1999, in reliance on the representations pleaded in paragraphs 14, 15 and 16, the plaintiff made its offer to the defendant, which, so it is pleaded in paragraph 18, the defendant accepted subject to substitution of a bank guarantee for the mortgages required by clause 4 of that letter. In paragraph 19 it is pleaded that CVC agreed to accept a bank guarantee, in substitution for mortgages to secure payment of $500,000 referred to in clause 4 of its letter of 22 June 1999.
71 By letter dated 28 June 1999 from Norton Smith & Co, it was stated:-
“Your client has proposed providing a bank guarantee to secure the outstanding amount, and our client is prepared to consider this proposal in the context of the refining of the overall terms of an agreement. Clearly, that agreement needs to be refined and our client is working in good faith towards achieving this. However, should an agreement not be reached, then our client continues to reserve all its rights under the transaction documents and in relation to your client’s defaults under them.
If our client is to be taken out of the transaction, then our client will require your client to enter into an agreement which reflects the in-principle agreement discussed above.”
The letter then set out the various conditions, which were to be the subject of warranties.
72 On 29 June 1999, the solicitors for the defendant denied that any profit share was ever agreed between the parties.
73 In paragraph 21 of the Further Amended Summons, the plaintiff pleaded that the defendant represented to it that the defendant would undertake the project on its own and that finance to settle its dispute with the plaintiff would be supplied by an investor in the defendant, who had won Lotto, presumably through Holstac, and Mr Fidler’s father-in-law. In paragraph 21 of the Further Amended Defence, the defendant admitted that on 30 June 1999 it represented to the plaintiff that it was to undertake the project, but denied the balance of that paragraph.
74 In paragraph 22 of the Further Amended Summons, the plaintiff pleaded that in reliance on the representations pleaded in paragraphs 14, 15, 16 and 21, it made an offer to the defendant on 2 July 1999 that the defendant could acquire its interest in the project on the same terms as those pleaded in paragraph 17 “except that Howship would pay CVC a further $500,000 within twelve months of settlement”. By its Further Amended Defence the defendant admitted that such a letter was written but otherwise denied the paragraph. The letter of 2 July 1999 was written by Mr Gould in which he stated, inter alia:-
“As you are aware my concern remains the suspicion that you have a substantial purchaser in the wings and hence my acceptance of your suggestion of a 2 year period wherein our profit share would come on foot if you sold the property during this time. This was a condition of our previous proposal. I am now willing to forego this condition on the basis of the following offer.”
75 The offer provided for repayment of the amounts of principal and interest and for payment of $500,000 on settlement and $1m on a deferred basis not to exceed twelve months, such deferment to be adequately secured by mortgages and/or bank guarantee and bearing interest at the rate of fifteen per cent until settlement.
76 On 5 July 1999, Mr Baird wrote to Mr Gould stating that:-77 On 5 July 1999, Mr Gould responded that the offer of settlement was as contained in the letter of 5 July 1999 and, on the same date, Ms Lovell of Clayton Utz advised that the defendant was only prepared to pay $500,000 on a deferred basis and, in addition, would provide written warranties to the following effect:-
“We will be attending at Clayton Utz’s office at 5pm today with a Bank Cheque in the sum of $1,592,155.22 (being $1,013,292.13 principle (sic) advanced $78,863.09 interest on that sum and the $500,000 sum agreed) and a Bank Guarantee in favour of CVC for $575,000 (securing principle (sic) and interest) redeemable on or after 30 June 2000. At that time we require from CVC an acceptable discharge of mortgage and a release of the fixed and floating charge over” the defendant.
78 On 8 July 1999, Mr Keel advised that the defendant was prepared to settle on a full and final basis in accordance with Items 1 to 5 set out in the facsimile transmission dated 5 July 1999 subject to two changes or amendments, namely:-
“(a) That it has no current intention to sell the development property other than as developed residential land;
(b) That it is not engaged in negotiations with any potential purchaser to sell the development property other than as developed residential land;
(c) That it has not concluded an agreement with any purchaser to sell the development property other than as developed residential land;
(d) If Howship does sell the development property within twelve months of the date of settlement other than as developed residential land, Howship will pay CVC a further sum of $500,000.”
79 In paragraphs 23 to 26 of the Further Amended Summons, the plaintiff pleaded:-
“1. That the warranty set out in item 5(d) of our facsimile dated 5 July 1999 will be for a period of twenty four months, rather than twelve months; and
2. That Howship will pay CVC a 50% profit share if Howship sells the land within twenty four months of the date of settlement other than as developed residential land.”
“23. On 15 and 16 July 1999, representatives of CVC engaged in negotiations with representatives of Howship. During those negotiations, Howship represented to CVC:
23.1 There were no developers or builders involved in the Project, other than a builder from whom a letter to Howship was disclosed to CVC.
23.2 Howship had disclosed to CVC all relevant matters with respect to settlement of their dispute.
PARTICULARS
Statements of 15 and 16 July 1999 by Mr Keel, of Messrs Clayton Utz, solicitors for Howship on behalf of Howship to Mr Vanda Gould, Mr Alezambra Beard and Mr Peter West of Coudert Brothers at meetings at the offices of Clayton Utz; letter from an unidentified builder to Howship, and as further alleged and particularised in the Statements of Evidence of Messrs Gould, Beard and West served in these proceedings.
24. The representations pleaded in paragraphs 14, 15, 16, 21 and 23 were made by Howship in trade or in commerce.
25. On 16 July 1999, in reliance on the representations by Howship pleaded in paragraphs 14, 15, 16, 21 and 23 of this Summons, CVC entered into an agreement with Howship dated 16 July 1999 called ‘Heads of Agreement’ (the ‘Heads of Agreement’).
26. By the Heads of Agreement, CVC agreed to release all its rights in the Project under the Transaction Documents in exchange for various payments to it by Howship and for an option to acquire up to 50 lots in the Project.
PARTICULARS
Heads of Agreement, clauses 1-5 and 10.”
80 The representations pleaded in paragraph 14 were the responses contained in the letter from the defendant of 15 June 1999. Those in paragraph 15 were the contents of the defendant’s letter of 17 June 1999. Those in paragraph 16 were oral representations made between 25 May 1999 and 16 July 1999 that the financing to buy out the plaintiff was coming from Holstac and Mr Fidler’s father-in-law, and that as at 17 June 1999 there had been no sales, options or expressions of interest in written form of any part of the land save for an offer from Villaworld, which the defendant had rejected, and that any discussions concerning such sales had been verbal and inconclusive.
81 The representations pleaded in paragraph 21 were that on 30 June 1999, the defendant said that it was going to undertake the project on its own and that the finance to enable settlement would come from Holstac and Mr Fidler’s father-in-law.
82 In answer to paragraph 23 the defendant admitted that on 15 and 16 July 1999 representatives of the parties negotiated; denied that during those negotiations the defendant represented to the plaintiff that there were no developers involved in the project; admitted that during the negotiations it represented to the plaintiff that there were no builders involved in the project other than one from which a letter to it was disclosed; denied that during the negotiations it represented to the plaintiff that it had disclosed to the plaintiff all relevant matters with respect to settlement of the dispute; and asserted that the concern expressed by the plaintiff to the defendant was whether or not the defendant had received any expressions of interest from a potential purchaser of the land.
83 Paragraph 24 of the Further Amended Summons was not admitted. As to paragraph 25 the entry into the Heads of Agreement was admitted but the balance of the paragraph was not. As to paragraph 26 the defendant admitted the agreement of the plaintiff to release all its rights in the project and referred to the terms of the Heads of Agreement.
84 In paragraph 27 of the Further Amended Summons, the plaintiff alleged that the representations constituted misleading or deceptive conduct, or conduct likely to mislead or deceive within the meaning of s.52 of the Trade Practices Act in that the defendant had been involved in negotiations with FK “a major real estate developer” since about 28 May 1999 “in relation to the development of the Land”; and that those negotiations were for an arrangement by which the defendant and FK would undertake the development of the land by means of a joint venture in which FK was substituted for the plaintiff under the Transaction Documents. It was pleaded that had the plaintiff been aware of those matters it would not have entered into the Heads of Agreement, and would have insisted on more favourable terms than those contained in them as a condition of its releasing its rights in the project.
85 In paragraph 30, it was pleaded that by the representations the plaintiff suffered loss or damage or is likely to do so within the meaning of ss.87(1) and 87(1A), which, as I have noted, was conceded and, in paragraph 31A, that the defendant engaged in misleading or deceptive conduct or conduct likely to mislead or deceive in that:-86 The defendant denied the matters pleaded in paragraphs 30, 31 and 31A. In paragraph 32 of its Further Amended Defence, the defendant asserted that if it did engage in any such conduct, which it denied, the plaintiff is not entitled to the relief claimed because after becoming aware of that conduct it affirmed the Heads of Agreement. I shall refer to the particulars when I deal with the defence of affirmation.
“.. it remained silent and omitted to advise about and told half-truths concerning and sought to conceal the existence of the negotiations with Kurts Developments Pty Limited pleaded in paragraph 27 hereof when such circumstances gave rise to the plaintiff’s reasonable expectation that the fact of such negotiations and Kurts Development Pty Limited’s expressed interest in the development of the Land would be disclosed to the plaintiff and where the defendant was under a duty and obligation to the plaintiff to disclose such said negotiations and expressed interest and whereby CVC has suffered loss or damage or is likely to suffer loss or damage.”
The Evidence Of Mr Gould
87 Before going to the meeting of 15 and 16 July 1999 it is necessary to understand the factual issues, which divide the parties. It is the plaintiff’s case that the defendant not only did not tell it that another substantial developer was being brought in to replace it, but positively misrepresented to it that that was happening, and that but for those matters it would have demanded a far larger sum to settle, because a substantial developer would have been able to maximise the profits to a greater extent, or, to put it in the context of this case, would have appreciated the value of its interest. It is the defendant’s case that that with which the plaintiff was concerned was not the bringing in of another developer, which the defendant asserts the plaintiff knew the defendant had to do in any event to have sufficient money to pursue the project, but rather that the plaintiff wished to be assured that the defendant would not sell the land, other than as sub-divided retail blocks, to a third party and thereby make a quick profit to which the plaintiff claimed to have an entitlement.
88 In paragraph 38 of his witness statement, Mr Gould said that towards the commencement of the meeting Mr Baird assured him that the defendant was not involved with any developers, and that he replied that he accepted what was being said “but you will appreciate that from my perspective it does appear very suspicious”. Mr Gould said:-89 Mr Gould said that later at the meeting he received the letter from Dixon Homes and, after he and Mr Beard had read it, Mr Keel came into the conference room where they were and said:-
“If in fact there is a developer coming into the development, then CVC would want to stay in.”
“As a matter of completeness this letter indicates the sole builder or developer with whom my client has had any dealings. As you can see, the purpose of this letter is to express interest in acquiring land from Howship at some future point in time.”
90 Mr Gould said he made “some reasonably aggressive statement to Mr Keel along the lines that, ‘this is hardly conclusive proof of that’”. He continued that Mr Keel then left the room, and he, Mr Gould, left the meeting shortly after.
91 Mr Gould denied, Tp.13, that Mr Keel had said, when handing over the letter:-
“My instructions are that this is the only correspondence that Howship has had from a potential purchaser of the land.”
He agreed that if that was correct that did grave harm to the plaintiff’s case. He said Mr Keel said:-
“As a matter of completeness this is the sole correspondence we have had with any builder or developer - my client has had with any builder or developer. As you can see from the letter, it relates to the future, possible future purchase of the land.”
92 Mr Gould said that if Mr Keel had said he was speaking on instructions he, Mr Gould, would have been “very suspicious”.
93 Mr Gould said he responded to what Mr Keel had said by saying that “this is hardly proof of that”: Tp.15.
94 Mr Gould agreed that he was telling an untruth when he said those words “in the sense that that letter, who knows what else existed but I nevertheless was very impressed”.
95 He agreed that after saying that the letter was “hardly conclusive proof”, Mr Keel left the room and he said to Mr West and Mr Beard:-96 This statement does not appear in his witness statement. Nor does any conversation with Mr Keel when he returned to the room. However, Mr West, in paragraph 24 of his witness statement, recalled that when Mr Keel returned to the room, Mr Gould said to him:-
“It looks like what Terry has been telling is absolutely the truth, there has been no other party involved. Maybe they have some other extraordinary plan but we will have to accept what they are saying as absolutely the truth and Terry Fidler’s father-in-law are the sole parties involved here.”
I do not accept that Mr Gould said any such thing. Although it was corroborated to some extent by Mr Beard, it was essentially contradicted by Mr West, whose evidence I generally accept, and it was inconsistent with statements by Mr Gould about what the letter established.
97 At Tp.16, Mr Gould denied saying anything to Mr Keel when he returned to the room and, particularly, saying that the letter proved nothing “on that occasion”. He said he had no present recollection of saying:-
“This letter proves nothing. If we don’t trust Mr Baird how can we rely on his statement that this is the only correspondence?”
to which he alleged Mr Keel responded:-
“Well, we have tabled this letter for the sake of completeness. It is the only correspondence between my client and any builder or developer in relation to the sale of lots in the project.”
98 At Tp.19, Mr Gould denied that he said to Mr Keel, when he returned to the room:-
“We don’t trust Mr Baird, how can we rely on his statement that this is the only correspondence.”
Mr Beard, in his witness statement, Exhibit B, casts some further light on this.
99 In paragraph 40 of his witness statement, Mr Gould said he attended the meeting at its commencement, left for a substantial period, and returned late in the afternoon of 16 July 1999 and remained until approximately 9 pm when the Heads of Agreement were signed by him on behalf of the plaintiff and Mr Baird on behalf of the defendant. He continued that the “precise” terms of the Option Agreement were still to be resolved:-
“This letter proves nothing” and “if we don’t trust Mr Baird how can we rely on this statement that this is the only correspondence.”
He further denied what Mr West alleged Mr Keel had said and, on the same page, he agreed he knew nothing about Dixon Homes or any company which stood behind it.
“.. but in signing the Heads of Agreement I believed substantial progress had been made and with good faith these details could have been resolved but in fact were never resolved.”
100 In paragraph 41, he set out the requirements under the Heads of Agreement on settlement, and that at the request of Mr West, Clayton Utz provided a copy of the bank guarantee to Coudert Brothers under cover of a facsimile transmission dated 22 July 1999. It was issued by the Commonwealth Bank of Australia at the request of Kurts Developments Pty Limited, which Mr Gould said is a subsidiary of FK, a company listed on the Australian Stock Exchange and which he believes is one of the largest property development companies in Queensland. He instructed his solicitors that the plaintiff was not prepared to proceed to settlement under the Heads of Agreement and, on 6 August 1999, he wrote the letter to Mr Keel to which I shall refer.
101 In paragraph 43, he said:-
“In signing the Heads of Agreement on 16 July 1999 I relied on the statements made by Mr Baird and also his solicitor, Mr Keel, given by me above, to the effect that Mr Baird and Howship were not negotiating with a developer or builder in relation to the development. Had I known that Kurts Developments Pty Limited had been in negotiation with Howship Holdings prior to my signing the Heads of Agreement or had agreed to provide funding or a bank guarantee to Howship, I would not have entered into the Heads of Agreement dated 16 July 1999. Rather, I would have considered the options available to me which included:
· CVC remaining as a joint venture partner in the development; or
· negotiating significantly more favourable terms for CVC than the result in the Heads of Agreement in return for CVC departing from the development.”102 At Tp.19, Mr Gould repeated that Mr Keel was telling him that Dixon Homes was the sole builder/developer with which the defendant had been in contact and, when asked whether he could be mistaken about that, he said:-
Whilst I have difficulty with certain of Mr Gould’s evidence, particularly in relation to what was said at the meeting on 15 and 16 July 1999, and whilst I do not accept his evidence that a developer or developer/financier was mentioned at the meeting, rather than a purchaser, I accept the balance of this evidence for reasons I shall explain.
103 Mr Gould also agreed that “at first blush” if he thought Mr Keel was speaking on behalf of Clayton Utz, he was being critical of him professionally. He continued:-
“No, that is what I believed him to be saying. I could be mistaken but that was my belief.”
He agreed that what Mr Keel told him provoked “at first blush” a remark which reflected that what Mr Keel had said “was not in any way persuasive” to him, although the reality was that he was “actually very impressed”, although he did not say that to Mr Keel.
“Q. And then you say that what you said to Mr Keel didn’t represent what you really thought about his statement, is that right?
A. I still - at first blush I would hold to what I said but on reflection I really was very impressed. I mean, you get a letter like this and say ‘this is it, OK’ really that is your first reaction. But when I thought about ‘gee, here is this man, a partner in Clayton Utz, telling me this’. I was very impressed.”104 He agreed that his second thought satisfied him that his earlier criticism of Mr Keel was not well founded “in a practical sense”, although he never told Mr Keel that: Tp.20.
105 There are, in my opinion, several significant difficulties with Mr Gould’s evidence internally within that proffered by the plaintiff. Mr West, in paragraphs 23 and 24 of his witness statement, Exhibit C, said:-106 At this point one has the following situation. When Mr Keel had handed over the letter, Mr Gould said, paragraph 38 of his witness statement, that he and Mr Beard read the letter, it having been given to them by Mr West. After they had read it Mr Keel came into the room and said:-
“23. Shortly thereafter, Mr Keel and I met in another room and he showed me a letter from a builder. I read this letter which was on the letterhead of a builder whose identity I cannot now recall. It was to the effect of a preliminary expression of interest in perhaps buying some developed lots at a later date. When he handed me the letter, Mr Keel said words to the effect of, ‘we table this letter for the sake of completeness, as the only correspondence Howship has had with any builder or developer in relation to the sale or proposed sale of any lots in the project’. Mr Keel then left the room, leaving the letter with me, and I showed this letter to Vanda and Sandy, both of whom appeared to read it.
24. Mr Keel then entered the room and my recollection is that Mr Gould then handed the letter back to him saying words to the effect: ‘this letter proves nothing. If we don’t trust Mr Baird how we can rely on his statement that this is the only correspondence?’ And Mr Keel responded in words to the effect of, ‘well, we have tabled this letter for the sake of completeness. It is the only correspondence between my client and any builder or developer in relation to the sale of lots in the project.”
“As a matter of completeness this letter indicates the sole builder or developer with whom my client has had any dealings. As you can see, the purpose of this letter is to express interest in acquiring land from Howship at some future point in time.”
Thereupon, Mr Gould, once again according to paragraph 38 of his statement, made “some reasonably aggressive statement to Mr Keel” to the effect “this is hardly conclusive proof of that” whereupon Mr Keel left the room. Paragraph 38 concluded by saying that Mr Gould left the meeting shortly afterwards. Whilst, in paragraph 39, he said that notwithstanding his comment to Mr Keel he was “in fact impressed with the production of the letter and what he said to me in connection with it”, he said that in view of those assertions “from this point of time on, (I) believed and accepted the truth of those assertions and I thereafter conducted the negotiations on that basis”.
107 The statement, therefore, did not refer to the statement Mr Gould made at Tp.16, which I have quoted, nor, perhaps more significantly, to the subsequent statement, which Mr West attributed to Mr Gould in paragraph 24 of Exhibit C.
108 At Tp.21, Mr Gould denied that when Mr Keel returned to the room he reinforced his view that the letter was not proof of the matters Mr Keel had asserted, although he agreed that when he initially spoke to Mr Keel about the letter he said “as a throw away line ‘it is hardly proof of that’ as an exasperation. In negotiations you do those sort of things”. Mr Gould said that he said nothing more to Mr Keel about the letter than that it “is hardly conclusive proof of that”: Tp.22, and continued:-109 Mr Gould said he knew FK to be a well known developer and, commencing at Tp.23, Mr Hughes cross-examined him about the following portion of paragraph 20 of Mr West’s statement:-
“Q. When you said to Mr Keel ‘that is hardly conclusive proof of that’ you were dissembling, weren’t you?
A. Possibly, it is just a throw away line which I just said, it was the first thought that came into my head.
Q. As an experienced litigant and negotiator are you given to saying the first thing that comes into your head during the course of a serious negotiation?
A. Yes.
Q. That was a dissembling remark whether said on the spur of the moment or not, wasn’t it?
A. Yes, you could see it in that light.”
“20. At that point” (after Mr Keel’s opening address at the meeting on 15 July 1999) “I was about to commence my opening address to the meeting when Mr Gould jumped in and said words to the following effect of, ‘quite simply, our position is that we do not trust Terry Baird, we have heard along the grapevine that you have a developer such as Villa World behind you and that is not acceptable to us’. At this point Peter Keel jumped in and said, ‘What does this have to do with you. We are here to negotiate a deal and what arrangements we make on our own account are of no relevance’.”
110 Mr West went on to say that he said that the issue was fundamental because if some developer was to take the place and make the profit that the plaintiff could otherwise have made, then the plaintiff would simply stay involved in the project and make that profit itself, to which Mr Keel responded that the plaintiff could not remain involved in the project as the parties could not work together. Mr Gould denied that he made that statement Mr West attributed to him, but then conceded he may have mentioned the words “Villa World but not on the grapevine, no”. He said his present recollection was that he did not use the word “grapevine” but that he could be wrong, although he doubted that he had done so. He then said the word was “possibly said by somebody else”.
111 At Tp.24, he acknowledged that he had news “from the grapevine” that Mr Baird had been negotiating with another developer; that he had no present recollection when those rumours were made known to him; and that possibly either Mr Beard or Mr Kennedy referred to them.
112 It was put to Mr Gould again that he said at the meeting at some stage:-113 He had previously denied saying it before Mr West spoke, but at Tp.24 he said he did not think he said it, and:-
“We have heard along the grapevine that you have a developer such as Villa World behind you”.
114 At Tp.25, I asked Mr Gould whether he had spoken to Mr Keel in the terms attributed to him by Mr Beard in paragraph 53 of Exhibit B, namely:-
“Q. But you won’t deny that you said it, would you?
A. No, I have no present recollection on that point.
Q. And if you said ‘we have heard on the grapevine that you have a developer such as Villa World behind you’ you would have said it because you regarded that as an important piece of information to throw, as it were, onto the scales in this negotiation?
A. Yes, it is an important piece of information to put on the table, I would agree with you.
Q. And the fact is that you had heard on the grapevine, whether or not you said it at the meeting, is that right?
A. That is correct, there was that rumour.”115 In response to the first sentence Mr Gould said that it was quite probable that he would have said those words or something to that effect. In answer to the second sentence, he said he had no recollection of saying that and that he thought it was more Mr Beard’s area. He recalled saying to Mr Keel:-
“We suspect that Terry has done a deal with someone - a developer or another party to take us out of this joint venture or that there are other transactions that we are not aware of which would significantly enhance the value of the project. It is critical to agree and provide for the 50% profit share undertaking with respect to bulk sales which may materialise after the time CVC exits the joint venture if we agree to go out.”
“Ever since Terry started talking about taking CVC out of this project we have had a suspicion as to whether there is a developer behind Terry Baird.”
He said that Mr Keel asked how that was relevant to which he replied that the relevance related to the valuation of the plaintiff’s interest in the project.116 Mr Gould agreed he bargained for a profit share as a condition of “exiting” the project and, Tp.26, he said that when he bargained for it he did not think that Mr Baird was in league with a property developer, but that there could be a purchaser in the wings with the financing coming from Mr Fidler’s father-in-law. He denied that his sole concern was to ensure there was no purchaser for the project or part of it in the wings, but that that was a concern, although “absolutely not” a concern more important than any about there being a developer in the wings.
117 Mr Gould said that he put the allegation of there being a rumour on the grapevine that Mr Baird was in league with a developer to Mr Baird on a number of occasions, and:-
“Q. You put that suggestion to him in the context of seeking to find out whether there was a developer who was in the wings waiting to buy the project or some part of it, would you agree?
A. Or a developer to come in and finance the project or whatever, yes.”118 At Tp.28, Mr Gould said it was probable that there was mention at the meeting on 15 July 1999 about a grapevine rumour as to the involvement of the developer and that it was possible that he raised it.
119 Mr Gould was then referred to a letter dated 7 June 1999 from the plaintiff to the defendant, which he signed, and the final paragraph of which stated:-
“It is important that CVC confirms that Howship has reached agreement with a suitable provider of development finance including agreement with a financier capable of servicing the Gray & Perkins facility, as we are anxious not to be associated with a commercial failure caused by the failure to provide adequate working capital. The history of Howship exhibits the problems associated with attempting a piecemeal approach to finance.”
Mr Gould said that he read the letter before he signed it and probably did so carefully.
120 Mr Gould was referred to Mr Beard’s letter of 12 May 1999, which contained the two possibilities for terminating the project and to the defendant’s lengthy letter of 25 May 1999. He said he read that letter, the final paragraph of which asserted that there was no third party “to take CVC out”. He said he thought that was the truth, although he subsequently became aware that it was untrue, the third party being FK. He said he became aware of FK’s interest when Mr Beard told him about the bank guarantee after the Heads of Agreement were signed, before which he was not suspicious that FK was interested. Mr Gould said that previously the grapevine had suggested Villaworld may be interested.
121 In paragraph 12 of his witness statement, Mr Gould set out what he said occurred at a meeting with Mr Baird on 25 May 1999. He attributed to Mr Baird a statement that as the plaintiff and the defendant could not reach agreement on the appointment of an external manager the defendant wanted to buy out the plaintiff’s interest, “Sandy gave us the option in his earlier letter”. There was discussion about the terms of any buy out and Mr Gould said, inter alia:-
“I strongly suspect that all this time you have been negotiating with other parties. Whilst that is your prerogative the fact is you entered into a joint venture which I will expect you to honour. Please understand we can appoint a receiver and manager to protect our interest if necessary.”
Mr Baird asked what the plaintiff wanted and Mr Gould told him that he would let him know.
122 Mr Gould agreed that when he wrote the letter of 7 June 1999 it was highly likely that he had in mind the letter Mr Baird had written on 3 June 1999, although he could not recall that he had it and the conversation of 25 May 1999 in mind when he wrote that letter.
123 At Tp.37, Mr Gould agreed that in writing the last paragraph of the letter of 7 June 1999 he intended to make clear to Mr Baird that, as a condition of exiting the transaction, the plaintiff required confirmation that the defendant had reached agreement with a suitable provider of development finance, including agreement with a financier capable of servicing the Gray & Perkins facility and that that was a very important requirement from the plaintiff’s point of view.
124 At Tp.38, Mr Gould agreed that the letter was asserting to the defendant that there had to be a provider of development finance capable of carrying the totality of the project through to completion and of servicing the Gray & Perkins facility, the provider of development finance having to provide some $4m to $5m dollars, and the indebtedness to Gray & Perkins being in the order of $6.35m.
125 He said it would possibly be a large company and:-
“Q. As I read it and please correct me if I am wrong, that letter was inviting the defendant company to come to an arrangement with the type of person referred to in that paragraph?
A. Correct.
Q. As a condition of buying out the plaintiff?
A. Correct.”
Whilst this was Mr Gould’s evidence, I do not consider it can be correct. The last paragraph of the letter was predicated, as Mr Beard explained, on the plaintiff’s remaining in the development. This was the only justification for the plaintiff’s being concerned about the continued financial success of it. If it was bought out no adverse comment could be made about any future financial failure.
126 At Tp.42, Mr Gould said that in the last paragraph of his letter of 7 June 1999 he stated the purpose of imposing the condition and that on numerous occasions both he and Mr Beard spoke to Mr Baird as to where the money was coming from and how Mr Baird proposed to finance “our side” of the transaction. He also said a formal letter was written to Mr Baird requesting him to respond in detail as to the precise sources of finance; the letter being that of 11 June 1999.
127 Mr Gould was referred to Mr Beard’s file note of 17 June 1999 and he agreed that the statement that “there were various matters that needed to be dealt with in the letter” of 15 June 1999 could be, potentially, an important statement. He agreed that the requirement for details as to whether there had been any indications or expressions of interest in relation to sales of any of the subject property was an important question.
128 Mr Gould said that the only sources of finance of which he knew were from Mr Fidler’s father-in-law and Holstac, but the letter made reference to a valuation from an independent valuer, which meant it occurred to Mr Gould that the reference to approaches the defendant would have to make for development finance was to approaches that would have to be made to third parties, who were not family or friendly parties. He continued it was obvious that that was what was being contemplated.
129 Mr Hughes referred Mr Gould nextly to the letter from the defendant of 15 June 1999, which he agreed told him that it was obviously necessary for the defendant to pursue an arrangement with either a financier or some other party to further the development, which statement reinforced in Mr Gould’s mind the idea that development finance would have to be sought from a third party unaffected by ties of friendship or family which had been discussed previously. Mr Gould added that the plaintiff had “even contemplated”, even if it was involved, having a third party lender involved “as essentially a mortgage lender”. Mr Gould agreed that the statement of pursuing an arrangement with either a financier or some other party to further the development was relevant to the condition imposed in the last paragraph of the plaintiff’s letter of 7 June 1999, and, Tp.48, that it was really necessary for him to ask questions about that matter and he never received an adequate answer, although he followed the matter up in telephone calls to Mr Baird. Mr Gould insisted as well as asking about having a substantial purchaser he would have asked about a developer.
130 In relation to paragraph 21 of his witness statement Mr Gould said, Tp.50, that it was only a truncated version of a much longer conversation, although there was no suggestion of that in the witness statement. He agreed that if he taxed Mr Baird about the presence of a substantial purchaser behind him, that was a vitally important statement in the context of the case by saying:-131 The position as between a developer and a substantial purchaser is a matter with which I have had some difficulty and, at Tp.51, I stated that difficulty by asking Mr Gould whether he was intending to convey a party, who was going to purchase the land in an unsubdivided condition, or some other situation. He replied:-
“A. Yes, I would agree then that it is relevant to this case, but it is only sort of a, in this particular conversation the real relevance was the agreement about the profit share we had if he was selling to a developer. That’s what my statement is about.”
“A. Well, I wasn’t clear myself. But assuming that Terry Baird was telling the truth and he was financing us out from this family or related party sources, what else could we be missing? Maybe there was this purchaser in the wings, we just used the term purchaser in the wings as like a catch all which would encompass someone buying part of the land, someone basically being involved in some sort of dealing capacity with him. It could encompass anything.”
This answer pointed up the lack of precision in Mr Gould’s wording on this subject and, in my opinion, it was this lack of precision which has given rise to some of the problems in relation to versions of the conversation at the meeting of 15 and 16 July 1999. However, I am satisfied that the real explanation is that Mr Gould accepted, by the meeting of 15 and 16 July 1999, what Mr Baird had said and written about the absence of a developer, and was concentrating on the one matter which did then concern him, viz the existence of a purchaser.
132 This, in my opinion, is borne out very strongly by the facsimile transmission from Mr West to Mr Keel of 28 June 1999 in which he stated that the fundamental assumption to the arrangement was that the defendant intended to complete the development project and sell the subdivided lots by retail sale, and that the defendant had no intention of selling off the whole or part of the property in any other way. The significance of this was stated to be that it had been agreed between Mr Baird and Mr Gould that if a sale other than of subdivided retail lots was concluded, a fifty per cent profit share would apply for the benefit of the plaintiff. Mr West agreed, Tp.155, that he drafted the letter in accordance with his instructions, and that the reference to the letter of 22 June 1999 was to that at p.248 of the Tender Bundle, in which the plaintiff stated it would be prepared to accept repayment of all moneys owing to it and interest, $500,000 on settlement, and the further sum of $500,000 on a deferred basis not to exceed twelve months secured by mortgages in its favour and bearing interest at the rate of fifteen per cent until settlement.
133 At Tp.52, Mr Gould agreed that a fundamental assumption to any agreement with the defendant was that it intended to complete the development project and to sell the subdivided lots by retail sale.
134 Mr Gould was then taken to the facsimile transmission from Mr Keel to Mr West of 5 July 1999, in paragraph 5 of which Mr Keel stated that in addition, the defendant was prepared to provide written warranties to the following effect at settlement, namely that it had no current intention to sell the property other than as developed residential land; that it was not engaged in negotiations with any potential purchaser to sell the property in any other way; that it had not concluded an agreement with any purchaser to sell the property other than as developed residential land; and that if it did sell the property within twelve months of settlement other than as developed residential land, it would pay the plaintiff a further $500,000.
135 Accordingly, Mr Keel was concentrating upon the significance of a sale of the land before it had been developed into residential lots.
136 Mr Gould agreed, Tp.55, that the letter offered a warranty that protected the plaintiff from the consequences of there being a purchaser in the wings and that in that respect it was satisfactory. He also agreed that no warranty was offered in respect of the lack of any interest in the land by a development financier or developer, notwithstanding that in the facsimile transmission from Mr West to Mr Keel of 28 June 1999, Mr West had requested a warranty that the defendant was not currently in discussions with any party, other than Mr Rowley and Holstac “regarding the refinancing, sale or restructure of the development project”.
137 Mr Gould was then referred to the letter of 2 July 1999 from the plaintiff to the defendant, at p.289 of the Tender Bundle, which he had signed, and in which he had said:-
“As you are aware my concern remains the suspicion that you have a substantial purchaser in the wings and hence my acceptance of your suggestion of a two year period wherein our profit share would come on foot if you sold the property during this time. This was a condition of our previous proposal. I am now willing to forego this condition on the basis of the following offer. I understand that Howship was reluctant to propose a settlement offer and that Sandy proposed an additional settlement sum of $500,000.”
The letter went on to increase that figure to $1m. Hence, once again, the focus was being placed on “a substantial purchaser in the wings”.
138 Mr Gould denied that he suspected there was either a developer/financier or a developer in the wings, saying that he “basically believed” Mr Baird that the finance was coming “from internally”. He added he had a suspicion there could be a third party purchaser in the wings. Once again, I am satisfied that this was the truth. By the time he wrote this letter he had been led to believe by Mr Baird that no other developer was involved and he accepted that. But, in the absence of a developer, he believed there had to be a purchaser because without a purchaser there would be no finance to progress the development.
139 At Tp.57, Mr Gould was referred back to evidence he gave at Tp.11 in which he had said he had a suspicion of varying degrees of Mr Baird’s statement about the absence of a developer on his side of the transaction. He said that he had agreed with the proposition that the balance of his view throughout the negotiations that took place on 15 and 16 July 1999 was that what Mr Baird said to him about the absence of a developer on his side needed to be treated with real suspicion. He added:-140 Mr Gould said he did not resile from anything he had said previously and that his suspicions “waxed and waned”, and that by the time of the meeting of 15 July 1999 he was “basically wondering what was going on”. His curiosity was excited by the retention of Clayton Utz by the defendant. He referred to the “plush offices” and asked himself what was happening and, perhaps more significantly, who was paying. It was put to him that he was suspicious of the existence of a developer, to which he replied he had a question mark in his mind. The next question was:-
“Hang on. I want to qualify that. On the morning that we first met Mr Baird and the Clayton Utz representatives, yes, I did have a suspicion that there was a developer involved behind Terry Baird, but I also had his letters and assurances that it wasn’t the case.”
“Q. Were you suspicious?
A. Yes, I was suspicious.”
141 He agreed that, generally speaking, suspicion generated distrust and absence of reliance.
142 At Tpp.58-59, I asked:-143 It was then put to Mr Gould, quoting from paragraph 20 of Mr West’s witness statement, Exhibit C, that he had said at the beginning of the meeting:-
“Q. Mr Gould, while you are looking at that passage, I am still trying to come to grips with a purchaser or substantial purchaser in the wings. Were you there writing about a person who was going to purchase the land en globo or something else?
A. Your Honour, I just don’t know. But I believe when I wrote that there, I am sort of thinking: well, assuming Terry is telling the truth, there’s got to be something else I am missing here. There’s some question I haven’t asked. There’s some subtlety that’s escaped me. That’s where the term ‘purchaser in the wings’ came from.
Q. Purchaser of land?
A. Purchaser of the land, purchaser of part of the land. If you have got a purchaser of part of the land, finance becomes quite viable. There could be a range of possibilities. Could be a joint venture partner.”
When he referred to Mr Baird’s telling the truth, he was obviously referring to the question of a developer. Therefore, as I have said, his mind was not concerned with a developer, because he had been told there was none, but to the possibility of a purchaser, perhaps with joint venture capacity, as a means of generating the necessary income.
144 At Tp.60, Mr Gould made various statements about the extent to which he trusted Mr Baird and agreed that he made no mention in his letter of 2 July 1999 of a concern or suspicion that Mr Baird had a developer, as opposed to a purchaser, behind him, and, Tp.61:-
“Quite simply our position is that we do not trust Terry Baird. We have heard along the grapevine that you have a developer such as Villaworld behind you and this is not acceptable to us.”
Mr Gould said he would not deny having said those words, although he had no recollection one way or the other. Mr Keel denied that Mr Gould used the words “developer” or “Villaworld”: his witness statement, Exhibit 5 paragraph 11(a). On the other hand, Ms Lovell, in paragraph 47 of her witness statement, recalled Mr Gould “saying words to this effect”. This has to be considered in the light of several probabilities and of the fact that Mr Gould was admittedly using purchaser somewhat loosely and as a “catch-all”. Although I am satisfied that the word “developer” was not used, had it been that would have placed Mr Baird and, more particularly, Mr Keel and Ms Lovell in an acutely embarrassing position in respect of which they would have been required to take instructions as they were fully aware of the participation of FK and that it was a developer. The defendant, so it seems to me, must either accept that developer was used, and front up to the fact that proper answers were not given, or accept that it was not so that on the very narrow basis in which it could negotiate, there was no perceived need to mention that there was a developer and thus bring the negotiations tumbling down.
“Q. The concentration of your attention in this letter was on a suspicion that he had a purchaser behind him, wasn’t it?
A. Correct, in the broader sense.
Q. In the what?
A. Well, purchaser can mean a number of things.
Q. Aren’t you just playing with words now?
A. No.
Q. To get out of what you perceive to be an awkward spot?
A. No. We didn’t know what we were dealing with here. So it was a shorthand way of saying a substantial purchaser in the wings, as I have explained to you was a catch-all phrase.”
145 At Tp.61, Mr Gould was cross-examined about the warranties offered in paragraph 5 of the letter of 28 June 1999 and he said it was possible that there was no discussion about them, although he was only at the meetings for a short period.
146 He agreed that “in general terms” it was not an unreasonable proposition that the warranties in the letter of 5 July 1999 became superseded by discussion and subsequent agreement about the grant of an option to the plaintiff over fifty lots, but he denied on the plaintiff’s side that the deal that was made provided proof that there was no purchaser or developer purchaser in the wings, and he said that the grant of an option would not prevent a new purchaser coming in with that obligation being part of the deal. He also agreed that the option was suggested by Mr Baird to Mr West and, according to the evidence, Mr West put the option to the meeting.
147 Mr Gould said that he did not recall seeing the letter offering the warranties, and that he did not know of any letter from the plaintiff’s solicitors to the defendant’s solicitors stating that the plaintiff wanted warranties that there were no developers involved, and:-148 Mr Gould was then cross-examined about the warranties and it was suggested to him that if warranties in relation to a purchaser and a developer had any importance it was rather remarkable that a demand for them was not insisted upon either at the meeting of 15 and 16 July 1999 or at any time, to which he replied:-
“Q. Was that something you did want?
A. Yes, I know this was a live issue, but more than that I can’t say.
Q. It was something that you would have wanted?
A. Correct”: Tp.63.149 At Tp.64, Mr Gould said there was certainly dissatisfaction on his part with Mr Baird’s performance prior to 15 July 1999, and that he had concerns about his unreliability in what he was telling him in respect of the financing issue. He continued:-
“A. Well, I don’t know about it, I just can’t answer about any time.
Q. Let’s look at the subject generally. Do you tell his Honour that the requirement conveyed in the correspondence to which I have invited your attention, that there be a warranty about no developers being involved, and a warranty about no purchaser being involved, was an important requirement?
A. Yes.
*Q. Does not the fact, if it be the fact, that the demand or requirements for those warranties was not followed up, indicate that the requirements were unimportant?
A. Well, all I can say is that our meetings on the 15th and 16th when I was present, the issue of who basically Terry was dealing with was a live issue. Representations were made and we were satisfied that he was dealing with Holstac and the Lotto man.
Q. Subject to his Honour ruling to the contrary, I suggest that was not an answer to the question. I will, with his Honour’s leave, have the question read back to you from the notes, from the transcript, and ask that you address it and answer it.
RARES: Could I submit it was an answer to the question.
Question and answer marked * read.
HIS HONOUR: I will allow that answer, Mr Hughes. You can ask other questions if you want to.
…………
HUGHES: Q. If the requirement for those warranties was important to you, is it not surprising that their inclusion in the Heads of Agreement was not insisted upon?
A. The Heads of Agreement as a result of our meeting at Clayton Utz?
Q. Yes?
A. Well, that would be no doubt because our solicitor and ourselves were satisfied we weren’t, as to the bona fides, what was happening.
Q. If the dual requirement for warranties was important to you, is it not surprising that the requirements were not insisted upon?
A. Possibly.
Q. Possibly? It is surprising, isn’t it, not just possibly surprising?
A. No, because Mr West and ourselves were convinced because of the representations of Clayton Utz as to the truth of what we were being told.”
“Q. As an experienced negotiator, and as an experienced person in matters of litigation, was it not apparent to you that in dealing with a person of the kind you judged Mr Terry Baird to be, it was important to get from him warranties in written form, rather than rely upon verbal assurances?
A. With hindsight, yes, I take the point.
HIS HONOUR: Q. What did he say in hindsight in the context of the way this meeting progressed?
A. Yes.
Q. I take it you read the Heads of Agreement before you signed them?
A. I did.
Q. And understood them?
A. I did.
Q. You saw there were a series of recitals?
A. I would have read them your Honour, yes.
Q. You are aware of the effect of a recital?
A. Yes.
Q. It would have been quite easy to put in a recital, ‘whereas the Howship has warranted to CVC that it has no purchaser or developer in the wings’?
A. Yes. It would have been easy to have done that.
Q. I think what Mr Hughes is asking you is why didn’t you?
A. Because we were completely convinced when by Mr Keel’s assertions as to Terry’s probity and bona fides on this issue.
Q. When you say we, you mean you were?
A. I was, and all three of us were. Our solicitor and Sandy Beard”: Tp.65150 The penultimate answer was important. As I shall show all those present at the meeting, save for Mr Keel, agreed that Mr Keel made some statement to the general effect that Mr Baird could be trusted.
151 Subsequently it was put to Mr Gould that his explanation of not following up the requirement for the inclusion of written warranties was based entirely on his version of what Mr Keel said, to which he replied:-152 At Tp.66, Mr Gould said that he agreed it would have been preferable if the warranties had been included and:-
“A. The totality of what Mr Keel said, yes, would have been the - that was the point, that would have been, that was absolutely critical in terms of me coming to the view that what we were being told by Terry was the honest truth. Also we were dealing with a situation where Heads of Agreement were done after hours on Tuesday night. So that if my solicitor has made a technical slip, it is perhaps understandable.”
153 At Tp.67, Mr Gould said that the letter from Dixon Homes did have an effect, and:-
“Q. It was A, B, C to include them if they had any importance, wasn’t it?
A. I agree. It would have been preferable.
Q. It was A, B, C to include such warranties if they had any importance, wasn’t it?
A. I agree it would be usual.
Q. It was elementary, A, B, C, to include such warranties if they had any importance, wasn’t it?
A. I agree it would be usual.
Q. You know that is not an answer to my question. I’ll put the question for the fourth time in the perhaps faint hope that I will get an answer. It was elementary to include such warranties as you had demanded in the Heads of Agreement, if they had any importance to you, wasn’t it?
A. I agree it would be usual.”
Whilst I consider that Mr Gould appreciated the significance of warranties, I am still satisfied that his concern had been with a purchaser in the wings, a concern which may well have been allayed by the inclusion of the option to purchase.
“Q. Was it a combination of what he said and the letter?
A. It was what he said which had the effect. The letter in itself didn’t say much.
Q. Do you mean by that that if he had simply produced the letter without comment, your attitude to entering into the agreement would have been quite different?
A. Correct.
Q. You would not have entered into it?
A. In that form, that’s correct.
…
Q. In your view, did the letter, when you read it, not establish that there was no purchaser in the wings?
A. The letter in itself, yes, confirmed that, confirmed that. Confirmed that, a prospective purchaser, not a current purchaser.
Q. The letter said nothing about a developer being in the wings?
A. Correct, no mention of Dixon Homes being a developer per se.”154 Mr Gould identified the letter “from an unidentified builder to the defendant” referred to in the particulars to paragraph 23 of the plaintiff’s Further Amended Summons as the letter from Dixon Homes.
155 Mr Gould said he was aware that Mr Keel gave a very different account of the conversation on 15 July 1999 when the Dixon Homes’ letter was produced. Mr Keel’s account of the conversation was put to Mr Gould and he was asked to agree that if his account was in substance correct, it must have been plain to Mr Gould that Mr Keel was doing no more than echoing his client’s instructions. He said that was correct and:-156 This evidence is to be compared with that of Mr West, who, in his evidence-in-chief, denied that Mr Keel had used the words “my instructions are ..”. At Tp.184 he gave the following evidence:-
“Q. That being so, to the extent that at that time you suspected or mistrusted Mr Baird in what he was saying to you, that suspicion or mistrust must have been affected by what Mr Keel said to you, if Mr Keel’s account is correct?
A. Correct. We would not have worried - we would have continued to have suspicion.
Q. And Mr Gould, not only would you have continued to have those suspicions, but you would have continued any efforts that had been made to get warranties in writing?
A. Possibly, subject to what our solicitor would have to say, but I would have thought that would have been correct.
HIS HONOUR: Q. I think you told me yesterday that if Mr Keel had used the words ‘I am instructed’, that would have heightened your suspicion?
A. Correct, and that certainly was not said.”157 At Tp.68, it was put to Mr Gould that at the meeting he said in the presence of Ms Lovell words to the effect:-
“Q. Do you rule out completely that Mr Keel said to you, ‘my instructions are that this is the only correspondence that Howship has had from a potential purchaser of the land’?
A. Are you, is your Honour focussing on the words, ‘my instructions are’, or the remainder of the sentence?
Q. I was focussing on each and every word, actually.
A. Well, in as far as we were talking about the words, ‘my instructions are’, it is certainly conceivable that he prefaced his comments with those words, but I don’t recall that. But the remainder of the words in that sentence aren’t in accordance with my recollection, which is, of course, what I have set out in my statement.
Q. It is conceivable at least that he said, ‘my instructions are’, whatever?
A. That’s conceivable, yes.
Q. And would be totally consistent with what he told you earlier in the day?
A. Yes.”158 He agreed it was possible that either he or Mr Beard said to Mr Baird that they were seeking undertakings that he would not sell to Villaworld, Villa Homes or Stocklands, and this is corroborated by Ms Lovell’s contemporaneous note. Mr Gould repeated that it was Mr Baird’s intention to develop the land. Mr Gould had no recollection of various conversations put to him about the steps to be taken in developing the land. Mr Gould agreed it was possible that he said that once there was a purchaser of the land, whether for one block or many, the risk profile changed, and:-
“I’m deeply suspicious about what is happening. I want to get rid of this whole thing and move on.”
He said it was possible, but that he did not have a strong recollection one way or the other. Ms Lovell’s contemporaneous note satisfies me that Mr Gould said words to this effect. However, it is not obvious that this was in any way detrimental to his case. The way in which he wanted to exit the situation and move on was, I am satisfied, with the most advantageous terms. He continued:-
“Q. Did Mr Baird say in your presence words to this effect, and in the presence of Ms Lovell: ‘I have offered you a further payment if Howship sells the land, other than as developed residential lots or blocks. I have no intention of selling the land en globo. My intention is to develop it’. Did he say anything like that?
A. It’s possible that Mr Baird - that has always been his intention, to sell the land as developed lots, not en globo, that’s correct.”159 At Tp.71, Mr Gould was asked whether Mr West said on the afternoon of 15 July 1999 that there was still a perception of suspicion and that the plaintiff remained concerned that there was a lack of trust on both sides. Mr Gould did not recall that but:-
“Q. Was anything like this said by you: if you found a better financier, OK. But if they will be buying land which changes the risk profile, that’s different’?
A. Yes, it is possible I have said something like that.
Q. And meant it?
A. Yes.
Q. The reference that you say that you possibly made to a better financier would have been, would it not, a reference to a third party arms-length financier?
A. Correct, such as Metway, yes.
Q. Or a developer financier?
A. No, I had in mind, really, a mortgage lender.
Q. A developer financier would be within the framework of that statement, if it were made by you, wouldn’t it?
A. On the face of it, you’re correct.”
“Q. Did Mr Peter West say anything like this: ‘My clients are concerned that a deal has already started to sell developed land down the track. There has been a deal initiated or started which will be concluded after CVC settles with Howship’?
A. I have no recollection of it. It is possible, it’s the general thrust of what we were saying.”
This statement was made, according to Mr Gould, before the Dixon Homes’ letter was handed over.
160 At Tp.73, Mr Gould said that he and Mr West read the draft Heads of Agreement and that he read them carefully. There was some discussion as to whether they would constitute an enforceable agreement.
161 At Tp.74, Mr Gould agreed that he never received any evidence that the condition for which he had stipulated in the last paragraph of his letter of 7 June 1999, namely:-
“It is important that CVC confirms that Howship has reached agreement with a suitable provider of development finance including agreement with a financier capable of servicing the Gray & Perkins facility, as we are anxious not to be associated with a commercial failure caused by the failure to provide adequate working capital”
had been furnished.
162 Mr Gould said that his letter of 7 June 1999 was not intended to effect financial compensation as a settlement, but rather to bring about a position whereby the parties could go forward “together”. This was on the basis that if the defendant owed the plaintiff no money, it could have control of the development. Mr Gould denied that he told Mr Baird he had not spoken to Mr Leaver, but that he knew he would accept $500,000; although he then agreed he would have said to Mr Baird, on a couple of occasions, that he had spoken to Mr Leaver but he continued that he would never have expressed a view as to what he would accept.
163 When it was put to Mr Gould that Mr Baird had said that was a “fairly sizeable amount”, Mr Gould said that “at some stage, and not in this conversation” it is possible he used those words. Mr Gould did not agree that when that was said it was “a plain signal” to him that Mr Baird was dealing with third party financier developers.
164 Mr Gould was asked about the telephone conversation by car phone with Mr Baird when Mr Fidler was in the car. He said he had been shown Mr Fidler’s statement “in the last several months”, and that he would have read it carefully. He understood it was his prerogative to answer it if he disputed it “subject to my counsel’s advice”. He denied that a conversation between Mr Baird and himself on the car phone occurred on or about 5 July 1999 substantially in the terms stated by Mr Fidler and he said that “nothing like that was said at all”. He denied that he said:-
“We are only concerned that you have a buyer in the wings”,
and
“Would you sign a statutory declaration saying that you haven’t.”
He agreed Mr Baird said “I have got no problem with that”, but he said it was in a different context. He had no present recollection of Mr Fidler’s saying “certainly, because we haven’t”, but he said he would not dispute that he may have used terms like that, in terms of the totality of the conversation.
165 There is no doubt that Mr Gould was aware he could have denied the statement, and that he was told by his solicitor that it would be necessary to consider filing a statement “in respect of this matter”, which was never done.
166 He was asked what his “contesting statement” would have said, and he replied that he would have been along the lines that Mr Baird asked him about the impasse which had developed concerning the suspicions, and that he pointed out to him the inadequacy of the letter of 15 June 1999, and would have said to him:-167 Mr Gould said he did not take any steps to compile or compose a statement answering that of Mr Fidler, as he was waiting on further legal advice. He continued:-
“We need to get some more information as to the details of what actually is happening here”,
Mr Gould insisted that the matter had to be looked at against the “backdrop” of the letter of 15 June 1999.
to which Mr Baird replied “How would a statutory declaration go in?” and Mr Gould said “That could be a way forward”: Tp.79.
“Q. Was the substance of what she” (Ms Harpur) “told you this: that she had discussed Mr Fidler’s statement with counsel and he had advised that no answering statement be filed in reply?
A. I don’t know that I would go with you as far as you go. She just said, ‘I have discussed the matter with counsel and it’s a matter for counsel’, and left it at that. I don’t think she actually went the next phrase you used, that we won’t file a statement. It was just that the matter was with counsel, counsel was still considering the issue.”168 Mr Gould said it was not imperative to file a reply statement as he had often seen counsel elicit evidence in reply orally, although he agreed no attempt had been made to do that in his evidence-in-chief. He agreed that as a layman the statement called for a rebuttal, but that he was subject to counsel’s advice.
169 He said he had a competent solicitor, although she did not tell him anything other than that counsel was considering the matter, which was where things rested for two months or thereabouts.
170 Q. *Would you agree that as a matter of plain commonsense that statement called for a rebuttal, if it could be rebutted, either orally or in writing?”171 In re-examination, Tp.83, Mr Gould was asked about his answer to the effect that he suspected Mr Baird’s truthfulness until the afternoon when Mr Keel handed over the letter from Dixon Homes at which moment he was convinced Mr Baird was telling the truth. He was asked why he came to that view and he said:-
There was an objection, which was withdrawn, and at Tp.83 Mr Gould agreed. Further, he said he was not able to offer any explanation, which was acceptable to him, as to why no such rebuttal was made, but he denied that the reason was that Mr Fidler’s statement is substantially true.
172 Mr Gould was asked, Tp.84, why he had said that he did not know that Mr Keel could only be speaking to instructions. He said:-
“A. Because Mr Keel, in a practical sense, had both personally previously vouched for Terry’s truthfulness and then I took him to be saying to us in the sense, with the full weight of Clayton Utz behind him, this is the truth, this is the only correspondence. This is it. You have got the total picture here. There is no other party involved. That is the total population of negotiations that basically have taken place.”
As I am satisfied that Mr Keel made a statement to the effect for which Mr Gould contended, the inference Mr Gould drew does not seem unreasonable in all the circumstances.
“Because it is my common experience that solicitors both speak on instructions and on their own behalf, and on their firm’s behalf. That is my typical understanding of positions in many commercial negotiations.”
173 He was asked, nextly, about his knowledge of the size of Dixon Homes and he said that from his wide knowledge of “who’s who in the building and development industry” he had never heard of Dixon Homes in the context “of being in a substantial development”. He then said that the letter was “actually talking about prospective purchaser of homes or land in any event”.
174 At Tp.85, Mr Gould said that the vital question to him was where the finance was coming from to take the plaintiff out of the project.
175 At Tpp.86-87, he said he did not suspect that there was a financier or developer in the wings, because he accepted Mr Baird’s letter of 15 June 1999 and subsequent conversations; but he suspected that there was something more, which was outside the compass of what the plaintiff had previously been requesting of him.
“So that he was beyond the Rowley, Holstac and Tony Fidler’s father-in-law funding source - I’m sorry, I suspect that that was correct, but potentially after the event that some other action would take place”: Tp.87.
If this evidence is accepted, which I do, then I think that the proper conclusion is that the only matter about which Mr Gould remained suspicious then was a purchaser in the wings.
176 He said that was an existing suspicion up to 15 July 1999, when “my suspicions just evaporated”, which flowed from Mr Keel’s affirmation of Mr Baird’s bona fides “and also on behalf, as I believed it, both on his behalf and his firm”.
177 He said the letter “was not particularly important in itself”: Tp.88, except for the fact that it was put as being a matter of completeness.
178 At Tp.89, Mr Gould confirmed that his version of the car telephone conversation with Mr Baird was the truth. In my opinion, the proper construction to put on that conversation is that for which Mr Gould contended.
179 In Mr Gould’s witness statement, he referred to a letter from the plaintiff to the defendant of 21 June 1999, which was signed by Mr Beard but settled by Mr Gould. The letter offered a “final settlement mechanism which has also been approved by John Leaver”. The letter noted that the defendant had failed to provide details requested and promised as to its financial capacity to complete settlement. It continued:-
“In view of your undertakings to Mr Gould, and based on discussions between CVC Board members I have set out below our final offer of an acceptable settlement:
1. Repayment of all monies advanced by CVC on behalf of the project, and
2. Repayment of interest on those moneys, and
3. A sum of $500,000, and
4. A fee of 2% of the gross sale proceeds of any lot sold, or sale or part thereof of the subject property sold over the course of the development. Such fee to be secured by way of a caveat.”
180 In paragraph 22 of his witness statement, Mr Gould said that the reference to “your undertakings to Mr Gould” referred to Mr Baird’s statements to him that no developer was in negotiation with him in connection with the development. He said that as he believed and accepted those statements he did not include any requirement for a fifty per cent profit share.
181 In paragraph 43, Mr Gould said that he signed the Heads of Agreement in reliance on the statement of Mr Baird and Mr Keel to the effect that the defendant was not negotiating with a builder or developer in relation to the development, and that had he known it was he would not have entered into the Heads of Agreement, but considered other options such as the plaintiff remaining as a joint venture partner or negotiating “significantly more favourable terms” as a condition of its exiting the joint venture.
My View Of Mr Gould’s Evidence
182 I have dealt with Mr Gould’s evidence at great length. He was the representative of the plaintiff through whom reliance must ultimately be proved. As I have said, this is a crucial issue. Whilst I have identified certain of his evidence, which I do not accept, and certain, which is less than satisfactory, against the background of all the evidence, in which I include the difficulties and acrimony surrounding the meetings of 15-16 July 1999 and the probabilities, I am satisfied that by that time Mr Gould only referred to a purchaser, although he had an extended meaning in mind.
183 He may have done so because he was using the word as a “catch-all”. I think the more probable explanation is that he did so because he was then of the belief that there was no developer, having been told so by Mr Baird, and the only remaining possibility was of a purchaser if the defendant was to generate any income, which may be a joint venture partner.
184 The outstanding probabilities are that if Mr Gould had not been satisfied by what he was told that there was no developer, he would never have settled on the terms provided in the Heads of Agreement. Secondly, if “developer” had been used Mr Keel and Ms Lovell would, with their knowledge of FK, have been obliged to seek further instructions and, in my opinion, they would have done so.
185 For these reasons I accept Mr Gould’s evidence that he was induced to sign the Heads of Agreement by the misrepresentations made to him by Mr Baird and by the defendant’s conduct in failing to advise him of the involvement of FK. I find, however, that these were factors operative prior to the meetings of 15 and 16 July 1999 and that whilst they were not corrected at those meetings, they led to Mr Gould’s pre-occupation with the presence of a purchaser in the wings.
The Evidence Of Alexander Damien Harry Beard
186 Mr Beard said that Mr Gould involved himself by keeping an overview of the project, but that he had most of the carriage of it and kept Mr Gould informed “when it was relevant”. That occurred when he thought there were matters of major importance.
187 He was nextly asked about his detailed file note of 17 June 1999, in which he centred upon what he regarded as the fundamental question that Mr Baird had left unanswered in his letter of 15 June 1999. He said that as at 17 June 1999 there were a number of very fundamental issues.
188 Mr Beard, when asked where his note recorded a statement by Mr Baird that there were no negotiations with Stocklands, said it appeared in Mr Beard’s statement:-
“Terry again stated categorically there was no potential offers for any part or potential part of the subject property”: Tp.94.
He agreed that passage was referring to offers of sale.
189 At Tp.96, Mr Beard was asked about his relationship with Mr Baird. He said that initially it was good, but it deteriorated, although during that period it was conducted in terms of “reasonable politeness”.
190 Mr Beard denied he was prejudiced towards Mr Baird, but he said he had a very low opinion of the efficiency with which the joint venture had been conducted, and a wariness of dealings with regard to the plaintiff’s exit. He was asked whether that meant that he had a deep suspicion that Mr Baird was not telling him the truth in the exit negotiations, and he said he had a belief that he was not telling the whole story.
191 At Tp.99, Mr Beard said that he believed that in the letter of 15 June 1999, Mr Baird was not telling the truth with regards to the whole situation, and that that caused him to view his statements during the negotiations involving the plaintiff’s “exiting” from the agreement “with deep suspicion”. He was asked to agree that having that deep suspicion he was not minded to rely on anything Mr Baird told him in the course of the negotiations, to which he replied:-
“A. I would characterise that as I was wary. Relying is another issue. I was certainly wary of anything that was said.”
He continued:-
“HUGHES: Q. You were not disposed, were you, to rely on anything he told you in the course of the negotiations?
A. I believe I was entitled to rely on some of the things, but to regard it with suspicion.
Q. And you don’t generally, do you, rely on people whose statements to you, you regard with deep suspicion, do you?
A. I believe that you can rely on some things which are said with a degree of direct answering, but where things are evaded, there is a degree that I wouldn’t rely on that type of response.”192 At Tp.100, Mr Baird said that one part of the letter of 15 June 1999, which he found evasive, was the answer to the third question.
193 He also regarded the answers to the questions on the second page of the letter evasive. This was a view he formed when he received and read the letter, and, Tp.101:-
“HUGHES: Q. If you regarded them as evasive, does that mean that you mistrusted the truthfulness of those statements at the time when you read the letter?
A. I think that - as you see how the transaction proceeded from here, there was then ..
Q. Mr Beard, would you please attend to the question. I don’t wish to be discourteous to you. The question can be read and it admits of a very simple answer?
A. I do not believe that I could rely on the answers to those three specific points.
Q. And that state of mind that you have just described continued, didn’t it, after 15 June?
A. Yes, I sought further assurances.”
194 Mr Beard said that this caused him to have Norton Smith & Co seek warranties by way of “further assurances”. He agreed he was primarily responsible for instructing the plaintiff’s solicitors in relation to the negotiations of the proposed exit of it from the joint venture, subject only to specific points that he thought needed clarification from Mr Gould prior to speaking to the solicitors. He also agreed that it was true to say that throughout the exit transaction until the signing of the heads of agreement he viewed statements made by Mr Baird about the position of the defendant as untrustworthy, and that he was not given to relying on statements he regarded as untrustworthy.
195 He was taken to the facsimile transmission from Norton Smith & Co to Clayton Utz of 28 June 1999, which he could recall reading, although he did not know if he did so prior to its being sent. He said it was sent after he had discussions with Mr West about replying to the correspondence to which it related, but he could not recall specifically instructing Mr West to do so, nor giving him any specific guidance. He did not consider the letter was inconsistent with any instructions of which he was aware, which were given to Mr West, and he presumed the instructions were given by him. He noted the assumption, which was stated to be fundamental to the arrangement, namely that the defendant intended to complete the development project and sell the subdivided lots by retail sale. He said the points referred to in paragraphs 1, 2 and 3 on page 2 spelt out a number of other fundamental assumptions. He agreed that Mr West was insisting that all those matters should be addressed in any written agreement, and:-196 At Tp.105, Mr Beard gave a lengthy answer:-
“Q. If any of those matters were of fundamental importance, would you not expect them to be contained as warranties in the written agreement?
A. The question is would you not expect these to be in the written agreement?
Q. Yes?
A. In relation to the Heads of Agreement which are the subject matter?
Q. Yes?
A. In an ideal and perfect world you would like those to be in the final agreement.
Q. There was no reason, so far as you were aware, why the points covered in paragraph 2, particularly 2(d) of this letter, should not have been insisted upon by CVC for inclusion in the written agreement, was there?
A. In terms of insistence that they were in an agreement, it is something that again is a negotiated position between what parties were put into an agreement, in the context of where the final heads of agreement got to. I was not there at the final stages. It was very late at night, and I had left a number of hours prior to the final agreement being drafted. That’s the context”: Tpp.104-105.197 Mr Beard agreed that he left Mr Gould and Mr West in charge of the negotiation of the terms of the Heads of Agreement, and that Mr Gould’s view about what should be negotiated would have prevailed over his, although there may have been some debate about it. He also agreed that he left Mr Gould to negotiate whatever agreement was to be negotiated by saying:-
“A. In my presence I also recollect that the deal, in terms of actually having a deal that would be in a shape or form of documentation, it didn’t emerge until very late on that second day. The key point being that warranties, deeds of releases, option agreements. There were a number of things that needed to be resolved, as part of the broader scheme did we even have a deal that we could talk to, and was there going to be an agreement on the deal. These are fine points in relation to once the deal has been consummated on a conceptual format, that what stands behind those commercial terms.
Q. Can I come back to my question. During the course of the negotiations on 15 and 16 July, in your presence, there was no insistence by anyone on behalf of CVC, was there, upon the inclusion in any written agreement of these warranties described in paragraph 2?
A. I cannot presently recall whether the specific warranties set out in this form were pressed for during my presence. It is my belief that we talked around warranties that would be given, at various stages during the two days.
Q. If the requirement for these warranties was of any importance to CVC, it would be quite remarkable if warranties of that kind are not to be found in the Heads of Agreement?
A. Remarkable, I said ideally they would be there.
*Q. It is more than ideally. If they had any importance, it was incumbent upon the CVC representatives to insist on their inclusion in the Heads of Agreement, wasn’t it?
*A. And unfortunately I was not present during the last two hours of the drafting of the Heads of Agreement to reflect on what was insisted that we get into that Heads of Agreement.
Q. I don’t wish to be difficult or insistent, would you please answer my question?
OBJECTION.
Question and answer marked * read.
HIS HONOUR: Q. Do you mean by that answer commencing with the word ‘And’ that had you been there you would have insisted on it?
A. Yes”: Tpp.105-106.
This evidence made clear that Mr Beard would have insisted on the inclusion of the warranties. However, Mr Gould and Mr West did not and, in my view, this was further corroboration of their reliance on and inducement by the misrepresentations and conduct. Mr West said so.
198 In paragraph 59 of his witness statement, Mr Beard said that the production of the Dixon Homes’ letter and what Mr Keel said to him about it was an “important confirmation of the assertions previously made by Mr Baird in relation to Howship’s involvement or negotiations with a developer …”. By this time he had come to believe that Mr Baird and the defendant had not been negotiating with a developer or financier to replace the plaintiff as a joint venture partner, and:-
“A. Final word, yes.”
199 Commencing at Tp.106, Mr Beard was cross-examined about the production of the letter from Dixon Homes on 15 July 1999. He said that Mr Keel said:-
“From that point on I conducted the negotiations on 15 and 16 July with CVC in the belief that there had been no negotiations or involvement between Howship and a developer or builder to replace CVC as joint venturer but believing that there was possibly a developer builder in the wings to make bulk purchases.”
This is consistent with the view to which I am satisfied Mr Gould came.
200 Mr Beard was asked whether, when Mr Keel tabled the letter, he said:-
“For the sake of completeness, this fax has just come in and represents the only correspondence between the developer and the builder in relation to the property.”
He said Mr Gould reviewed the letter, but he did not look at it. It was drawn to Mr Beard’s attention that that version of what was said by Mr Keel did not accord with what he said in paragraph 58 of his witness statement, Exhibit B, where he recorded that Mr Keel said:-
“For the sake of completeness we have just received this fax which represents the only correspondence between a developer or financier in relation to the project.”
Paragraph 58 continued that Mr Gould “then” read the letter, “and I glanced at it”.
201 In putting that to Mr Beard, Mr Hughes was quoting from what appears in paragraph 23 of Mr West’s witness statement, Exhibit C, which continued:-
“We table this letter for the sake of completeness, as the only correspondence Howship has had with any builder or developer in relation to the sale or proposed sale of any lots in the project.”
202 Mr Beard agreed there was a significant difference between his version of the conversation and that version of the conversation, being, as he understood it, that one talked about sale of lots, and the other about the correspondence between developer or financier in relation to the project, and:-
“Mr Keel then left the room, leaving the letter with me, and I showed this letter to Vanda and Sandy, both of whom appeared to read it.”
203 Mr Gould’s recollection of what Mr Keel said was, as appeared from paragraph 38 of his witness statement, Exhibit A:-
“Q. Would you not agree that that difference is a vital one in the context of this dispute?
A. Is the one - they are two fairly different points. Yes, the difference is vital.”
Mr Beard maintained that the words he had used in his statement reflected his best recollection of what was said.
“As a matter of completeness this letter indicates the sole builder or developer with whom my client has had any dealings. As you can see, the purpose of this letter is to express interest in acquiring land from Howship at some future point in time.”
204 Mr Beard could not remember Mr Gould’s saying anything in Mr Keel’s presence, although he said that after Mr Keel left the room he remembered Mr Gould and he had a conversation about the letter and Clayton Utz and a conversation “about where we are”.
205 Mr Beard could not recall Mr Gould’s saying, in relation to the letter, “that it was hardly conclusive proof of that”, the only matter he could recall being that he viewed “the matter as trivial enough to not warrant me looking at the letter. That’s why I didn’t look at the letter. Whether that was by words or body language, I have no present recollection”. He said the matter of triviality was that the builder was not a known builder or developer to him, and that there was nothing in the letter to indicate there was a developer or a financier in any way, shape or form involved with purchasers of lots or financing or “anything”. “It was a letter that had, as I understand it, nothing of substance in there”.
206 Mr Beard said he did not, as he understood it, give the appearance of having read the letter and he denied again that he read it. He said he obviously glanced at it, but that did not amount to reading it.
207 Mr Beard said that any statement by Mr West that he “appeared” to read the letter would be covered by his statement that he had glanced at it, and he agreed that Mr Keel, after handing over the letter, left the room in which Mr Gould, Mr Beard and Mr West were and, subsequently, returned.
208 Mr Beard was asked whether before Mr Keel left the room or after he returned to it, Mr Gould said words to the effect:-
“This letter proves nothing. If we don’t trust Mr Baird how we can rely on his statement that this is the only correspondence?”
He said he had no present recollection of that conversation, referred back to paragraph 58 of his witness statement and said that he recalled that he and Mr Gould were left in the room alone, Mr West having left, and that as between him and Mr Gould the following was said:-
“A. My recollection about the entire negotiations and where we got to and then reflecting on being in the law office of Clayton Utz and a very nice 1 O’Connell Street and that there must be, given the assurances that have been given to us, ability to rely on those representations and the deal must only be in relation to a mechanism whereby we can protect future events that may happen”: Tp.115.
Mr Beard said, when it was put to him that there was nothing of that detail in his statement, that he “paraphrased the conversation”, and he went on that the conversation was “reflecting on that we must have been told the truth”.
209 Mr West made no reference to this conversation and it is not consistent with his evidence. Notwithstanding, Mr Beard’s assertion that Mr West had left the room, Mr West gave no evidence to that effect.
210 Mr Beard said that he did not consider that Mr Keel was making any statement on instructions, and he gave various evidence as to what he thought, possibly, Mr Keel was seeking to say and the knowledge he had apart from his instructions.
211 At Tp.118, Mr Beard said that he could not recall whether Mr West was in the room while he had his conversation with Mr Gould, although he seemed to recall it was just Mr Gould and himself. He did not recall Mr Gould saying anything specific to Mr Keel when Mr Keel returned to the room, nor whether Mr West was in the room when Mr Keel returned. Mr West has set out what he alleges was said in paragraph 24 of his witness statement.
212 At Tp.119, Mr Beard said that it would not cause him to doubt the accuracy of his evidence that he did not read the letter, if Mr Gould’s evidence was that he did.
213 At Tp.120, Mr Beard said that he regarded the production of the letter as an integral part of the formation of the confirmation in his mind of the assertions previously made by Mr Baird. The importance of this answer was that he regarded the matter as one of confirmation of the assertions previously made by Mr Baird. It was put to him that he could not have done so without reading the letter, with which he did not agree.
214 Mr Beard was asked about the final paragraph of his file note of 17 June 1999. He agreed that the proposal being contemplated was the exercise by the defendant of the option to take the plaintiff out of the joint venture and that he was making inquiries as to the defendant’s capacity to do that. In that context he needed to be satisfied of potential financing of the Gray & Perkins facility and development finance. It was put to him that development finance was necessary to carry the subdivision on after the plaintiff had been taken out, to which he replied:-
“A. I qualify my yes with that this question was about finding out exactly whether someone in the nature of a Forrester Kurts was involved. If at that point of time I had been told that sort of information, then our thoughts as to a potential settlement would have changed significantly”: Tpp.124-125.
Thus, so far as settlement was concerned, Mr Beard was saying that his attention was directed to the question whether another developer such as FK was involved, and that had it been the settlement negotiations would have been “changed significantly”. This did not seem to be in issue and, as I have said, it is a probability which strongly favours the plaintiff’s version. I accept Mr Beard’s evidence on this point. As with Mr Gould, I have no doubt that Mr Beard would have done everything possible to ensure that the most successful deal to the plaintiff was achieved and, had he known of the involvement of a developer a far better deal could have been struck.
215 Mr Beard insisted that his letter of 7 June 1999 was written against the background that the plaintiff would remain in the project, which, in my opinion, must be right, and, at Tp.126, he was referred to the letter at p.245 of the Tender Bundle, being that written by him on 21 June 1999, which he agreed was certainly a buy out settlement offer. He said that the negotiations had evolved to that point and there was no qualification in the letter about it being necessary, so far as the plaintiff was concerned, for the defendant to have other finance available.
216 He agreed that in the second paragraph of the letter he noted the failure of the defendant to provide details requested and promised by it “in relation to financial capacity to complete settlement”. In answer to a question as to whether those details were ever provided, he said that he believed that in part they were by the letter of 15 June 1999, and further that the letter of 21 June 1999 was:-
“.. a basis of some commercial terms under which we would be prepared to settle and there would be some more legal documents surrounding the final settlement, which is what was previously - which was subsequently put into conversations with Peter West from Norton Smith, which became Coudert Brothers, and Clayton Utz to prepare a final transaction.”
The reference back to the letter of 15 June 1999 caused Mr Beard some difficulties because he regarded parts of it as evasive, which was a continuing situation, and to overcome which he sought and would have insisted on warranties. On the other hand, there is his evidence that if he had been aware that a developer may replace the plaintiff that would have changed the position in relation to settlement and, as I have said, I accept that evidence as truthful and inherently probable.
217 Mr Beard said that his present recollection was that during that telephone conversation he did not say to Mr Baird words to the effect that the plaintiff was concerned that the defendant had “a substantial buyer in the wings”. He agreed that in the second paragraph of the file note he had raised with Mr Baird that the plaintiff needed details as to whether there had been indications or expressions of interest in relation to sales of any of the land.
218 Mr Beard had no recall of any conversation with Mr Baird about these matters, save that he denied that Mr Baird told him that other than some discussions with builders, the defendant had not engaged in or concluded any arrangement to sell any part of the land either in a developed or an undeveloped form.
219 At Tp.130, Mr Beard confirmed that he did not recall the letter from Dixon Homes being handed back by Mr Gould to Mr West or Mr Keel on 15 July 1999, and he was only prepared to say that he had no present recollection of Mr Gould’s saying to Mr Keel:-220 At Tp.132, Mr Beard said that the negotiations on 15 and 16 July 1999 were carried on on the basis that there was no developer or financier, which would replace the plaintiff, and had there been the plaintiff would have required a different arrangement to that to which it agreed in the Heads of Agreement. He said that nobody who took part in the meetings on 15 and 16 July could, to his perception, have been in any doubt about that, and that FK, in one of its many manifestations, was known, at least by him and Mr Gould, to be a large developer. That is evidence I accept as inherently probable. He continued that had its involvement been revealed, the plaintiff would not have gone ahead with the Heads of Agreement, so far as either he or Mr Gould was concerned, and:-
“If we don’t trust Mr Baird how can we rely on his statement that this is the only correspondence.”
“Q. If the perception was that the involvement of Kurts in one of its manifestations was revealed by the bank guarantee, then the whole deal would be off, would it not?
A. Yes.
Q. The long and the short of all that must be, so it seems to me, that if the perception was, as you understood it, once that bank guarantee was produced, the whole deal went off?
A. Yes.
Q. As you understood it, it was known by the parties as at 16 July that it would have gone off if that was the position; namely that Kurts was involved?
A. If Kurts was involved, yes. Or like developer”: Tpp.132-133.221 He further agreed that there would not be a settlement until representatives of the plaintiff had the opportunity to look at a number of documents, including the bank guarantee, and once it was seen, if he had been attending on settlement, that there was a bank guarantee with FK’s name on it, settlement would have been off: Tpp.132-133.
222 Mr Beard did not agree that that was the perception of the defendant because it was his recollection that Mr Keel said that it could obtain specific performance of the letters of 21 and 22 June 1999, although he also agreed that Mr West, in his opening response, rejected that that would be an ultimate basic position, although it would be a matter for the decision of the Courts. He agreed Mr West rejected the proposition and, at Tp.134, he said that at some stage during the discussions over the two days of 15 and 16 July Mr Gould said:-
“Quite simply our position is that we do not trust Terry Baird. We have heard along the grapevine that you have a developer such as Villaworld behind you, and this is not acceptable to us.”
223 He said that to the best of his recollection there were rumours that Villaworld or Villa Homes was looking at land acquisitions in the area, but he could not recall Mr Gould asserting that there was a grapevine rumour that the defendant had a developer behind it.
224 It will be remembered that at paragraph 20 of his witness statement, Exhibit C, Mr West said that Mr Gould had said:-
“Quite simply, our position is that we do not trust Terry Baird, we have heard along the grapevine that you have a developer such as Villaworld behind you and this is not acceptable to us.”
225 Mr Beard said that he gave no credence to the grapevine rumour, and that it was during the course of discussions that it was rejected by various parties that there were any developers involved in the project. He said he was referring to Clayton Utz and the defendant “collectively”.
226 Mr Beard said, Tp.136, that he did not recall specifically Mr Gould’s saying, at the opening of the meeting, that he was deeply suspicious about what was happening and wanted to get rid of this whole thing and move on. He said that it was possible that Mr Baird made reference to offering a further payment if the defendant sold the land other than as developed residential lots; that he had no intention of selling the land en globo; and that his intention was to develop it. He did not recall either Mr Gould or him saying that the plaintiff was seeking undertakings that the defendant would not sell to Villaworld, Villa Homes or Stocklands, his belief being that they were not referred to in that context. Ms Lovell’s contemporaneous diary note satisfies me that they were discussed in that way.
227 Mr Beard was taken through various further conversation, which was put to him and he agreed that various things may have been said.
228 At Tpp.140-141, Mr Beard said, although with some qualification, that he had a recollection that Mr West said that his clients were concerned that a deal had already started to sell developed land down the track; and that there had been a deal initiated or started, after the plaintiff settled with the defendant.
229 In paragraph 59 of his witness statement, Exhibit B, Mr Beard made his position clear as to what he would have done if a developer was disclosed as being involved. The position would have been quite different. Although, as with Mr Gould, there were some inconsistencies in Mr Beard’s evidence and some portions I did not accept, I am satisfied that Mr Beard accepted the misrepresentations and conduct as showing that there was no developer involved and, having been satisfied there was no purchaser in the wings, was prepared to negotiate on those bases. His evidence is supportive and corroborative of the matters relevant to reliance, upon which I accept Mr Gould.
The Evidence Of Mr Peter Gordon West
230 Mr West acted for the plaintiff in negotiating and drafting the Transaction Documents, whereafter he had little or no involvement in the matter until 15 June 1999. On that day he received a telephone call from Mr Gould and he annexed to his statement various facsimile transmissions from Clayton Utz to Norton Smith & Co dated 25 and 28 June 1999, and a facsimile transmission from Coudert Brothers to Clayton Utz dated 28 November 1999.
231 The facsimile transmission of 25 June 1999 referred to a settlement of the matter, and that of 28 June 1999 noted that settlement was to take place at 5 pm on Wednesday, 30 June 1999.
232 The facsimile transmission from Norton Smith & Co of 28 June 1999 referred to that correspondence and confirmed that the letter of 22 June 1999 from the plaintiff to the defendant was predicated on the assumption that the defendant intended to complete the development project and to sell the subdivided lots by retail sale. It went on to assert that it was agreed between Mr Baird and Mr Gould that if any sale on terms other than subdivided retail sale terms was concluded, then a fifty per cent profit share would apply for the benefit of the plaintiff.
233 The facsimile transmission continued that this was fundamental, and that certain other matters had not been addressed. It said that other issues to which consideration would have to be given included the payment of the plaintiff’s legal costs; the plaintiff’s confirming in the agreement the various representations and warranties made to the defendant regarding the progress of the development project and:-
(a) that the plaintiff had no plans to sell the property other than on a subdivided retail basis;
(b) the status of the approvals and consents required for the project;
(c) the status of marketing and sales of the property;
(d) that the plaintiff was not currently in discussions with any party, other than Mike Rowley and Holstac, regarding the refinancing, sale or restructure of the development project; and
(d) the other matters set out in the defendant’s facsimile transmission of 15 June 1999 to the plaintiff.
Further, it was stated that confirmation of the first mortgagee’s consent to the arrangements was required.
234 On 29 June 1999, Mr Keel sent a facsimile transmission to Mr West referring to his of 28 June 1999 and noting surprise at its contents, on the bases that it was never agreed between the parties that if any sale on terms other than the subdivided retail sale terms was concluded then a fifty per cent profit share would apply for the benefit of the plaintiff, and that the profit share is not part of the “deal”, not only because it is not reflected in the letter of 22 June 1999, but because it was never agreed between the parties. It was submitted that the lack of agreement was evidenced by the fact that the plaintiff sent the letter of 22 June 1999 to the defendant and if it had been a term of the agreement, which was so fundamental, it would have been included therein.
235 Further, it was stated that it had already been agreed between the parties that a bank guarantee might be provided to secure $500,000, and the bank guarantee should be for $575,000 to make provision for any interest that might accrue.
236 The assertion was then made that an agreement had been reached between the respective clients and that settlement should take place at 5pm on the following day.
237 On the same day, Mr West responded that the plaintiff remained adamant that the terms upon which agreement had been reached were those set forth in his facsimile transmission of 28 June 1999.
238 There was then much correspondence between the parties leading up to the meeting on 15 July 1999.
239 Mr West attended that meeting, which he said, paragraph 18 of his witness statement, commenced with an opening of the defendant’s position by Mr Keel to the general effect that the defendant had a concluded deal with the plaintiff, and asserted that the defendant would be successful in any claim for specific performance and, moreover, that it could be successful in having the Transaction Documents set aside on the basis of duress and unconscionability. In these circumstances he said the defendant was present to settle the dispute on the bases agreed in the letters of 22 and 23 June 1999.
240 He said that later in the day Mr Keel, “in a lawyer to lawyer conference between himself and myself”, made similar points in words to the effect of:-
“Peter, I want to tell you something, you may not know that Clayton Utz has a lot riding on this because we are owed a considerable amount of money by Howship. We have to achieve a resolution, we have taken counsel’s advice about the enforceability of the original transaction documents. Counsel advises that we have a very good case for setting aside the original documents. I have a draft Statement of Claim sitting on my desk and I have instructions to file that tomorrow morning if we cannot get a resolution today.”
Mr Keel denied that he said the words in the first sentence. I have been concerned about this conflict in the evidence, because I do not consider that Mr West would have fabricated his version, and I do not believe that Mr Keel would have made an untruthful denial. In the end the resolution of the case does not depend on a finding as to who, on this point, was telling the truth, and, in the somewhat highly charged atmosphere of the meeting I think there was room for genuine error on the part of either Mr West or Mr Keel.
241 Mr West continued that after Mr Keel’s opening he said that the plaintiff was not concerned with issues of duress and unconscionability, which “simply will not run at all”, and that the plaintiff’s purpose for the meeting was “to reach a sensible commercial settlement”.
242 In paragraph 20, he said that as he was about to commence his opening Mr Gould “jumped in and said”:-243 Mr Keel responded by asking what that had to do with the plaintiff, and:-
“Quite frankly, our position is that we do not trust Terry Baird, we have heard along the grapevine that you have a developer such as Villaworld behind you and this is not acceptable to us.”
244 Mr West asserted that he replied:-
“We are here to negotiate a deal and what arrangements we make on our own account are of no relevance.”
“This issue is fundamental. If some developer is going to take our place in the project and make the profit that CVC would otherwise have made, then CVC will simply stay involved in the project and make that profit itself.”
245 I pause to repeat that a substantial issue between the parties was whether there was, at this meeting, any reference to a developer. This was asserted by the plaintiff and denied by the defendant, the defendant’s case being that the reference was not to a developer or financier but to a “purchaser in the wings”. I have noted the evidentiary conundrum for both parties to which this gave rise.
246 Mr Keel, according to Mr West, continued that the defendant could not remain involved in the project as the parties have proved they could not work together, whereupon Ms Lovell asked what right the plaintiff thought it had to remain involved; that it did not own the land; that it did not have the ability to take over the project; and that all it had was a mortgage “and we will have that set aside tomorrow if we need to”.
247 Mr West asserted that Mr Gould continued:-248 Mr West added, based on the assumption that the only finance available was from Mr Fidler or “the Lotto man”:-
“Quite frankly Terry, we are concerned that there is something more to this. That someone is involved in the project that we do not know about. You have told us that the Lotto man and Tony Fidler’s father-in-law were providing funding and we are satisfied with their involvement but we will not accept it if there is another developer or someone like that involved coming in as a joint venturer or equity investor. In such a case we would simply stay in the project ourselves.”
249 It became clear to Mr West that there was a tension between the parties, which led them to separate into different rooms, whereafter various propositions were put and during that time Mr West said to Mr Keel:-
“We also understand that you will need to obtain debt finance from Metway or some other bank to complete the project and we do not have a problem with you obtaining such debt finance.”
He said that Mr Baird said:-
“You have my word that there is no one else involved in the project”
and that Mr Keel said:-
“Let me just tell you something. I have known Terry Baird for a long time. Terry is one of those straight down the middle fellows, his whole life is wrapped up in this project, it means everything to him. He just wants to get on and conclude it. He is an honourable man but he has reached the point where he just cannot work with Vanda and Sandy. So you can be sure that if Terry tells you no one else is involved in the development that you can rely on it.”
“It must be obvious to you Peter, my clients have a fundamental mistrust of Terry Baird and in particular as to his statements that no other developer is involved in the transaction.”
250 The point thus far reached on 15 July 1999, on the basis of Mr West’s evidence, was that he was making it as clear as could be that the plaintiff, and therefore Messrs Gould and Beard, had a fundamental mistrust of Mr Baird, particularly in so far as he was asserting that no other developer was involved in the transaction.
251 Subsequently Mr Keel said to Mr West that Mr Baird had told him he had a letter from a small builder expressing an interest in possibly purchasing some lots and that that letter was being faxed “so that we can table it for the sake of completeness”.
252 Thereafter, paragraph 23 of Mr West’s statement, the letter was produced, Mr Keel saying it was being tabled for the sake of completeness as the only correspondence the defendant had had with any builder or developer in relation to the sale or proposed sale of any lots in the project. Mr Keel then left the room and Mr West showed the letter to Messrs Gould and Beard “both of whom appeared to read it”. Upon Mr Keel’s returning to the room, paragraph 24 of Mr West’s statement, Mr Gould handed the letter back to him saying that the letter proved nothing:-
“If we don’t trust Mr Baird how we can rely on his statement that this is the only correspondence?”
253 Mr West asserted that Mr Keel replied that the letter had been tabled for the sake of completeness and constituted the only correspondence between the plaintiff and any builder or developer in relation to the sale of lots in the project.
254 Thereafter Mr West dealt with the process of negotiation on the first day, which he said centred on the issue of a mechanism or formula for the calculation of profits payable to the plaintiff from the development in the event that the defendant was presently negotiating with a developer for the bulk sale of lots in the future. He referred to the matters discussed and that during the last hour of that day a further issue was raised, namely whether it would be simpler and more effective to substitute payment by the defendant of a further sum to the plaintiff in place of the profit share mechanism which had been discussed. Ms Lovell said that she would prepare a mechanism which would enable the plaintiff to have the comfort of knowing when any discussions with a developer commenced, if in fact a bulk sale of lots happened at a later date.
255 There were various discussions on that day and, on the morning of 16 July 1999, Mr Keel said that overnight Mr Baird had looked at his financial position and simply had no more money to pay the plaintiff in lieu of the profit share. Discussion then moved to the defendant’s granting the plaintiff options to purchase development lots as an alternative to its paying the plaintiff a further sum to dispense with the profit share mechanism. Negotiations for the rest of the second day centred on that issue and, ultimately, the Heads of Agreement were prepared and signed between 8 and 9 pm. Mr West annexed further correspondence to his statement and, in paragraph 36, said that he was very familiar with the use of bank guarantees in the settlement of commercial transactions in Sydney and that the usual practice is for the party providing such a guarantee to furnish a copy to the accepting party in sufficient time prior to settlement to enable any problems with the guarantee to be sorted out in a timely way to allow settlement to take place as scheduled.
256 In cross-examination Mr West recalled the production of the letter on 15 July 1999, which he said he read when it was produced. He said Mr Gould read it and that it was his understanding that Mr Beard read it: Tpp.151-152. That understanding arose from discussions that took place later between Mr Beard and him, in which Mr Beard told him that the letter did not assist and did not prove anything. Mr West agreed Mr Beard was sceptical about the usefulness of the letter and whether the tabling of that one letter was sufficient to disprove the involvement of anyone else, any other builder, developer or purchaser in the project. Mr West said he had that discussion with Mr Beard on 15 July 1999.
257 Mr West was asked whether Mr Gould said that the letter proved nothing. He said he thought that Mr Gould was firm in saying that it was not conclusive. He agreed Mr Gould may have said that if the plaintiff did not trust Mr Baird, how could it rely on his statement that this was the only correspondence.
258 Mr West was referred to the facsimile transmission he sent on 28 June 1999, which he said was drafted conformably with his instructions, and to the assumption on which it asserted the plaintiff had proceeded. He was then taken to the “other issues” referred to in it and, so far as the warranties were concerned, he agreed that they were “a strong requirement” of Mr Baird: Tp.156. The question then arose as to why the warranties did not find their way into the Heads of Agreement.
259 Mr West said Ms Lovell drafted them and he read them before they were signed by the plaintiff. He agreed that none of the warranties in the facsimile transmission of 28 July 1999 were included, but he said the requirement for them was not abandoned and, when it was put to him that they were not insisted on, he said:-
“They did not find their way into the Heads of Agreement but that doesn’t mean that they were abandoned or not insisted upon”,
although he agreed, reasonably enough, that the plaintiff did not insist that they actually went into the Heads of Agreement.
260 Mr West said that he did not advise either Mr Gould or Mr Beard that the Heads of Agreement did not include the warranties, but that was not because he assumed that they had been read by them.
261 Mr West agreed that he read the Heads of Agreement, that there was no mention of the warranties in them, but that at some stage the plaintiff had wanted the warranties in written form, and clearly it was intended by Mr Beard and him that written warranties would be needed. He agreed that Mr Beard wanted the warranties recorded, although he did not surmise that that was because he did not trust Mr Baird as at 28 June 1999.
262 He accepted that after that date there was a lack of trust between the parties, particularly on the topic of bulk sales, although he could not recall any lack of trust on the issue of whether a developer was involved: Tp.160. This was an important piece of evidence, because it focussed on the difference between a developer, which on the view I take had been put to rest by the representations and conduct, on the one hand, and the purchaser in the wings, which, in my opinion, was the focus of discussion at the 15 - 16 July meeting.
263 He said that by that meeting Mr Gould and Mr Beard distrusted Mr Baird’s statements that there was no purchaser of bulk lots in the wings, although he could not recall when that issue was raised.
264 Mr West agreed that after the meeting resumed following lunch on 15 July 1999 he said that there was still a perception of suspicion; that his clients remained concerned; that there was a lack of trust on both sides; and that his clients were concerned that a deal had already started to sell developed land down the truck. He said he had one concern, namely that the first sentence to the effect that there was still a degree of suspicion should not “stand alone”, and that he thought he was making that statement in the context of bulk sales, “which ties in with the second half of the statement”. Thus he saw the focus as being on sales.
265 Mr West said he did not have a recollection of saying to Mr Keel:-
“Vanda Gould is still suspicious that there is collusion between Terry Baird and a builder. Vanda is sure that Terry Baird also said that there would be sales to buyers other than builders, and he thinks a profit share should kick in if there are sales.”
He said he did not think the word “collusion” was used.
266 He agreed, Tp.164, that he said to Mr Keel that he had two propositions to put to him, namely that the plaintiff receive some extra money on a deferred basis “maybe over more than twelve months if a profit share is too hard”, or that the plaintiff would take the defendant out. He said it was most likely that was said on the 15th and not the 16th, and he agreed that generally in reply Mr Keel said that if the plaintiff’s real concern was that there was a purchaser in the wings, some reporting mechanism could be put in place whereby the defendant notified the plaintiff of any sales on a quarterly basis.
267 At Tp.166, Mr West denied that when Mr Keel produced the Dixon Homes’ letter he said that his instructions were that it was the only correspondence that the defendant had had from a potential purchaser of the land. He recalled that, after the letter was handed over, he met with Messrs Gould and Beard and showed them the letter. He handed it to Mr Gould and repeated Mr Keel’s statement to them. There was a discussion between the three, whereafter Mr Keel returned and, prior to that happening, it was clear in his mind that Messrs Gould and Beard read the letter whilst he was in the room with them. Mr Gould handed the letter back to Mr Keel and said in essence “this letter proves nothing”.
268 Mr West agreed that Mr Gould said to Mr Keel words to the effect:-269 He recalled Mr Keel responded, at least, that the letter had been tabled for the sake of completeness, but not that Mr Keel said that his instructions were that that was the only correspondence that the defendant had had from a potential purchaser of the land. Mr West adhered to his version that Mr Keel said:-
“If we don’t trust Mr Baird, how can we rely on this statement that this is the only correspondence?”
“It’s the only correspondence between my client and any builder or developer in relation to the sale of the lots.”
270 Mr West said that Mr Gould spoke in a manner which indicated to him that Mr Gould meant what he said, and he had no impression that in saying those words to Mr Keel Mr Gould was dissembling.
271 Mr West agreed that he never wrote to Mr Keel complaining that what he said was inaccurate, although he was aware Mr Gould did and he thought he saw a draft of that letter. He did not see the reply, so far as he could recall, in which Mr Keel strongly denied the assertions of Mr Gould. Mr West said Mr Gould told him he wanted to send the letter because he felt he had been misled and he was “clearly very, very annoyed about it and that’s why he wanted to send it himself”. The letter, which was written on 6 August 1999, provides some corroboration for Mr Gould’s general assertion that he was misled. It would be strange for a person of his experience of solicitors and in litigious matters to write directly to the solicitor on the other side at a time when Coudert Brothers were still acting for him in this matter, unless he had a very real sense of grievance about Mr Keel’s conduct, whether or not justified. It may be said that the letter was merely self-serving and, of course, to some extent it was. But a person in Mr Gould’s position would have appreciated that a simple complaint could just as easily have been made by his solicitors. That he went the extra step adds some weight to his complaints. It is by no means conclusive and should not be asked to bear a weight it cannot stand. But it is helpfully indicative.
272 At Tp.172, Mr West said that he supposed it was correct to say that it was appropriate for the plaintiff to sign the Heads of Agreement as ultimately drafted.
273 Mr West agreed that Mr Keel said words to the effect that if the plaintiff’s real concern was that there was a purchaser in the wings, Clayton Utz could perhaps put some kind of audit mechanism in place whereby the defendant notified the plaintiff of any sales on, say, a quarterly basis, including giving notice of the negotiations leading to the purchase.
274 Mr West had no recollection of saying that he was doubtful that an audit mechanism would work, but that he was keen to pursue it as it was on the table; although he could remember discussion about the difficulty in an audit process. He also recalled that Mr Keel had said, in relation to the claim by the plaintiff for an additional $500,000, something to the effect that more money would be hard to find, although he was by no means certain of the precise words Mr Keel used.
275 There was discussion about some kind of mechanism, which would provide the plaintiff with information about when negotiations commenced for a purchase. There was further discussion about the mechanism on the following day, namely 16 July 1999, on which day Mr West suggested, the suggestion having come from Mr Beard, that the defendant would grant the plaintiff an option to purchase fifty developed lots at $100,000 each over the life of the project. That possible solution then became the focus of discussion.
276 The heavy focus on future sales and the way in which that situation should be dealt with further satisfies me that was the matter with which the parties were basically troubled. Worries, so far as the plaintiff was concerned, about a developer or developer/financier had been put to rest by the acceptance of the misrepresentations.
277 Towards the end of 16 July 1999, the Heads of Agreement were prepared. At Tp.181, I asked Mr West certain questions about paragraphs 22 and 23 of Exhibit C. He agreed that it was obvious to him, as a solicitor, that in paragraph 22 Mr Keel was communicating to him his instructions and that when he handed the letter from Dixon Homes to him he assumed that was pursuant to the instructions to which he had referred earlier.
278 At Tp.182, Mr West said in relation to the problems which he understand would have arisen if the bank guarantee had been produced and identified the involvement of FK:-
“Q. From what had transpired at the meeting, it was your perception that Mr Keel at least would have appreciated that fact?
A. Certainly, based upon my recollection of where the discussions got to on the 15th, about CVC not accepting that there would be any other developer actually involved in the project in its place, I assume it would have been obvious to anyone that once we became aware of the involvement of the developer, that would be an issue to us. I am not sure if I have answered your question properly or not, your Honour.
Q. When you say ‘to anyone’, you include in that Mr Keel?
A. Yes.
Q. Of course settlement could not take place until the bank guarantee had been looked at by you?
A. That was the reality yes. But that was not the way it seemed to play out in terms of Clayton Utz being reluctant to hand it over”.
279 Mr West agreed that there could not have been a settlement until he had been satisfied about the bank guarantee, and that in satisfying himself of that he would have learnt of the existence of FK, which would have had a significant impact on settlement, namely that it probably would have gone off: Tp.183.
280 Mr West said that the only representation, which could have been made by Clayton Utz, was what was said by Mr Keel when the letter was handed over: Tp.183:-281 At Tp.184, Mr West was referred to a letter from Ms Harpur of 5 August 1999 in which it was stated, inter alia:-
“A. Plus what I deduced, - if I can use that word - from statements Mr Keel made at the very beginning of the first day, which I recorded in my statement, the statement along the lines of, ‘you can trust Terry Baird I have known him a long time’. But in the context of actually handing over that letter, he made the statement that I have attributed to him.”
282 Mr West was then asked:-
“It was at this meeting that your Mr Keel tabled a letter and represented that …”.
283 At Tp.185, Mr Hughes raised with Mr West that the sentence said:-
“Q. Do you rule out completely that Mr Keel said to you ‘my instructions are that this is the only correspondence that Howship has had from a potential purchaser of the land’?
A. Are you - is your Honour focussing on the words, ‘my instructions are’, or the remainder of the sentence?
Q. I was focussing on each and every word, actually.
A. Well, in as far as we are talking about the words, ‘my instructions are’, it is certainly conceivable that he prefaced his comments with those words, but I don’t recall that. But the remainder of the words in that sentence aren’t in accordance with my recollection, which is, of course, what I have set out in my statement.
Q. It is conceivable at least that he said ‘my instructions are’, whatever?
A. That’s conceivable, yes.
Q. And would be totally consistent with what he told you earlier in the day?
A. Yes.”
“It was at this meeting that your Mr Keel tabled a letter from a builder, and represented that the letter was the only communication between Howship and any builder or developer.”
284 Mr West agreed that that constituted an unequivocal assertion of a representation that the letter was the only communication from any developer or builder, and that his version of Mr Keel’s words was materially different, the material difference being the inclusion in his version in paragraphs 23 and 24 of his statement of the words in relation to the sale of “lots in the project”, and the omission of that qualifying point from Ms Harpur’s letter.
285 Mr West said that he agreed that it was likely that he did not see the letter before it was sent, which left outstanding how the differentiation occurred.
286 At Tp.186, Mr West said he was certain that Mr Gould did not say on 15 July, at the opening of negotiations, that he was deeply suspicious about what had happened and:-287 He agreed the word “suspicion” was used in the context of the pre-sale of lots, but added:-
“I want to get rid of this whole thing and move on.”
I think that Ms Lovell’s notes show that Mr West’s recollection was faulty in this regard.
288 Ms Lovell’s contemporaneous notes, Exhibit 18, state beside what she alleged Mr Gould said:-
“.. certainly the words ‘get rid of this whole thing, move on’ I don’t believe Mr Gould would have said that.”
“- deeply suspicious about what is happening.
- want to get rid of whole thing and move on.”
289 Mr West recalled that at the opening of the meeting of 15 July 1999, Mr Keel said that the discussions were to have no effect on the defendant’s primary position that an enforceable settlement arrangement was reached on 23 June 1999, and that the defendant was prepared to challenge the Transaction Documents if necessary. He did not recall Mr Gould saying that the plaintiff rejected that, nor his saying that that was an unjustifiable position. Mr West said that he stated he did not agree that the settlement arrangement of 23 June 1999 was enforceable, and he added that he indicated that the plaintiff was not concerned about the likelihood of success in having the Transaction Documents set aside.
290 Mr West denied that either Mr Gould or Mr Beard said that the plaintiff was seeking undertakings that the defendant would not sell to Villaworld, Villa Homes or Stocklands, adding that the word “undertakings” “would not have been used”: Tp.187. Once again the recording of these matters by Ms Lovell in her notes indicates to me that Mr West’s recall on this point is mistaken. He added that Mr Gould and/or Mr Beard said they were concerned that the defendant was in discussions or had made some arrangements perhaps “with a Villaworld in relation to the sale of lots” and, if that happened to be the case, the plaintiff wanted a share of the profits. He agreed that Mr Baird said that he was not contemplating the sale to Villaworld, Villa Homes or Stocklands, and he had no recollection of any statement by Mr Baird about the quality of homes and the acceptability of a warranty.
291 Mr West agreed a warranty had been discussed and that the terms of proposed warranties were set forth on page 2 of the letter of 5 July 1999, but he said that the reference to that letter did not lead him to recall “in any way” any questions by Mr Beard about a warranty.
292 Mr West agreed that Mr Beard referred to the fact that it would be possible to sell off part of the land.
293 Mr West agreed that there was discussion by Mr Baird about the development of the land, and that either Mr Gould or Mr Beard said that once there was a purchaser, whether for one block or many, this changed the risk profile. He thought it highly unlikely that Mr Gould said anything about the plaintiff’s having the money to do the development, although it had saved the whole project from being sold off by the first mortgagee. He was certain Mr Gould did not say:-
“If you found a better financier OK, but if they will be buying land which changes the risk profile, that’s different.”
294 At Tp.190, Mr West denied saying that the plaintiff still wanted the profits that would be made on developed lots, if they were sold in bulk, and he added that to the extent that the statement seemed to refer to all the profits, he could not have said anything like that. However, he agreed there was a long negotiation about profit share, which came to nothing, and that it was replaced by the concept of an option in favour of the plaintiff. He agreed that both the profit share concept and the option concept were devised as a form of protection to the plaintiff against the contingency that the defendant had in mind selling the land “to a purchaser in the wings”.
295 Mr West denied that Mr Keel said that the defendant had no real possibility of developing the land, and that if it was encumbered by an obligation to pay the plaintiff a share of the profits once it was developed and sold, the defendant could never get a financier interested.
296 Mr West denied, for the reasons he gave, the conversation attributed to him and put to him at the foot of Tp.191.
297 At Tp.194, Mr West was asked about his being present with Messrs Gould and Beard after Mr Keel had furnished the Dixon Homes’ letter to them, and he agreed that some earlier transcript (at Tp.168), was that when Mr Gould said that he did not trust Mr Baird and how could he rely on his statement, he was not dissembling. Mr West elaborated on this, at Tpp.194-195, thus:-298 In re-examination, Mr West’s attention was drawn to the questions about the absence of warranties in the Heads of Agreement. He had denied that it was obvious to him, when he read them, that warranties which had been demanded firmly were not present, and he was asked why it was not obvious, to which he replied:-
“Q. In forming the impression that he meant what he said and that he wasn’t dissembling, did you have in mind the tone of voice and the demeanour of Mr Gould when he asked that question beginning, ‘if we don’t trust Terry Baird’?
A. Yes, his general demeanour led me to that conclusion.
Q. Did you also have in mind that his question and the firmness with which he answered it was not at odds with anything that had taken place between you, Mr Sandy Beard and Mr Gould, during the ten or twenty minutes that you were together between Mr Keel’s two appearances?
A. If I could give my answer in a somewhat different way. His statement was consistent with the discussions we had during that period.”299 This was an answer, which Mr Rares submitted was significant and upon which he placed much weight. His submission was that the plaintiff had been told that there was no developer to be involved in the project and, therefore, the primary issue for decision in the negotiations was the amount for which the plaintiff was to be paid out in those circumstances and, in the further circumstance, that the absence of a developer, in essence, led to the conclusion that the sources of finance disclosed by Mr Baird would be insufficient to enable the development to go forward. It may be that it shows that in the lengthy, tiresome, ill-humoured meeting, with all the suspicion and scepticism that had been generated, there was discussion about developers as well as buyers. It may be, however, that Mr West was simply referring to the state of mind of his client, viz that the developer issue had long since been resolved by the representation, and the only issue was that of the buyer. I favour that view, but, whichever is taken, I do not think that it affects the plaintiff’s case. If “developer” was mentioned it supports the plaintiff’s position and leaves a very difficult situation for the defendant, because there clearly would have been an obligation on it to correct the mistake, which the defendant had induced. If it was not, as I think is more probable, I do not consider it detracts from the plaintiff’s position for the reasons I have sought to give, viz that the plaintiff had, as a result of the inducement, put that matter to one side and was concentrating on the existence of a purchaser. The existence of this focus is underlined by the amount of time taken at the meeting in discussion about how future sales could be monitored, supervised and resolved.
“One needs to keep in mind that the heads were signed at the end of two very, very tiring days. The entire second day had been spent basically talking about the option that was proposed and a large slab of the first day had been spent talking about profit share and developed and undeveloped land and sale of bulk lots and the like. I think part of the answer is that I was simply distracted from the warranty issue by everything that had begun and in the long tedious process afterwards. But secondly, and part of the reason that happened, was I certainly, from the beginning of the discussions on the first day, drew a distinction between two different issues.
One was the involvement of a developer in the project itself, and the other was the sale of bulk lot issues, and in my opinion we, being my clients and I, dealt with those two issues separately and, to be quite honest, I accepted the situation that was put to us that there was no developer to be involved in the project and, rightly or wrongly, having accepted that, went on to deal with the other issues. So that warranty simply was an oversight in the heads because of something that we dealt with and accepted and moved on from. The heads were dealing with the other issues .” (My emphasis.)
The Evidence Of Mr Baird
300 In his witness statement of 6 April 2000, Exhibit 1, Mr Baird traced his directorship of the defendant, the acquisition of the subject land, and the obtaining of finance from the Gray & Perkins mortgagees. He also referred to the entry into the Transaction Documents on 18 March 1999 and to various meetings thereafter with representatives of the plaintiff. He traced the history of the development, and the problems which arose between the parties, leading to a situation by May 1999 that it was highly unlikely that they would be able to continue to work together.
301 He referred to the letter of 12 May 1999 in which the alternatives, including the defendant’s arranging for the plaintiff’s interest in the development to be acquired by a third party, were raised. This was a paragraph on which great emphasis was placed by the defendant in the proceedings. However, it has to be read in context. What was being offered by the plaintiff was that the “interests in the development” were to be acquired by a third party. Inherent in that was the extent of the interests, which existed, and that depended, so the plaintiff asserted, on the value of the land. The value of the land depended upon a number of matters. Firstly, if the defendant was unable to do more than find sufficient finance to service the costs thus far expended and not to develop it, then its value was, in essence, the amount for which it could be sold. From that moneys owing would have to be paid. Secondly, the defendant could have adopted the approach of selling some of the land to finance the development of the remainder. In these circumstances, the plaintiff wished, as a price for its interest in the development, a share of the profit derived on the sale of any such land. Thirdly, the defendant could have arranged for another developer to take the plaintiff’s place. If that had occurred then the development would have gone ahead with the large projected profits and, so the plaintiff submitted and so much was hardly in issue, this would have increased the value of its interests in the development.
302 The defendant was asserting that it did not propose to sell the land en globo but only in residentially subdivided lots and, in circumstances to which I shall refer, Mr Baird had said to the plaintiff that it was not part of his intention to sell any land en globo. This, accordingly, led Mr Gould to consider where the money may come from to carry out the proposed subdivision into residential lots. There were, he thought, two possible sources, viz the introduction of another developer or the sale of some of the land. It was submitted by the plaintiff that having been told that there was no other developer or financier interested, the only reasonable inference as to the source of further moneys was through the sale of the whole or part of the land and, if this were to occur, Mr Gould was determined to obtain for the plaintiff a share of the profits.
303 On 26 May 1999, the plaintiff gave notice of defaults alleged to have been made under the Development Management Agreement and the Development Funding Agreement and, by letter dated 3 June 1999, Mr Beard advised the defendant that failure to rectify all defaults, to the absolute satisfaction of the plaintiff by the specified time, would result in the immediate termination of the Development Management Agreement.
304 On 3 June 1999, Mr Baird wrote to Mr Gould setting out the amount he understood to be necessary to accept the second offer and, on 7 June 1999, Mr Gould wrote to the defendant. The letter is somewhat confused by some cross-examination of Mr Gould, but, on reflection, I am satisfied that what it was saying was that if the money owing by the defendant to the plaintiff was paid, that would mean that the plaintiff would no longer have the casting vote in development control group meetings, and that the importance of the defendant’s reaching agreement with a suitable provider of development finance, including agreement with a financier capable of servicing the Gray & Perkins mortgage, was that there was going to be an ongoing relationship in which the plaintiff would be involved, but in respect of which involvement it did not want to have the stigma of any subsequent financial problems.
305 It is also necessary to record that on 3 June 1999 Mr Gould had written to the defendant stating that the plaintiff had not accepted any proposal put by it as implied in the defendant’s facsimile transmission of that date and pointing out that the defendant appeared to be under a misapprehension that the plaintiff was merely a mortgage lender. The point being made was, of course, that the plaintiff had, by virtue of the Transaction Documents, a continuing interest in the development.
306 This was made clearer by the letter from the plaintiff to the defendant of 8 June 1999 in which the plaintiff set forth all its requirements, including “financial compensation for foregoing CVC’s entitlement to profits over the life of the project”. On the same day, Mr Baird wrote asking what amount was required to meet that financial loss and, on 11 June 1999, Mr Beard wrote to Mr Baird seeking information pursuant to clause 11.2(c) of the Development Funding Facility.
307 In paragraph 66 of his witness statement, Exhibit 1, Mr Baird said that he responded on 15 June 1999 to the letter of 11 June 1999, asserting:-
(b) The only financiers which the defendant had as at that date were Holstac and Mr Fidler’s father-in-law.
(a) As at 15 June 1999 the only financial assistance that the defendant was receiving was from Holstac and Mr Fidler’s father-in-law, and that neither FK nor any entities associated with it had, as at that date, provided any financial assistance to the defendant; and
308 Mr Baird went on to state that he denied to Mr Gould that there was any substantial purchaser in the wings.
309 I find it convenient to turn now to his cross-examination.
310 Mr Baird was cross-examined, firstly, about his telephone conversation with Mr Beard on 17 June 1999, and he agreed that Mr Beard’s contemporaneous note was a substantially correct version of that conversation. He recalled Mr Beard’s asking about not having received details on the capacity to settle and whether there was any ability for the financiers to service the Gray & Perkins mortgage debt. He agreed he spoke to him about Mr Rowley and Holstac.
311 At Tp.205, Mr Baird agreed that he was putting himself forward as a man of integrity and of his word and as someone who could be trusted. He said he agreed it was important to be honest in commercial dealings at all times and:-312 He agreed the exception was in his letter of 15 June 1999 to the plaintiff to which he was taken, and he was asked what parts were not truthful. He referred to the question:-
“Q. Have you always been honest at all times in your dealings with CVC, up to 16 July 1999?
A. Not totally.
Q. So that was your conduct toward CVC a departure from your ordinary standards of honesty in commercial dealings, was it?
A. Yes.
Q. When you write letters, do you always write the truth in those letters?
A. On most occasions.
Q. So there are exceptions when you decided it is in your interest not to write the truth in letters?
A. There have, or there has been an exception.”
This was hardly an auspicious start to a consideration of Mr Baird’s credit.
313 His reply to this had been:-
“A statement of all discussions, negotiations or understanding between Howship and any party in relation to the current or any contingent financing, development management or sale of the property.”
“Obviously we will have to pursue an arrangement with either a financier or some other party in order to further the development. However, there are no agreements with or arrangements in place between Howship and any party for the financing, development or management or sale of the property.”
314 He said it was not honest in that there had been discussions with FK, it being his belief that there was no enforceable agreement, at that time, with FK. He did not agree there was “a gentleman’s agreement”.
315 He was asked if there was anything else which was not true and he said he did not believe that there was anything else “that wasn’t strictly the truth”: Tp.206. His attention was drawn to the question to which I have just referred and he said, so far as FK was concerned, he believed there was the possibility of an understanding and nothing more. He denied that an exchange of letters on 1, 2 and 3 June 1999 constituted anything more than a possibility of an agreement.
316 He was referred to a letter he wrote to Mr Bill Lambert of FK on 16 September 1999, Tender Bundle p.460, in which he said, inter alia:-
“There is no suggestion that Forrester Kurts are in any way resiling from the original agreement made between us on 2 and 3 June 1999. However since the Bank Guarantee produced to CVC showed Forrester Kurts as the guarantor events have overtaken and we could well end up in a position not dissimilar to that which existed when we first visited you in May.”
317 He said that the word “agreement” in that paragraph should not have been there because, while letters had been exchanged, there was no enforceable agreement, and there was no more, in his view, than “a pretty good understanding as at 2 and 3 June with Forrester Kurts”.
318 He said he believed there was the potential for a deal to be done with FK on 2 and 3 June 1999 and that at the time of the initial discussions with it that he had proposed to sell it a fifty per cent share in the land for $9.5m. If that had occurred $6m would have been used to retire the existing mortgage and $3.5m “for our own purposes inter alia paying out CVC and attending to other commitments of the company”. He noted the counter proposal was that FK would advance the defendant $3m, and that the defendant’s reply of 3 June 1999 made it abundantly plain that it required $3.5m “on the understanding that the liability to CVC would have been approximately $1.5m at that time”.
319 Therefore, when the letter of 15 June 1999 was written, there had also been discussions in relation to the sale of at least portion of the land, which Mr Baird agreed, Tp.208, was a serious proposal. He said he did not think about it again because it was “rejected out of hand”.
320 He agreed, and it is not necessary to go into the full details of this, that there were substantial negotiations with FK, which should have been revealed in answer to the third question to which he was replying in the letter of 15 June 1999. He maintained that he did not believe that as at 2 and 3 June 1999 there was a concluded agreement with FK, but:-
“.. that we had an understanding that they may do certain things, subject to a lot of things.”
321 He was then cross-examined about a more limited agreement to provide finance to enable the defendant to pay out the plaintiff.
322 At Tp.212, Mr Baird was referred back to the letter of 12 May 1999. He agreed that the plaintiff’s interest in the development was as a joint venturer assisting with the provision of some finance as reflected in the Transaction Documents, and that he believed he owed the joint venture partner a duty to be honest to it.
323 On 7 June 1999, Mr Baird sent to Mr Bill Lambert a copy of his letter to the plaintiff, thanked him for his concern and moral support, and hoped for and looked forward to a long and mutually rewarding association. Mr Baird agreed that at that time he was keeping Mr Lambert properly informed.
324 At Tp.217, Mr Baird said that when he received the letter of 11 June 1999 he probably showed it to Mr Keel, with whom he discussed the reply. He said he “thought pretty carefully” about the reply, which was a response to Mr Gould about a serious matter in respect of which he was giving information upon which he intended the plaintiff to rely. He said he did not know what Mr Gould would think about what he said, but he wanted him to believe what he said and he thought very carefully about omitting the truth: Tp.218. He agreed that what was being put forward was a picture in which the financial resources of the defendant were confined to Mr Rowley and Holstac, and that he was seeking to paint a false picture that there was no person like FK in the wings. He said there were two reasons he concealed that:-
“A. First Forrester Kurts specifically requested that they not be revealed, that their presence not be revealed. Secondly, because of previous dealings with representatives of CVC, where I felt Howship had been badly exploited, I felt that the exploitation would just continue.”
325 At Tp.219, Mr Baird said that he believed, as a matter of commercial commonsense, that Mr Lambert was suggesting that the name of FK not be revealed, because if it was the plaintiff “would be able to bargain a higher price for the joint venture interest they were giving up”. There is no doubt that this matter was at the forefront of Mr Baird’s thinking. I am satisfied it was the essential reason why he was not truthful with the plaintiff and engaged in conduct to mislead and deceive it.
326 At Tp.220, Mr Baird agreed he could have answered the third question in the letter of 15 June 1999 by stating that there had been discussions with a party, which party had asked that its name not be mentioned, and that, in any event, there was no concluded agreement. He said those answers did not occur to him. He continued:-
“RARES: Q. Why didn’t you just tell Mr Gould it was none of his business and you didn’t want to tell him?
A. With the benefit of hindsight, I wish I had.
Q. What you did was you strung him along with a lie, didn’t you?
A. I withheld information, yes.”327 It became apparent, at Tp.221, that Mr Baird appreciated that one possibility was that because Mr Gould and Mr Beard believed what was said in the letter of 15 June 1999, the only rational way in which the defendant could afford to undertake buying out the plaintiff was by having a substantial buyer in the wings.
328 At Tp.222, Mr Baird said that Mr Keel did not draft the response of 15 June 1999, although Mr Baird spoke to him about what was to be put in it. He told him about the desire of FK not to be identified, and he said he did not have a dilemma in answering the letter, because he believed he was covering all the points he wanted to in the way in which he wanted to. He discussed the matter with Mr Keel because he made a point of discussing all correspondence with him, and Mr Keel suggested that he should not send that letter. It was put to Mr Baird that the reason Mr Keel advanced was not disclosed to him, although he said he recalled that Mr Keel said that the plaintiff did not have a right to ask those questions. He also agreed that he wanted the plaintiff to believe that there was nobody within the description of the persons asked about in the third question and:-329 He was asked about the financial arrangements with Holstac and Mr Rowley, and he was then referred to a letter of 17 June 1999, which he wrote to Mr Beard, in which he referred to the conversation of that day, and continued:-
“RARES: Q. Just so it is clear, Mr Baird, the reason you decided to send the letter of 15 June with untrue information in the last paragraph on page 240, was to deceive CVC about the true position, wasn’t it?
A. I believe - sorry, yes.”
Thus, there was the first unequivocal statement by Mr Baird of an intention to deceive.
“For more abundant clarity we wish to confirm that apart from making a number of builders aware of the emerging development at Fern Bay via the Marketing Presentation, a copy of which Peter Simpson gave you at our meeting on 9 April 1999, we have neither commenced nor concluded, either on behalf of Howship Holdings or the venture partnership, arrangements to sell any land either developed or undeveloped. Had we realised that this was a concern to you we could have more succinctly addressed it in our response.
You are at liberty should you wish to contact Mr Edmunds of Barrett Edmunds & Co, solicitors, to confirm the assistance that they are giving us but Sandy, please be assured we are conscious of the consequences of making an arrangement to settle and then not being in a position to do so.”
330 Mr Baird could not recall discussing that letter with Mr Keel, but he said it was “completely true”. He did not believe it concealed the attempt to sell portion of the land to FK, it being his belief, when he wrote the letter, that the discussion with FK to sell half the land “concluded and went away and never happened and, therefore, it was of no relevance”.
331 In relation to the statement about communicating with Mr Edmunds, Mr Baird said, Tpp.228-229:-332 Mr Baird denied that he told him that Mr Rowley had undertaken to be a surrogate provider of finance to Gray & Perkins for a period, which was an error in the file note he had not noticed in preparing his statement. He continued that he knew, when he made his witness statement, that in his discussions and letters he had concealed the existence of FK, although he did not believe it was an important matter. However, he conceded that when he made his witness statement, Exhibit 1, he knew the plaintiff claimed it had been misled and deceived by him into going into the Heads of Agreement; that he regarded the joint venture interest that the plaintiff had under the Transaction Documents as a very valuable right of the plaintiff’s; and:-
“Q. You intended him to read that as being an assertion that the financial assistance to settle was coming from the Lotto man, didn’t you?
A. I was quite happy for him to believe that.
Q. And you knew it was a lie when you wrote it, didn’t you?
A. I knew it wasn’t correct, yes.
Q. It was a lie?
A. Not being correct it was a lie.
Q. You intended CVC to believe what you were writing there, didn’t you?
A. Yes.
Q. And the reason you wrote that there was because Mr Beard was asking you, in the telephone conversation, where you were getting the money to settle in substance, wasn’t he?
A. Mr Beard asked me for confirmation of our ability to settle.
Q.. He asked you about not having received details of the capacity to settle and whether there was any ability from the financiers to service the Gray & Perkins debt, didn’t he?
A. Yes, he did.
Q. And you told him Clayton Utz would be able to tell him the next day there were sufficient funds in place to settle the transaction?
A. Yes, I did.”333 At Tp.235, Mr Baird said that he wanted and intended Mr Gould to accept the truth of what he had written in the letter of 15 June 1999 and:-
“ Q. You set about a course of conduct of trying to bring about CVC parting with its interest in this joint venture, without it fully realising what was going on, that’s right isn’t it?
A. Yes .
Q. You are seeking in this case to hold on to the benefit of the Heads of Agreement, knowing that you have set about to deceive CVC into entering into them on the basis of the false information you provided them, that’s right isn’t it?
A. Yes.
…
HIS HONOUR: Q. You give whatever answer you want, Mr Baird.
A. First of all, I believe, and did believe that from 12 May we had the opportunity to have somebody take CVC out of the venture. Secondly, I believe that the - I believed then, and I believe now, that the property has only one value, and that is what somebody will pay for it now. To talk about future projections earning potential over a period of time is all conjecture. The property has one value now, I believe that when we struck a deal, we struck a deal based on the value of the land. It had absolutely nothing to do with who might or might not come into it. Forrester Kurts were in the wings as a possible potential joint venture partner. There was no commitment. They could have walked away at any time, and in fact they did”: Tpp.230-231. (My emphasis.)
Thus Mr Baird conceded his reprehensible commercial conduct and intentions in the clearest terms.
“RARES: Q. The fact that Mr Gould talked about a purchaser in the wings and not about what you were doing in relation to financing the buy out, suggested to you that he had accepted what you had told him in the letter of 15 June, didn’t it?
A. Yes.
Q. And you had intended that to happen, didn’t you?
A. Yes.”
This, in the way in which the case was argued, was a significant concession. Once the prospect of another developer was removed the only other sources of finance were Holstac and Mr Rowley, which would not have allowed the development to go forward, or a purchaser “in the wings”. This reinforces my view that well before 15 July 1999, Mr Gould was no longer concerned about a developer or developer/financier being involved, a lack of concern which was induced by the misrepresentations and conduct, but only about a purchaser being involved.
334 Mr Baird was referred to the letter from Norton Smith & Co of 28 June 1999: Tender Bundle pp.262-264. He was asked about the warranties at p.263, and he agreed that a warranty of the truth of what was set out in the letter of 15 June 1999 was being sought. He said he had no intention of elaborating on them in the answers to that letter, and that there was “no way in the world” he would have given a warranty that what he had written in that letter was the truth. He said he would not have given the warranty sought in sub-paragraph (d). Thus insistence on the insertion of warranties would not have resulted in their being given and, in any event, as was pointed out in Henjo, the party to which the representations were made was not required to obtain “further assurances”.
335 Mr Baird was shown a facsimile transmission from Sunman & Walker to Mr Keel of 30 June 1999, which enclosed the bank guarantee. Mr Baird said that he asked that the bank guarantee be held pending his speaking to Mr Lambert, having been told by Mr Keel that FK’s name appeared on it. He said that when he spoke to Mr Lambert about handing over the bank guarantee, Mr Lambert replied that the plaintiff would find out some time “so just let them have it”. Mr Lambert also rejected Mr Baird’s request to have the name of FK removed from the bank guarantee.
336 At Tp.240, Mr Baird said he made a considered decision to instruct that the bank guarantee not be made available to the solicitors for the plaintiff because, partly, he realised that its provision would expose his deception of the plaintiff, although he said also, somewhat disingenuously, that FK requested that their name “stay out of it”. This, of course, was directly contrary to the terms of the facsimile transmission: Exhibit E.
337 Mr Baird agreed that if he had been asked on or about 30 June 1999 whether Clayton Utz could show the bank guarantee to the solicitors for the plaintiff he would probably have said not “yet”:-
“Q. And the reason you didn’t want to show it to them yet was because it would have exposed your deception, before you got CVC signed up for something, to have shown it to them around 30 June, wouldn’t it?
A. Probably.
Q. Undoubtedly, wouldn’t you agree?
A. Events have proved that to be correct.”338 Mr Baird agreed that, as late as 20 July 1999, he was giving instructions to Clayton Utz not to show the bank guarantee to Coudert Brothers.
339 At Tp.245, Mr Baird agreed that he wanted to leave “to the last possible moment” the provision of the bank guarantee which would have revealed FK’s involvement, despite Mr Lambert’s view that it could be provided because it would be seen in any event. The bank guarantee was not furnished to Coudert Brothers, as Mr Baird agreed, until a facsimile transmission from Clayton Utz to them of 22 July 1999, which Mr Baird said was “very late” to provide it. He also agreed that prior to settlement he did not want Coudert Brothers to see a bank guarantee involving FK and, at Tp.247, that he had asked Mr Lambert whether the bank guarantee could be altered to delete the reference to FK, which request Mr Lambert declined.
340 At Tp.248, Mr Baird said:-
“Q. The reason you wanted Forrester Kurts removed from it was because you knew when CVC saw it it would unravel your deceit, that is right, isn’t it?
A. Yes.
Q. And you wanted to hang on to those Heads of Agreement by hook or by crook, didn’t you?
A. I wanted to retain the Heads of Agreement, yes.
Q. And you hoped that if you just produced the bank guarantee at settlement it would slip through without coming to Mr Gould or Mr Beard’s attention that Forrester Kurts had provided the guarantee, didn’t you?
A. I knew that it wouldn’t.
…
Q. You hoped that if the bank guarantee was simply handed over at settlement, Mr Beard and Mr Gould wouldn’t find out about Forrester Kurts’ involvement after all the settlement had been concluded, that is right, isn’t it?
A. If a bank guarantee with Forrester Kurts’ name on it was handed over, it was obvious that they would find out at settlement.
Q. You hoped that it wouldn’t come to anyone’s attention at CVC that the bank guarantee was in that form until after the settlement had been finished if it was handed over only at settlement, didn’t you?
A. I felt there was every possibility that would happen?”
His fear was that if the plaintiff learnt that FK was present it “would probably re-enact their previous performances of starting to up the anti again”. On the other hand, he refused to allow the bank guarantee to be handed over in the hope that the possibility to which he referred would become an actuality.
341 This shows, in my opinion, that Mr Baird was acutely aware that once the plaintiff knew that the defendant had the possibility, at the least, of involving another developer of substance in the project, it would appreciate that the potential profit was increased, such as to make its interests in the development worth more and, therefore, such as to encourage it to “up the anti”. I have no doubt that this was precisely what Mr Baird hoped to avoid, a hope he sought to materialise by the misleading and deceptive conduct in which he admittedly engaged.
342 Mr Baird agreed that Mr Lambert’s refusal to amend the guarantee to take FK’s name from it was a very important event in the transaction and to him personally, because he saw it “more as an event that would re-open negotiations” rather than as exposing his having deceived Messrs Gould and Baird. He continued:-343 He agreed that if the deal with the plaintiff unravelled, the defendant would be “stuck with” the plaintiff, and he explained the point of keeping the guarantee with FK’s name back until the moment of settlement thus:-
“Q. Because your deceit would be exposed, that was your reasoning, wasn’t it?
A. My omission to advise of Forrester Kurts would most certainly be exposed, yes”: Tp.249.
“Q. The whole point of keeping the guarantee with Forrester Kurts’ name back until the moment of settlement was that you hoped it might slip through the settlement process and allow everything to be completed without the deal going off, that is right, isn’t it?
A. Yes.”
He said he had no recollection of discussing this with his solicitors. But it is difficult to imagine conduct more calculated to mislead and deceive. Further it showed the desperate means to which Mr Baird was prepared to resort.
344 At Tp.250, Mr Rares returned to the answers given in the letter of 15 June 1999. Mr Baird said he did not recall, prior to writing that letter, Mr Gould’s asking him from where finance was coming and his having told Mr Gould that “it’s coming from personal contacts”. He denied that Mr Gould asked him whether a developer was standing behind the plaintiff as it struck him as odd that it should suddenly have money available that it did not have in March 1999. I accept Mr Gould’s evidence on this matter and, indeed, generally when it is in conflict with that of Mr Baird. Mr Baird’s evidence is such that it is difficult to accept it save when it is corroborated by evidence I otherwise accept or is against his interests.
345 Mr Baird was referred to paragraph 59 of his witness statement in which he set forth the contents of a telephone conversation he asserted he had with Mr Gould on 10 June 1998 and in respect of which he had a detailed file note.
346 At Tp.254, Mr Baird was taken to his responses to Mr Gould’s statement. He agreed, subject to three matters, that a conversation took place on 15 July 1999 substantially as stated by Mr Gould. Mr Gould said, in paragraph 36 of his witness statement, Exhibit A, that he had said that ever since Mr Baird had talked about taking the plaintiff out of the project he had been concerned that there was a developer involved, to which Mr Keel had asked how that could possibly be relevant, to which Mr Gould had replied that it would make all the difference to the valuation of the project and the possible return to the plaintiff. He said that Mr Keel said that that did not make sense to him, but that Mr Gould replied that it made great sense to him and was fundamental, and:-
“We are relying on your assurances that we are being paid out from internal sources, and there is no developer involved.”
347 Mr Gould said that Mr Baird had stated that he could take his word for it that there was no developer involved, and that Mr Keel had said that the defendant said there was no developer involved and that Mr Baird was a man of integrity whose word could be trusted “based upon my experience of acting for him over many years”.
348 In paragraph 95, Mr Baird denied that Mr Gould used the word “developer”, stating that the word used was either “purchaser” or “buyer”. He further denied that Mr Gould had said that the plaintiff was relying on his assurances that it was being paid out from internal sources, and that Mr Keel used the words attributed to him, Mr Baird asserting that Mr Keel said:-
“We have acted for Howship for some considerable time. If Terry says there is no purchaser, then I do not believe that there is one.”
349 In cross-examination in relation to his denial that Mr Gould had said that the plaintiff was relying on his assurances that it was being paid out from internal sources, Mr Baird agreed, Tp.256, that he had never sought to tell the plaintiff the truth about where the money was coming from; that he had intended that Mr Gould should remain in the dark about that, because he did not believe it was any of his business; and that the only concern that Mr Gould had expressed was about “purchasers in the wings”. Mr Baird denied that he knew that the only information he had provided to the plaintiff was that Holstac and Mr Rowley and his own internal arrangements were providing the source of payment. He was referred to a letter he wrote to Mr Gould on 23 June 1999, in which he had said that if mortgage insurance could not be obtained a bank guarantee would be substituted with assistance from Mr Fidler’s father-in-law. He said that he was trying to convey the impression, which, of course, was essentially untrue, that Holstac and Mr Fidler’s father-in-law were assisting him to finance the buy-out.
350 He was referred to a facsimile transmission he sent to Mr Lambert on 23 June 1999 stating that the defendant had no alternative other than to pay the additional $500,000 at settlement. He also agreed that up to 23 June 1999 the money for settlement was coming from FK and that it was the only entity with which he had any financial arrangements, other than the arrangement Mr Fidler made with his father-in-law to provide a bank guarantee. He continued:-
“Q. Were you trying in your letter of 23 June to Mr Gould to put him off the scent that there might be a developer in the wings by referring to Mr Fidler’s father-in-law in the second paragraph?
A. I was obviously not keen for Mr Gould to become aware of the existence of Forrester Kurts.
Q. But it was more than that, Mr Baird, wasn’t it, you were making a positive representation that Mr Fidler’s father-in-law was going to be financially involved in the settlement of this transaction; that’s right, isn’t it?
A. Yes.
Q. And you never ever told CVC that that wasn’t right when the situation changed by 29 June when you got the guarantee from Forrester Kurts organised, did you?
A. No.
Q. And you allowed CVC to proceed on the bases of information contained in your letter of 23 June, is that right?
A. Yes.”
This further revealed Mr Baird’s duplicity.
351 At Tp.258, Mr Baird said that when Mr Lambert told him that FK was not prepared to change the guarantee he knew that had the potentiality for a crisis, but, even so, he did not seek to avail the defendant of the opportunity to take up the guarantee, which he said that Mr Fidler’s father-in-law had arranged. He said he thought that there were time constraints and that he believed that once the Heads of Agreement had been executed and come to finality “the whole thing would settle”. It was put to Mr Baird that it was very strange, at the least, that knowing the potential problems, which may be caused by the production of a bank guarantee naming FK, that the bank guarantee said to have been arranged by Mr Fidler’s father-in-law was not taken up. Mr Baird said it could not be because of temporal constraints.
352 Mr Baird said that he was not able to deny that Mr Keel said at the meeting on 15 July 1999:-353 Mr Baird repeated his denial that Mr Gould had ever used the word “developer”, although he remembered words being said at the 15-16 July meeting about the possibility of a buyer, in the context of Mr Gould’s responding to Mr Keel that:-
“Terry is a man of integrity whose word can be trusted, based on my experience of acting for him over many years.”
“It will make all the difference in the valuation of the project and the possible return to CVC.”
354 At Tp.261, Mr Baird said that the discussion was only about a purchaser being in the wings and that he appreciated that FK was in that position, and that he understood that the plaintiff would try to obtain more money if it knew that that position existed. There is no doubt that is why he engaged on the course of conduct to conceal it.
355 Mr Baird was cross-examined about the negotiations if there was a sale by virtue of there being a purchaser in the wings, which revolved, firstly, around a profit share and, secondly, around the granting of an option to the plaintiff to purchase certain lots in the subdivision.
356 He agreed that during 15 and 16 July he was discussing with Mr Lambert what could be offered to the plaintiff, and when Mr Lambert agreed he was able to make a further offer, based on that agreement, to the plaintiff. He was also aware that Clayton Utz were communicating with FK’s solicitors during the meeting, and he discussed with Mr Keel the progress of discussions with FK.
357 Mr Baird said he did not recall discussing his letter to Mr Beard of 17 June 1999 with Mr Keel or Ms Lovell during the meeting. He was taken to the production of the letter from Dixon Homes, stating that the Stroneth Group was of massive financial substance and probably one of the two largest property developers in the Lower Hunter. He said he produced the letter as the only written correspondence from any potential purchaser and, by doing so, he was seeking to provide comfort to the plaintiff, because he wanted to satisfy it that there was no potential buyer in the wings and to lay all his cards on the table. He agreed, Tp.268, that he knew he was not doing so. He said the card he was keeping up his sleeve was the possible potential that somewhere down the track the defendant might be able to do something with FK. However, he said that FK had not even agreed in principle to finance the buy out, notwithstanding that it had arranged for the bank guarantee and placed $2m in its solicitors’ trust account in anticipation of the completion of the buy out.
358 At Tp.277, Mr Baird said that upon receipt of a facsimile transmission of 13 July 1999 he believed that the defendant had gone a great way towards putting a joint venture agreement in place with FK.
359 At Tp.280, Mr Baird was cross-examined about a conversation he had on a car phone with Mr Gould on 5 July 1999. He did not recall Mr Gould’s saying that it was necessary to get some more information as to the details of what was happening, but at some stage he asked Mr Gould whether a statutory declaration would be of assistance. He did not recall whether Mr Gould said that could be a way forward. However, the reference to the giving of a statutory declaration makes it highly probable that Mr Gould was seeking further information about the matter he said he was discussing.
360 The cross-examination then continued in relation to advice Mr Keel gave Mr Baird before his letter of 15 June 1999 was sent. He did not recall the precise words Mr Keel used, although he remembered that he counselled against sending the letter. It was put to him directly that Mr Keel said that he was concerned the letter was misleading, and he responded that he did not recall Mr Keel’s using those precise words. He said Mr Keel did not go into any detail as to why he thought the letter should not be sent and that he told Mr Keel why he proposed to send it.
361 Mr Baird did not recall whether he had a telephone conversation with Mr Keel on 29 June 1999 in which he asked him whether the defendant was exposed if it did not say anything to the plaintiff about FK, nor Mr Keel’s saying that there may be a fiduciary obligation to disclose his discussions with FK to the plaintiff. Nor did Mr Baird recall that on 29 June “or thereabouts” that Mr Keel told him that by silence he might be in breach of s.52 of the Trade Practices Act. For reasons I shall give, Mr Keel obviously did have such a conversation with him. He said he felt no concern about not telling the plaintiff about FK prior to signing the Heads of Agreement, which in view of his concessions as to why he did not do so provided further evidence of his lack of commercial frankness, and he did not recall Mr Keel’s discussing the Trade Practices Act with him. He said he did not discuss with anyone at Clayton Utz whether he ought to have the bank guarantee changed to remove a reference to FK.
362 Mr Baird, commencing at Tp.284, said that he did not recall a number of matters said at the meeting on 15 July 1999, adding that he recalled very little of that meeting, other than a couple of very pertinent things that stuck in his mind. He said Mr Gould was absolutely convinced that the defendant had a substantial purchaser “and he could see dollars slipping through his fingers”.
363 Portion of a conversation, involving Mr Gould’s saying “if there is another developer or someone like that involved”, was put to Mr Baird, and he said he certainly did not recall that: Tp.285. His recall, which he said was vivid, was about a substantial buyer or purchaser in the wings.
364 At Tp.288, Mr Baird said that at the meeting on 15 July 1999 Mr Keel said that Clayton Utz had acted for Mr Baird for a long time, or he had known and acted for Mr Baird for a long time and:-365 He was asked whether Mr Keel said that he was an honourable man, but had reached a point where he could not work with Mr Gould and Mr Beard, and he said “he certainly could have” but he denied that Mr Keel said:-
“He plays it straight down the middle, and if he says there is no buyer, there is no buyer.”
“So you can be sure that if Terry tells you no one else is involved in the development, you can rely on it.”
366 At Tp.300, Mr Baird said that he believed that if the land was developed with FK in a joint venture with the defendant the profits would be considerable over a protracted period to the extent of tens of millions of dollars. That would have been a profit far greater than the one to be generated if the land was sold quickly and en globo.
367 Mr Baird gave evidence that the defendant owed substantial fees to Clayton Utz and that an authority was given for those fees to be paid from the moneys to be advanced by FK to enable the buy-out of the plaintiff. Although it was suggested that this influenced the way in which Mr Keel approached the matter, the evidence does not satisfy me that that is so.
368 At Tp.306, Mr Rares stated, at least in part, the plaintiff’s case. He said:-
“Our case is they went into this negotiation, both Mr Baird and Clayton Utz, knowing what was written in the letters of 15 June and around that time was false and was misleading. They sat quietly, they never corrected it and they allowed us to go ahead and complete this transaction knowing it had not been corrected and my three witnesses have all said that representations were made in that meeting about there being no developer around.
I don’t have to say they were in conspiracy to do this or in compact to go and mislead. One may have made a bad mistake of judgment about not revealing something or allowing some situation to go ahead without correcting it and the whole point in our case is one way or another we acted under a mistake and they knew and I am not suggesting that they got together and said let’s necessarily do it together and I don’t have to put it.
I mean that may be what conclusion comes out but I am not saying to Mr Baird and my learned friend says I have to put to him that he conspired with Mr Keel to mislead. They both went along together and allowed the situation to develop, neither of them correcting it. Then if we acted under a mistake we acted under a mistake and they are responsible.
Combined knowledge of the principal and agent is one. It doesn’t matter who has the guilty mind or whatever. If they both knew the fact or one of them knew the fact, the other knew other facts, and through their conduct misled us. They don’t have to conspire together to bring about that result and I’ve not put that case.”
369 For all the reasons I have given, the evidence of Mr Baird was most unsatisfactory. He conceded that he set out to mislead and deceive the plaintiff by the representations he made, which at no time he sought to correct. He conceded that he instructed that the bank guarantee be withheld for as long as possible, in the hope that it may slip by unnoticed such that the Heads of Agreement could be settled without further negotiation. He knew full well that once the existence of FK was revealed the plaintiff would seek a greater amount to dispose of its interests.
370 Mr Baird’s concessions and admissions establish the misleading and deceptive conduct in which the defendant engaged and provides the plaintiff with a basis for the two ways in which it put its case.
371 I am satisfied that Mr Baird’s conduct led Mr Gould to believe, as it was intended to do, that there was no developer to replace the plaintiff, contrary to the fact, and that he retained that belief until the Heads of Agreement were signed, his one major concern being that, in those circumstances, there must have been a buyer in the wings.
The Evidence Of Mr Keel
372 Mr Keel is a highly experienced litigation solicitor. He referred in his statement to the meeting on 15 and 16 July 1999, and he recalled that either Mr Gould or Mr Beard said that the plaintiff was concerned that the defendant had a substantial buyer in the wings, which would obviously affect the risk profile of the development and the plaintiff wanted a share of any profits if the property was going to be sold.
373 Whilst he could not recall the precise words, he said that there was discussion that the defendant was prepared to provide warranties that it had no current intention to sell the land other than as developed residential land; that it was not engaged in negotiations with any potential purchaser to sell the land in any other way; and that it had not concluded an agreement with any purchaser to sell the land in any other way.
374 Mr Keel then dealt with various matters raised in other statements, denying that there was any reference to the word “developer” during the meeting. He said he was aware that the defendant was negotiating with FK with a view to its participating in the development of the land, and that had any reference been made to a “developer” or “financier” he would have said that it was necessary for the defendant to seek permission of any such entity to disclose its identity, and that in no circumstances would he have given, or permitted to be given, a response in the negative in the light of his knowledge of the existence of FK. I accept Mr Keel’s evidence on this point.
375 In his oral evidence-in-chief Mr Keel was referred to certain correspondence passing between the defendant and him. One of the letters was a draft of the letter of 15 June 1999, which was accompanied by a letter to Mr Keel stating that it was proposed to send it subject to “your OK in response to” the plaintiff’s facsimile transmission received on 11 June 1999. On that letter Mr Keel has noted a telephone attendance on Mr Baird, in which he stated that he was concerned that the proposed letter was misleading; that it may prove a problem; and that he advised “to keep it dead bat”. He described the last sentence as meaning that the defendant should not get into an argument or be argumentative in the letter. Prior to giving that advice Mr Keel said that he had seen a copy of the letter requesting the information.
376 The next letter he received from Mr Baird was dated 11 June 1999 and Mr Baird sent a copy of a letter from the plaintiff to the defendant of the same date: Exhibit 10.
377 Mr Keel then referred to a diary note he made on 17 June 1999 of a telephone attendance with Mr Baird, Exhibit 11, in which he recorded that the plaintiff’s main concern was that the defendant had not sold off blocks of land. He also made a note about “more abundant clarity” and “neither commenced nor concluded”. He could not recall the contents of that conversation.
378 Mr Keel agreed, Tp.312, that he saw a copy of the letter from FK to Mr Baird of 2 June 1999 on 7 July 1999. He also saw the letter of 3 June 1999 from the defendant to Mr Lambert. These documents were sent by facsimile transmission for the attention of him, Ms Lovell and another solicitor assisting them at Clayton Utz.
379 Shortly after 28 June 1999, Mr Keel saw the letter from Norton Smith & Co of that date and, after reading it, he had a conversation with Mr Baird, which he recorded in a file note that became Exhibit 13. It was by way of a telephone attendance and Mr Baird asked him whether the defendant was exposed “if we don’t say anything” to which, according to his file note, he replied:-
“Yes. You may have a fiduciary obligation to disclose disc.w.FK; by silence you may be in breach of s52.”
380 He said, Tp.314, that he became aware on or about 29 June 1999 that Mr Baird had sent the letter of 15 June 1999, when he received a facsimile transmission from the defendant, Exhibit 14, enclosing a copy of the letter and also the letter Mr Baird had written to the defendant on 23 June 1999: Exhibit 14.
381 Mr Keel was then referred to a letter from Coudert Brothers to the defendant dated 2 July 1999, which he said he read, although he was not sure that he discussed it with Mr Baird. He had no diary note to assist his recollection, but he said that when he read the letter it did make an impact on him, because it repeated the concern, which had previously been expressed by the plaintiff, of the existence of the substantial purchaser “and that concern appeared to have been wiped away by the addition of a further sum in settlement of the matter”. He also referred to the words:-
“Notwithstanding all previous correspondence between the parties, CVC is prepared to make the following offer, which would be full and final, subject only to receipt of moneys or acceptable security and documentation to facilitate settlement.”
382 In cross-examination Mr Keel was referred to a letter he signed on 8 July 1999 addressed to Coudert Brothers. It started by stating that nothing in it should be taken to affect the settlement reached on 23 June 1999 and proposed further bases of settlement, including the giving of warranties in the event of the sale of the land within twenty four months. He agreed that he had noted that the plaintiff was still prepared to settle on a basis involving the provision by the defendant of the warranties referred to in the facsimile transmission of 28 June 1999, which included, of course, a warranty as to the truth of the matters set out in the letter of 15 June 1999.
383 In his evidence-in-chief Mr Keel had said that the words in the paragraph commencing “Notwithstanding all previous correspondence ..” seemed to him to wipe the slate clean. However, he agreed that his letter of 8 July 1999 brought the warranties back “on the table”. Whilst the metaphor was mixed, the meaning was plain.
384 Mr Keel acknowledged, as was obviously the fact, that paragraph 2(e) in the letter of 28 June 1999 meant that so far as the plaintiff was concerned it wanted an assurance that it had been told the truth in the letter of 15 June 1999. He said he was fully cognisant, from what Mr Baird had told him, that that letter did not set out the truth, and, in addition, he was aware, from what appeared in Mr Baird’s facsimile transmission, Exhibit 8, of 10 June 1999 that:-
“CVC are not aware of where the funds are coming from and in fact I have led them to believe it is financial assistance from Tony Fidler’s father-in-law.
Tony Sunman of Sunman & Walker is also aware and will not mention Forrester Kurts to CVC or Norton Smith.” (My emphasis.)
Thus, Mr Keel was aware of Mr Baird’s deception in the letter of 15 June 1999 and in relation to the source of funds to enable settlement to take place. This further demonstrates the lengths to which Mr Baird was prepared to go and the conduct in which he was prepared to engage.
385 Mr Keel said it concerned him that what Mr Baird was saying indicated that he was engaging in misleading the plaintiff about the source of funds, but he was not sure that he had any view as to what the plaintiff’s view was as to the materiality of the source of funds. I think that Mr Keel took the somewhat simplistic approach that the 15-16 July meeting was intended to effect a settlement without any reference to any prior conduct of Mr Baird, and that provided there was no active misleading of the plaintiff, the defendant was not bound to correct any prior inaccurate information. Such an obligation, Mr Keel appreciated, would certainly arise if a direct question was asked in respect of which Mr Keel knew contrary information had been furnished.
386 He agreed that at no stage prior to the signing of the Heads of Agreement did he seek to ensure that the representation as to the source of funds that Mr Baird had conveyed was corrected, and:-
“Q. But you appreciated that from CVC’s point of view on the basis of your own knowledge of communications from your firm and also on the basis of the instructions you had received from Mr Baird that to your knowledge no steps had been taken on Howship’s part to correct the information given to CVC that the source of the funds and the buyer was Tony Fidler’s father-in-law or perhaps in combination with the Lotto man or Rowley & Holstac, is that right?
A. Yes.
Q. So at the meeting on 15 July to your knowledge the only information that had come from Howship to CVC about where it was getting the money was from those two sources, Mr Fidler’s father-in-law and from the Holstac Lotto man source, is that right?
A. Yes, yes.
Q. And now, of course, during the meetings of 15 and 16 July you were conscious that the involvement of Forrester Kurts was not brought to the attention of anyone on CVC’s part?
A. Yes”: Tpp.318-319.387 Mr Keel said he was aware that Sunman & Walker’s facsimile transmission of 30 June 1999 had sought confirmation of the acceptability to the plaintiff of the terms of the bank guarantee, but that at no time prior to 22 July 1999 did he seek from the plaintiff its response in relation to that. He said there was no need to send it to the plaintiff on 30 June 1999, because a debate was being had about the enforceability of the agreement allegedly contained in the letter from Mr Beard of 22 June 1999 and, as at 30 June 1999, he thought his belief was that the terms of any agreement between the parties “were either fluid or subject to litigation”.
388 Mr Keel said he thought that because the negotiations were “all over the place” as at 30 June 1999, the bank guarantee “just sat in the file and bided some final settlement being negotiated”.
389 He appreciated that once the bank guarantee was sent to the plaintiff that would have disclosed to it the existence in the transaction of FK, but he said that Mr Baird had given him no instructions not to disclose the bank guarantee, and he did not discuss with Mr Baird, after 5 July 1999 and before the Heads of Agreement were signed on 16 July, whether the copy bank guarantee should be provided to the plaintiff. He recalled that there was a discussion whether a bank guarantee could be provided without reference to FK, but he could not recall the substance of it.
390 Mr Keel, Tp.325, said that he first became aware that the defendant was negotiating with FK to replace the plaintiff on 4 June 1999, although “there was no flesh to that”: Tp.325. He said, when he received the facsimile transmission from the defendant of 10 June 1999, that whilst he was aware of the existence of FK, he was not aware of the details of any arrangement between the defendant and it, and he read the letter as saying that Mr Baird was trying to arrange for FK “to come in and provide some funds” to pay out the plaintiff, and:-391 He continued:-
“Q. It was apparent to you from this that he was saying to you he had led CVC to have a belief that wasn’t correct?
A. Yes.
Q. After you got this letter, I think you received Exhibit 10, which was a fax from CVC of 11 June. (Shown.) Do you remember that?
A. Yes.”
That was the letter which sought information pursuant to clause 11.2(c), being information, as he understood it, which would have revealed to the plaintiff with whom it might in effect be dealing when selling its interest: Tp.327.
“Q. You appreciated that commercially that was information which CVC might regard as being important to it in deciding what it would do in negotiations for the sale of its interest?
A. I’m not sure that I - I can’t cavil with that, because I didn’t know what CVC would have thought. But what I did think was that Mr Baird, sorry, Terry Baird, ought to provide information accurately. And I was concerned that if he didn’t, he might be misleading.
Q. Of course by the time you read this letter you knew from his own fax to you of 10 June that he had been misleading to CVC?
A. Yes.”392 Mr Keel was then referred to his note of 29 June 1999, Exhibit 13, and he said, at that time, he considered there was a fiduciary obligation to disclose the conversations with FK, and he was conscious that up until 29 June 1999 the defendant’s conduct in relation to the plaintiff, of which he had been made aware, may have been misleading to the plaintiff by silence as to FK’s involvement.
393 At Tp.329, Mr Keel said that he did not know whether he had a belief at the meeting of 15 and 16 July 1999 about what would happen if it were revealed that FK was negotiating with the defendant with a view to participating in the development of the land, and how the plaintiff would have reacted to that information, and:-
“Q. Would it be fair to say that you were very careful not to reveal the existence of Forrester Kurts during those negotiations on 15 and 16 July?
A. It would be fair to say that I was aware at the time that Forrester Kurts wanted its existence to be low key, and that I was aware that if the question had been asked of me, I would have had to have got some instructions.
Q. Had Mr Baird told you that if Forrester Kurts’ proposed involvement was revealed to CVC, that it was likely that CVC would want to demand more money on the occasion of its exit?
A. Oh, I don’t know. I can’t remember that he told me that. But, Mr Rares, I am not evading it. It seemed to me a logical conclusion to think that if a financier were there, that that may have affected the outcome of the negotiations.
Q. And likewise, if a developer were there, it may have affected the outcome of the negotiations?
A. I suppose so.”
This evidence not only revealed the difficult position in which Mr Keel was placed in consequence of Mr Baird’s conduct, but also the real prospect, at least to his perception, that had Messrs Gould and Beard known the true position the course of negotiations may have changed. The reasonable inference is that they were, to Mr Keel’s appreciation, placing reliance on what they had or had not been told by Mr Baird.
394 Mr Keel said that the deep suspicion shown by Messrs Gould and Beard was of a sale of the land to a purchaser waiting in the wings whereby the defendant would have made a quick profit. He said it did not occur to him that they may have been concerned about such a purchaser because they had accepted what was in the letter of 15 June 1999, his concentration being on the quick profit. He said that had the question of a developer or of anyone in the position of FK been raised, he would have had to have taken instructions from Mr Baird, but he agreed the question had been asked and answered in writing on 15 June 1999 and he had not required anyone on behalf of the defendant, when he found out the position on 29 June 1999, to speak to FK about correcting that answer.
395 He said he considered the letter of 15 June 1999 “may be misleading”, and he had knowledge of what was in the letter of 10 June 1999.
396 At Tp.331, Mr Keel said that the negotiations were ongoing and the letter of 2 July 1999, coming as it did hard on the heels of that of 28 June 1999, suggested to him that what had happened in the past was over and “in effect wiped away” and that “from that date that it was a whole new negotiation”.
397 The difficulty about this was that in the letter of 5 July 1999 a number of warranties were proffered addressing the purchaser in the wings and, on 8 July 1999, it was his understanding that the plaintiff still required the warranties in the letter from Norton Smith & Co of 28 June 1999. He agreed that by 8 July 1999 the warranties had been reintroduced.
398 Mr Keel identified the portions in the letter of 15 June 1999 as potentially misleading as being “details of the financier or financiers” beside the first bullet point and the answer to the question beside the second bullet point.
399 Mr Keel agreed, Tp.325, that the representation made in the letter of 15 June 1999 might be one that the party receiving it would actually take seriously, and that if it was not corrected the other side might act in error. However, he thought that by 15 July 1999 things had moved on in the way that he had already explained by reference to the letters of 28 June and 2 and 5 July 1999 “and the subsequent two letters from us”. There was some inconsistency between this answer, the earlier answer he had given about the renewed calls for warranties and the evidence to which I have just referred about the possible course of negotiations. I do not accept that the plaintiff was acting on the basis that there was an entirely new negotiation, even though Mr Keel held that belief.
400 At Tp.337, Mr Keel denied that he said anything about the defendant’s financial position, in the sense of failing to disclose that there was someone like FK involved. He could not recall saying:-
“Your clients know our client’s financial position.”
Whilst he could not deny it, he said it was extremely unlikely that he would have said it in those terms.
401 Mr Keel did not agree that any such statement on 15 July 1999 would have been misleading without disclosing FK’s involvement.
402 Mr Keel denied, Tp.339, saying to Mr West:-
“Peter, I want to tell you something. You may not know that Clayton Utz has a lot riding on this, because we are owed a considerable amount of money by Howship.”
He said that was not something he would communicate to the other side in those terms. I have expressed my view on this in considering Mr West’s evidence.
403 Mr Keel received a copy of the letter from the plaintiff to the defendant of 12 May 1999 on 4 June 1999. He noted there were two alternatives and that the defendant wished to pursue the second.
404 He agreed, Tp.341, that when he received the facsimile transmission on 10 June 1999 he appreciated that Mr Baird was telling him that he had, in the negotiations conducted up to that time, misled the other side about the source of the funds, which was a situation Mr Keel had not previously encountered. Mr Keel said that he did not feel that his position was compromised in relation to any further negotiations when he found out on 29 June 1999 that Mr Baird had sent the letter of 15 June 1999, although he was aware that nothing had been done to correct the impression created by that letter.
405 Mr Keel was cross-examined about a letter sent by Clayton Utz to Coudert Brothers on 26 July 1999. He agreed that letter said nothing about “wiping the slate clean” and he was referred to the paragraph on the second page, Tender Bundle p.431:-406 On 27 July 1999, Coudert Brothers replied, stating, inter alia:-
“We do not understand CVC’s particular focus upon the letter from Howship to CVC dated 15 June 1999. That letter simply records financing options which Howship was exploring at that time. Howship was under no obligation, either at 15 June 1999 or afterwards, to provide CVC with information as to the identity of the financier from which it was seeking assistance.
In relation to the information requested in your third facsimile of 23 July 1999, Howship has no obligation to provide CVC with any documents whatsoever in relation to Kurts Development Pty Limited (‘Kurts’). In any event, any documents which may exist in relation to the provision of financial assistance by Kurts to Howship are confidential for reasons of commercial sensitivity.”
“The letters to which you refer do not advance your clients’ position further. Our client does not resile from your assertion that it suggested, and was aware that, your client would be likely to approach a financier in order to obtain the funds to pay out CVC. However, your client was also aware that the type and nature of the financier was also of considerable concern to our client, particularly if the financier was a developer whose involvement in the project was likely to lower the risk profile of the project. Your client made various representations that no such financier was involved, and we refer you again to your client’s letter dated 15 June 1999.”
The letter went on to deal with what was agreed to be the meeting of 15 and 16 July 1999, and to assert that in reply to the plaintiff’s concerns that the defendant was dealing with a builder or developer, without disclosing it, Mr Keel tabled the Dixon Homes’ letter, which expressed an initial interest in the project, and that he commented that this was the only communication between the defendant and any builder or developer. The letter said:-
“The Bank Guarantee provided to us on 22 July 1999 was dated 29 June 1999, and is of itself evidence that your client has been dealing with a developer in relation to the project, at least over the last month and probably longer, but has failed to disclose these dealings to our client.
It is in light of those representations, which induced our client to enter into the Heads of Agreement, that our client now seeks clarification of the involvement of Kurts Developments. This request is not unreasonable in the circumstances, and is capable of a simple response.”
407 On the issue of reliance, it is significant, in my opinion, to take account of the speed with which Coudert Brothers raised the essential matters of complaint the plaintiff now makes, after receiving the bank guarantee disclosing the involvement of FK.
408 The difficulty of Mr Keel’s position was pointed up by the following evidence. He said that he thought it was accurate to say that the letter of 15 June 1999 recorded financing options that were being explored then, notwithstanding that he considered the letter was misleading, and in answer to the question as to why he allowed a letter to go out in explanation of what happened when FK’s name was seen on the bank guarantee, he replied:-
“A. I can only say that by this stage there had been a full disclosure of the existence of Forrester Kurts. The correspondence that was passing between us and Couderts was really an explanation of the position. It was - the Couderts correspondence was making allegations against us, in the failure of our client to disclose some matters in relation to Kurts, in the course of the negotiations. I think that this letter of 26 July is simply an attempt to explain our client’s position.”
Mr Keel considered that was a position that Clayton Utz were entitled to advance, and he reverted to his answer that the parties were well aware of the circumstances on 26 July 1999.
409 Mr Keel agreed that it was important for correspondence answering allegations of misrepresentation in the letter of 15 June 1999 to be accurate, although he then returned to the concept of the slate having been wiped clean, whereupon he immediately had to agree that there was no suggestion of that in the correspondence.
410 Mr Keel said he recognised that Coudert Brothers were complaining that their question as to whether the involvement of FK was known to the defendant, when the letter of 15 June 1999 was written, had not been answered. He agreed he responded to that on 27 July 1999. He was taken to the subsequent correspondence and, eventually, to the letter at Tender Bundle p.448 of 5 August 1999, which he wrote to Coudert Brothers. Mr Keel agreed that that letter did not address the name of the financier.
411 Mr Keel agreed that in that letter he was seeking to assert that the plaintiff had made it a condition of its exiting the project that a person such as FK should come into the project, although nothing like that was said at the meeting on 15 and 16 July 1999. He was then challenged on the statement that Clayton Utz were at a loss to understand the significance the plaintiff placed on the letter of 15 June 1999 on the basis that it was simply part of a long course of correspondence. He said he regarded that as an accurate statement, notwithstanding that he fully appreciated that the plaintiff had been misled in the letter through inaccurate information being communicated to it.
412 Mr Keel agreed it was a possibility that if the plaintiff had been told that FK was interested in buying its interest, it might have asked for quite a different financial package in relation to its exit, although he maintained that FK wanted to maintain a low profile, something which is a little difficult in the light of the letter from Sunman & Walker seeking to have the terms of the bank guarantee approved by the plaintiff.
413 Mr Keel agreed that he was troubled how he could engage in the negotiations without himself being involved in any misleading conduct. As I have said, he was in a position of obvious difficulty which he appreciated. He continued:-
“Q. And you appreciated if you in fact sent the draft bank guarantee to CVC or Norton Smith and asked for their comment then your client’s misleading of CVC would come out, didn’t you?
A. I don’t even think that occurred to me. That bank guarantee came in; I looked at it; it sat on the file. There was no - there was no deal for it to fit into.”414 This answer derogated from a matter which, on one view, may have supported a probability in favour of the view that there was no mention of developer or financier at the meetings of 15 and 16 July 1999. If, as those on the defendant’s side contended, there was no discussion about a developer or financier at those meetings, that was a matter, which it seemed to me, was supported on the probabilities by the fact that before any Heads of Agreement could be concluded by settlement the bank guarantee, which revealed that there was a developer and/or financier involved, would have to be disclosed. In these circumstances, it seemed otiose to be negotiating for an agreement, which almost certainly would come to nought when the true facts were disclosed. However, as Mr Keel said, that was not a matter that occurred to him, and it leaves the position that the necessary inference to found the existence of the fact from which the probability would flow is, at least so far as his evidence is concerned, not supportable. Subsequent evidence, to which I shall refer, makes this point even clearer. The position then is that the only reasonable alternative is that Mr Baird was proceeding, as his evidence, which I have quoted, makes clear, in the hope that once the Heads of Agreement were executed, settlement would go through notwithstanding the terms of the bank guarantee, even though he appreciated that once the identity of FK was revealed there was a strong possibility, if not a probability, that the plaintiff would not settle. It was for this reason, I am satisfied, that Mr Baird sought to have the terms of the bank guarantee changed and, this being unsuccessful, gave instructions that it not be disclosed until the last moment. That conduct indicates to me conduct of a desperate person, the desperation having inspired the misrepresentation as to the developer and/or financier in the letter of 15 June 1999, the failure to correct that and the continued refusal to give instructions to hand over the bank guarantee.
415 At Tp.355, Mr Keel agreed that on 29 June 1999 the defendant, in effect, told him it had engaged in what he regarded as a breach of fiduciary duty or misleading conduct, or at least the serious potential that those circumstances had or would occur. The following day he received the bank guarantee from FK’s solicitors, which he did not bring to the plaintiff’s attention prior to the signing of the Heads of Agreement and, indeed, he sought not to have to produce it until the time of settlement. He did not recall being instructed not to produce the bank guarantee. He said, Tp.356, that he thought either Ms Lovell or Mr Hayford were looking after it. He gave some evidence that the bank guarantee had changed after it was received initially, although I do not believe that this was substantiated. Although Mr Keel did not agree that he had “steadfastly” refused to provide the bank guarantee, he said that no copy was provided to Coudert Brothers until 7.04 pm on 21 July 1999. He did not know the answer to the question why he simply did not send Coudert Brothers a copy when they asked for it. He was, in any event, of the view that the plaintiff would find out about FK and:-416 At Tpp.360/361-362, Mr Keel agreed that the handing over of the bank guarantee on settlement was an integral part of that process and, as at 16 July 1999, he did not have any contemplation of what effect, if any, that would have on the plaintiff, and:-
“I think that is as much as I can say.”
417 Mr Keel was asked a lot more questions about the furnishing of the bank guarantee but, in the end, it seems to me that the reason it was not handed over was because of the instructions Mr Baird gave, particularly to Ms Lovell, and the significance of the bank guarantee did not impact on Mr Keel. This suggests to me, as Mr Keel conceded, that he gave no consideration to that, but it also supports the view to which I have come that had he, he would have realised that the Heads of Agreement were placed in severe jeopardy by handing it over. In my view, it was simply a matter, as Mr Keel said in his evidence, to which he did not direct attention and this tends to support his version of the conversation that during the meetings of 15 and 16 July 1999 the reference was to a purchaser or a purchaser in the wings, rather than to a developer or a developer and/or a financier. However, of course, that is but part of the problem confronting the defendant.
“Q. What was the use of entering into an agreement on 16 July to hand over a bank guarantee if the bank guarantee was going to bring the whole agreement tumbling down?
A. Well, exactly, your Honour. Exactly. It was handed over with Forrester Kurts on and it did have that effect.”
This may have been of some assistance were it not for his evidence that the effect of providing the bank guarantee did not occur to him at the relevant time.
My Conclusions Thus Far
418 The basic and, in my view, inescapable, problem confronting the defendant is that Mr Baird was prepared to make deliberate misrepresentations to the plaintiff about the source from which the funds were coming with a view to ensuring, so far as possible, that the plaintiff never became aware that a large developer was taking its place. He was also prepared to engage in conduct of not correcting the position and not disclosing the involvement of FK. The reason for this was that the defendant was fully aware that if the plaintiff had known of the true situation, it would never, in all probability, have agreed to settle on the basis set forth in the Heads of Agreement, but would have held out for a more substantial settlement. It would, to use the words of Mr Baird, have sought to “up the anti”. The reason it did not do so was, I am satisfied, because Mr Gould, who signed the Heads of Agreement, and probably Mr Beard, believed that the oral statements and those in the letter of 15 June 1999 as to the identity of the financier and as to the absence of any negotiations with the people referred to, meant that there were no such negotiations. This left them in the position of pondering how, in the absence of the sale of some of the land, at least, the defendant could ever finance the rest of the project, and I am satisfied that it was this to which Messrs Gould and Beard directed their attention. That conclusion means, of course, that I do not accept their evidence, nor the evidence of Mr West, that financier and/or developer were discussed at the meeting of 15 and 16 July 1999. Nor do I accept the evidence of Messrs Gould and Beard as to the conversation, which took place after the Dixon Homes’ letter was handed over to them and in the absence of Mr Keel. In this respect I prefer the evidence of Mr West.
419 However, notwithstanding that I do not accept that evidence, that does not alter the underlying fact upon which the plaintiff’s case rests, which does not depend upon my accepting the evidence of Messrs Gould and Beard, save for one point, but which relies upon the admitted misrepresentations made by Mr Baird, some contrary to the legal advice he received, and the subsequent conduct of the defendant, through Mr Baird, essentially, in maintaining the lie, which was perpetrated with a view to obtaining a significant commercial advantage.
420 There is no doubt that there was a significant commercial advantage to be obtained on several fronts. Firstly, had the Heads of Agreement been implemented, the defendant would have rid itself of the plaintiff. There can be no doubt that both parties were anxious to achieve the result of being rid of the other. Secondly, as I have noted, Mr Hughes did not seek to submit, and in fact conceded, that the conduct of the defendant was such as would, within the meaning of s.87(1) of the Trade Practices Act, be such as to cause the plaintiff to suffer or be likely to suffer loss or damage by virtue of the conduct in contravention of s.52.
421 The point on which Mr Hughes placed his main submissions was that I should not be satisfied that the plaintiff placed any reliance on the defendant within the meaning of the test propounded in Gould v Vaggelas and adopted in Henjo. He submitted that the meetings of 15 and 16 July 1999 were the fulcrum around which the case turned, and that unless the plaintiff satisfied me that during those meetings there was a reference to a developer or developer/financier, as its witnesses asserted, rather than just to a purchaser, there was no satisfactory evidence of reliance. I reject this submission. As I have said, had there been a reference to a developer or developer/financier, there would have been a clear obligation on Mr Keel and Ms Lovell to take appropriate steps, which would have corrected the position. The fact that they did not weighs heavily in favour of the probability that those words were not used, which is also consistent with Mr Gould’s using the word “purchaser” in a catch-all sense.
422 In my opinion, focus was on the position of a purchaser in the wings, which was demonstrated by the time spent on trying to resolve that problem and the terms of the Heads of Agreement. That was because, the evidence satisfies me, Mr Gould was satisfied before the meeting by the conduct in which Mr Baird engaged, that there was no developer or developer/financier and that was the matter on which he placed reliance. The strong possibility favouring this is that had he not believed that he would have sought assurances about it to ensure that the plaintiff was getting the best deal possible.
423 Mr Hughes pointed to the evidence that the parties generally mistrusted and were deeply suspicious of each other; that Mr Beard, having received the letter of 15 June 1999, did not accept it as being truthful; that in the subsequent negotiations the plaintiff had sought to have a warranty, inter alia, as to the truth of the matters set forth in the letter of 15 June 1999, but had not proceeded with that; and that in the letter of 2 July 1999, Mr Gould had stated that:-
“Notwithstanding all previous correspondence between the parties, CVC is prepared to make the following offer, which would be full and final, subject only to receipt of moneys or acceptable security and documentation to facilitate settlement.”
424 Mr Hughes submitted that this indicated that there would be no reliance placed upon what had transpired to that date. However, I think that that passage has to be read in the context of the letter as a whole, the third sentence of which set out the suspicion of Mr Gould of a substantial purchaser being in the wings and hence his acceptance of the suggestion of a two year period within which a profit share would come on foot if the property was sold during that time. Mr Gould was not addressing in these comments the question of another developer or developer/financier because, I am satisfied, that there was an acceptance that this was no longer a relevant issue so far as he was concerned, he having accepted the representations. Therefore, the first quoted passage in that letter had as a given that there would be no developer or developer/financier, and the settlement offer proceeded on the basis that there may be a sale of the land.
425 I am fortified in these views by several additional matters. Firstly, I have not the slightest doubt that Mr Gould is a very astute and highly experienced businessman, who would not be prepared to allow any dollars to “slip through his fingers”. He gave me, as did Mr Beard, the strongest impression that he would drive as hard a deal as possible. Those comments are not made in a critical sense, but rather to emphasise that had Mr Gould or Mr Beard not relied on the admittedly false statement made to them about the identify of the financier, they would have pressed for a far more advantageous commercial arrangement. This was well understood by Mr Baird. Secondly, and this is really the converse of what I have just said, their failure to press for any such deal indicates to me, as clearly as can be, that they accepted the representations. Indeed, it is a little difficult to understand on what other basis they would have come to the conclusion that they could not negotiate a more favourable deal. Thirdly, whilst I appreciate that there is a reasonably heavy onus of proof, within the civil onus, on the plaintiff to prove each and every element of its case, I am satisfied that the matters to which I have referred are sufficient to achieve this.
426 The other critical point is that s.52 is directed to conduct. Apart from the matters to which I have referred, the impugned conduct of the defendant was its deliberate decision not to provide the bank guarantee and to disclose the involvement of FK. This was done, as Mr Baird said, in the hope that the plaintiff would never become aware of the existence of FK and settlement would have taken place, presumably by the failure of the plaintiff and its legal representatives to read properly the bank guarantee. Such conduct was clearly misleading and deceptive and, I am satisfied, that but for it the bank guarantee would have been furnished and the negotiations, if they continued, would have continued on a far more favourable basis to the plaintiff.
A Return To Mr Keel
427 At Tp.366, Mr Keel said that he thought Mr Baird probably did give specific instructions not to reveal FK’s involvement with the defendant to the plaintiff prior to allowing him to send the bank guarantee on 22 July 1999. Ms Lovell’s evidence corroborates this.
428 Mr Keel denied, Tp.370, that he said any words to the effect that the defendant had said that there was no developer involved, and that Mr Baird was a man of integrity, whose word could be trusted based upon his experience in acting for him over many years. He said he did not say anything about Mr Baird’s integrity in the opening part of the meeting, nor that Mr Baird was a long-term client of Clayton Utz, with whom he had worked over a long period “and we vouch for the integrity of Mr Baird and have taken a personal interest in this dispute”. Whilst there was some dispute about the actual words used, all of the others at the meeting agreed that Mr Kell said words to that effect. Therefore, although I believe unwittingly, Mr Keel added to the factual matrix on the basis of which Mr Gould was able to rely on what Mr Baird had said, I am not satisfied, as I have just indicated, that Mr Keel had any intention to mislead or deceive, or any idea that he was doing so. But, by saying what he did he reinforced the confidence of Mr Gould to place reliance on Mr Baird’s statements.
429 My essential reason for accepting that there was no discussion at the meetings of 15 and 16 July 1999 about developer or developer and/or financier is that it seems to me totally improbable that Mr Keel and Ms Lovell would have been parties to a deliberate deception of Messrs Gould, Beard and West. Mr Keel was acutely aware of the potential difficulty in which he would have been placed if the question of a developer or a developer/financier had been raised in the light of the information he had, and so also was Ms Lovell. I do not accept, for one moment, that either, let alone both, would have been derelict in their duty and would have allowed the representation to be perpetrated if the precise question was asked. Indeed each said, albeit in somewhat different ways, that had the precise point arisen at that meeting, he or she would have adjourned the meeting and taken instructions. However, those factors do not, in my opinion, save the position so far as the defendant is concerned for the reasons I have sought to make clear, viz that the acceptance by Mr Gould of the misrepresentations and, accordingly, his pre-occupation with a purchaser being in the wings, meant that he was no longer concerned about the existence of another developer or developer/financier.
The Evidence Of Caroline Mary Lovell
430 The witness statement of Ms Lovell of 6 April 2000 became Exhibit 16. Between 29 June and 13 August 1999 she assisted Mr Keel in this matter and was present at the negotiations on 15 and 16 July 1999. She made quite detailed notes, they being the only ones of any significance made of the discussions: Exhibit 18.
431 She said that when the meeting commenced, Mr Keel stated that the discussions had no effect on the defendant’s primary position that it reached an enforceable settlement arrangement on 23 June 1999, and that it was prepared to challenge the Transaction Documents if necessary. She recorded that both Mr Gould and Mr West rejected these assertions and that Mr Gould said that he was deeply suspicious “about what is happening” and wanted “to get rid of this whole thing and move on”. Her file note corroborates these statements and a statement by Mr Baird that if the defendant sold the land, other than as developed residential lots, he would make a further payment to the plaintiff, but that he had no intention of doing that but rather to develop the land.
432 In paragraph 8, Ms Lovell recorded that either Mr Gould or Mr Beard said that they were seeking undertakings that the defendant would not sell to Villaworlds, Villa Homes or Stocklands to which Mr Baird responded that he was not contemplating that “nor would we do so”. He said the quality of their products was not good enough and:-
“Why won’t the warranty we’ve offered satisfy you?”
Mr Beard said it would be easy to subdivide the land into three lots and sell it.
433 In her oral evidence-in-chief, Ms Lovell said that she recalled these general conversations, Tp.404, and the conversation about a purchaser being in the wings and that causing the risk profile to change. She also recalled Mr West saying that the plaintiff was concerned that there was a purchaser in the wings, and that “a deal had been initiated that will be finished down the track after CVC settles with Howship to sell developed lots of land”.
434 She said that there had been no concern expressed to the effect that the defendant had a developer standing behind it, and if there had been she would have suggested that the meeting be suspended and that Mr Keel and she leave it and take instructions from Mr Baird as to how to respond to whatever the enquiry was about a developer. She said that would have been necessary because:-
“A. Well, because there may have been a number of things that Mr Baird wanted to do. He may have, for example, instructed us to provide information or he may have instructed us to - that he didn’t think it was their concern to have information provided to them. It would then be a matter for them to decide what to do in that situation. A number of things might have happened.”
435 Ms Lovell said, Tp.405, that on 15 July she was aware that Mr Baird had been in discussion with FK, and that it was her awareness of that that provoked her to say that she would have sought instructions.
436 In her witness statement, Ms Lovell set out a number of conversations to the same effect and, in paragraph 13, referred to the fact that about that time the discussions had “stalled” somewhat and the parties separated.
437 There were further negotiations between Mr West and Mr Keel, which led to no conclusion and, when the meeting reconvened at approximately 2.30 pm on 15 July, Ms Lovell recorded that Mr West said that there was still a perception of suspicion; that his client remained concerned; that there was a lack of trust on both sides; and that:-
“My clients are concerned that a deal has already started to sell developed land down the track, that there has been a deal initiated or started which will be concluded after CVC settles with Howship.”
438 This statement was very close to the problem, which Ms Lovell had foreseen. Indeed, it is difficult to understand why, at that point, Mr West was not directing attention to the position created by the defendant’s involvement with FK and it is interesting that in her notes recording this, Ms Lovell has circled the words “deal already started”. None-the-less, Mr West’s focus was on a “sale”.
439 In paragraph 16, Ms Lovell recalled Mr Keel showing Mr West a facsimile transmission, being the Dixon Homes’ letter, and saying words to the effect:-
“This is the only written correspondence my client has had from anyone he has spoken to about the land.”
Her contemporaneous diary note records:-
“Only written corro from anyone spoken to about land.”
440 Ms Lovell said that that statement was made in the context of the plaintiff’s representatives repeatedly expressing their concern that the defendant had a buyer in the wings.
441 Shortly thereafter Mr Gould left the meeting and did not return until the afternoon of 16 July 1999.
442 In paragraph 19, she recorded further discussion between Mr West and Mr Keel, in which Mr West stated his client’s lack of trust and said that Mr Gould was suspicious that there was collusion between Mr Baird and a builder, and sure that there would be sales to buyers other than builders “and he thinks a profit share should kick in if there are sales”.
443 He then put two propositions to which, according to Ms Lovell, Mr Keel responded that if the plaintiff’s real concern was about a purchaser some type of reporting mechanism could be put into place whereby the plaintiff was notified of any sales on a regular basis. Mr West expressed doubt about this and suggested that an alternative would be an extra payment of $1m on a deferred basis, to which Mr Keel responded:-
“Your clients know our client’s financial position. Find some amount less than $500,000. We’d like your input into a mechanism. We need to think about how Howship as the vendor could compel the purchaser to disclose information about the purchase. I guess Howship could authorise the purchaser to disclose that information to CVC on settlement of the purchase.”
444 That evening Ms Lovell prepared a document setting out a mechanism, which would have provided for the plaintiff’s being provided with information about sales.
445 The meeting re-convened at about 9.30 am on 16 July 1999 and the reporting mechanism was discussed. Mr West said he had a “left field” suggestion, namely that the defendant should grant the plaintiff an option to buy fifty developed lots at $100,000 each over the life of the project. He elaborated on this and, thereafter, there were lengthy discussions about it.
446 At approximately 4.20 pm, the parties re-convened in one meeting room and, according to Ms Lovell, Mr Keel again raised the question of satisfying the plaintiff that there was no purchaser in the wings and set forth certain proposals, to which Mr West responded that he wanted to talk more about the option “with the added value of Vanda Gould’s input”. Mr Gould was not then present.
447 The discussions continued and, around about 6 pm, Ms Lovell prepared the Heads of Agreement, which were asserted by Mr Keel to be enforceable under the so-called category 4 of Masters v Cameron. Further questions were raised and resolved and, ultimately, the Heads of Agreement were signed.
448 In paragraph 43, Ms Lovell said that so far as she was aware, the first occasion on which the plaintiff raised a concern about whether the defendant was receiving financial assistance from a developer or as to whether a developer was intending to take an interest in the project was in a facsimile transmission from Ms Harpur of 23 July 1999.
449 At paragraph 46, she said that given that Clayton Utz were aware by 15 July 1999 that the defendant hoped FK would provide it with finance and become involved in the project, she was able to say with certainty that if the plaintiff had asked whether there was a “developer” interested in the land, she would not in any circumstance have permitted any statement to be made, which could in any way misrepresent that state of affairs.
450 In paragraph 47, she referred to paragraph 20 of Mr West’s statement and recalled Mr Gould’s saying words “to this effect”, but did not recall Mr Keel making the statement attributed to him. At that point it was not clear to which words she was referring, although paragraph 48 made it clear that she was not referring to the final paragraph in paragraph 20. She was agreeing that Mr Gould said that the plaintiff’s position was that it did not trust Mr Baird and had heard “along the grapevine that you have a developer such as Villaworld behind you and this is not acceptable to us”. Her contemporaneous notes certainly refer to Villaworld, Villa Homes and Stocklands.
451 In paragraph 49 of her witness statement, Ms Lovell said that the defendant had been prepared to tell the plaintiff “where they are coming from and they have already offered to pay CVC significantly more than CVC put into the project”.
452 Once again, bearing in mind the failure to disclose the position with FK, this remark had certain problems depending on Ms Lovell’s appreciation of the situation.
453 Ms Lovell also denied that Mr Gould said that the plaintiff would not accept a situation if there was another developer “or someone like that involved coming in as a joint venturer or equity investor” and that in such a case it would simply stay in the project itself.
454 Ms Lovell did not deny that portion of paragraph 20 of Mr West’s statement in which he asserted that Mr Baird said words to the effect:-455 Mr Keel dealt with paragraph 20 in paragraph 11 of his witness statement, Exhibit 5, and denied that various matters were stated and, in relation to others, said that he could not recall the conversation. In particular, he said he did not recall the conversation in the sixth paragraph of paragraph 20, being the statement Mr West alleged Mr Baird made and to which I have just referred. However, he denied that he said:-
“You have my word that there is no one else involved in the project.”
“Let me just tell you something. I have known Terry Baird for a long time. Terry is one of those straight down the middle fellows, his whole life is wrapped up in this project, it means everything to him. He just wants to get on and conclude it, he is an honourable man but he has reached the point where he just cannot work with Vanda and Sandy. So you can be sure that if Terry tells you no one else is involved in the development that you can rely on it.”
In her witness statement, Ms Lovell did not deny that these words were used, and I have made a finding on this point.
456 Paragraph 20 of Mr West’s statement was dealing with what happened at a reasonably early stage of the meeting.
457 Ms Lovell denied, in paragraph 57 of her witness statement, the discussion to which Mr Gould referred in paragraph 38 of his witness statement.
458 The cross-examination of Ms Lovell commenced at Tp.408. She was asked, initially, about the provision to Coudert Brothers of the bank guarantee and the instruction from Mr Baird, which she noted, that it not be provided, which she thought was unusual, although she did not press the matter with him. Her diary note also recorded that she told Mr Baird that a statement could not be made to Coudert Brothers to suggest that the bank guarantee was not available, as Clayton Utz had already seen it. Ms Lovell perceived, quite correctly, that Mr Baird was concerned about providing the bank guarantee and she assumed that concern was “about actually having the settlement take place”. She continued, Tp.411:-
“There had been previous occasions on which settlements had almost happened several times and agreement had been reached and then it hadn’t actually been settled, and my perception was that he was very concerned about anything that might cause this settlement not to take place."
459 She said she supposed that she assumed that Mr Baird had in mind that if she went to settlement and handed over the bank guarantee there was a possibility that Coudert Brothers “might just accept that with the cash cheques and go away”. She said she did not have a view about what would happen if the bank guarantee disclosed FK’s name, although she believed it was that that caused Mr Baird concern.
460 At Tp.414, Ms Lovell said that when she became involved in the matter on about 29 June 1999, she was not aware that the defendant may have provided misleading information to the plaintiff earlier in June.
461 Ms Lovell was shown a diary note, which she made on 5 July 1999 at a conference. She had noted that Mr Keel had said, although she was not certain when, something about “fiduciary duty” in relation to “entering into this when plan with FK. Anything misleading about it - J venture/sale”. Ms Lovell said that she was not certain of the context of these notes, and she did not remember the topic of the defendant’s owing any fiduciary obligations to the plaintiff being raised while she was acting in the matter.
462 At Tp.418, Ms Lovell said she believed that the negotiations between the defendant and FK were completely unknown to the plaintiff, and while she did not recall receiving any instructions from Mr Baird about not raising that issue with the plaintiff, she assumed that she could not do so without instructions.
463 That remained her knowledge as at 15 July 1999 and was the reason for her evidence that if the question of a developer had been raised it would have been necessary to take instructions. She was asked about her statement that the defendant had been prepared to tell the plaintiff from where it was coming, and she conceded that there was a connection between FK’s position and Mr Baird’s financial position, because the defendant was getting the money to pay the plaintiff from FK, as she understood it, and she knew it had been suggested that FK would pay quite substantial fees outstanding to Clayton Utz.
464 She said, Tp.419, that there was scepticism and suspicion about the possibility of a purchaser for the land, although she did not understand that there was scepticism about how the defendant could possibly enter into a deal with the plaintiff in which it was to pay the plaintiff substantial sums.
465 Ms Lovell sought to explain how there could have been a disclosure of the defendant’s financial position without reference to FK, particularly as during the meeting there were telephone calls made to FK by Mr Baird to discuss some of the propositions that were being explored, by drawing a distinction between the defendant’s financial position, about which she understood the plaintiff had “a fair amount of information”, and the defendant’s source of funds to pay the plaintiff in a settlement. She added that as the defendant had agreed to a number of previous settlement arrangements, which involved payment of money, it had to have had that money to be able to engage in those negotiations. She saw these matters as two separate things. She repeated that she did not consider the statements made about the defendant’s financial position as misleading, because the plaintiff knew of those matters as a result of the previous negotiations.
466 Ms Lovell said that she did not understand that if the existence of FK was made clear a radically different deal may have been made because:-
“The amount of money available was a matter between Forrester Kurts and Howship. I don’t know whether any involvement that CVC might have had would have changed the amount of money being provided by Forrester Kurts to Howship”: Tp.424.
467 She agreed that she was conscious that any involvement of FK was held back from the plaintiff at the meeting, although she did not think she knew that there was any particular reason, and she did not recall being told of any. It occurred to her that there were a number of possible reasons why FK’s involvement was not discussed, including the fact that the negotiations between the defendant and FK were at a very preliminary stage; and that all that had been agreed was that FK would provide the defendant with a certain amount to use for settlement, which was limited in a way she did not know. She continued that any further arrangements were a matter for subsequent negotiation at some later time and that no concluded agreement had been reached.
468 She maintained, Tp.425, that the only matter about which the plaintiff was concerned was a purchaser being in the wings.
469 At Tpp.425-426, Ms Lovell was referred to her responses to paragraphs 55 and 56 of Mr Beard’s witness statement, Exhibit B, in which he had stated:-
“55. I also recall in the opening period of the meeting Mr Keel saying words to the effect of ‘Mr Baird is a long term client of Clayton Utz who we have worked with over a long period of time and we vouch for the integrity of Mr Baird and have taken a personal interest in this dispute’.
56. I recall in the early part of the meeting that Mr Baird at one stage said words to the effect of, ‘Vanda you know that I am a man of honour and integrity and you have probably never met a more honest man and I have undertaken in my previous discussions that there are no developers involved and that we have completed no bulk sales and there is no other information which you would need at this point of time’.”
470 In her response to those paragraphs Ms Lovell said, in paragraph 61 of her witness statement, that she recalled statements to that effect being made by Mr Beard, although, again, his statement referred to a “purchaser”, not a “developer”. That was the only distinction she drew.
471 In paragraph 23 of his witness statement, Exhibit 5, Mr Keel said that he did not make the statement attributed to him in paragraph 55 of Mr Beard’s statement, but he did not deal with paragraph 56.
472 However, Ms Lovell agreed that Mr Keel said words to the effect that Mr Baird was a long term client of Clayton Utz, with whom Clayton Utz had worked over a long period “and we would vouch for the integrity of Mr Baird .. and have taken a personal interest in this dispute”: Tp.426.
473 Ms Lovell denied seeing a number of documents on the file, which could have disclosed to her the position and, at Tp.428, she said she was not aware at any time prior to the signing of the Heads of Agreement that there was anything that was misleading or potentially misleading in the letter of 15 June 1999. She did not recall Mr Keel’s telling her that he had advised Mr Baird not to send the letter.
474 At Tpp.430-431, Ms Lovell denied that Mr Keel said:-
“We table this letter for the sake of completeness as the only correspondence Howship has had with any builder or developer in relation to the sale or proposed sale of any lots in the project.”
475 At Tp.432, Ms Lovell was cross-examined about her response to paragraph 20 of Mr West’s statement.
476 Ms Lovell was reasonably firm in her recollection that the only reference made was to “a purchaser”, rather than “someone” involved in the project.
477 Ms Lovell denied, Tp.435, that Mr West made any reference at the meeting to a developer being involved, or to the defendant’s owing a fiduciary duty under the Transaction Documents and as a joint venture partner to tell the truth.
478 At Tp.437, Ms Lovell said that she did not know that Villaworld, Villa Homes and Stocklands were developers. She understood they were builders of a large number of homes. She said her impression was that they were the type of people who might want to buy fifty lots from the subdivision.
479 At Tp.442, Ms Lovell said that one thing that was clear was that Mr Gould mentioned the possibility that the defendant may have found a financier.
480 Whilst I am satisfied that Ms Lovell was a witness of truth, I am not satisfied that she understood the nuances of the dealings and, as her evidence of belief made clear, the position the plaintiff would have taken if it had become aware that it was being replaced by a developer or financier.481 In his witness statement of 6 April 2000, Mr Fidler dealt with the car telephone discussion with Mr Gould on 5 July 1999, the significance from the defendant’s point of view being the reference to a buyer being in the wings. This only tends to support my opinion, based on all the evidence, that by that date Mr Gould was satisfied that there was no other developer or developer/financier involved.
The Evidence Of Mr Fidler
482 This detailed analysis of the evidence satisfies me that the conclusions I have stated are amply justified. The plaintiff acted in consequence of the misleading and deceptive conduct, such as to sustain the claim based on the Trade Practices Act, and in the mistaken belief engendered by it, such as to establish unconscionability.
A Consideration Of The Evidence
483 By paragraph 32 of its Further Amended Defence, the defendant asserted that if, which it did not admit and in fact denied, it engaged in any of the conduct alleged against it, the plaintiff is not entitled to the relief claimed because after becoming aware of the conduct it affirmed the Heads of Agreement. The particulars were:-
The Defence Of Affirmation
484 The paragraphs in Mr Gould’s statement on which reliance was placed, stated:-
“(a) The defendant relies on paragraphs 41, 42 and 43 of the statement of Vanda Gould filed in these proceedings together with the letter dated 6 August 1999, Annexure GG to such statement;
(b) The defendant also relies on the last paragraph of the letter dated 14 September 1999, Annexure HH to the said statement.”
“41. The Heads of Agreement provided that settlement would take place on or before 23 July 1999. On settlement, Howship was obliged to provide, amongst other things, a Bank Guarantee in favour of CVC in the sum of $575,000. At the request of Mr West, Clayton Utz provided a copy of the Bank Guarantee to Coudert Brothers under cover of a facsimile dated 22 July 1999. The Bank Guarantee was issued by Commonwealth Bank of Australia at the request of Kurts Developments Pty Limited. Kurts Developments is a subsidiary of Forrester Kurts Properties Limited, a company listed on the Australian Stock Exchange which I believe is one of the largest property development companies in Queensland. I instructed Coudert Brothers that CVC was not prepared to proceed to settlement under the Heads of Agreement.
42. Annexed hereto and marked ‘GG’ is a copy of my letter to Clayton Utz dated 6 August 1999.
43. In signing the Heads of Agreement on 16 July 1999 I relied on the statements made by Mr Baird and also his solicitor, Mr Keel, given by me above to the effect that Mr Baird and Howship were not negotiating with a developer or builder in relation to the development. Had I known that Kurts Developments Pty Limited had been in negotiations with Howship Holdings prior to my signing the Heads of Agreement or had agreed to provide funding or a bank guarantee to Howship, I would not have entered into the Heads of Agreement dated 16 July 1999. Rather, I would have considered the options available to me which included:
· CVC remaining as a joint venture partner in the development; or
· negotiating significantly more favourable terms for CVC than the result in the Heads of Agreement in return for CVC departing from the development.”
485 The letter from Mr Gould to Mr Keel of 6 August 1999 stated:-
“We refer to our meeting with you on Thursday, 15 July 1999 in your office.
You will recall tabling a letter at that meeting on behalf of your client using words to the following effect:
‘This letter indicates the sole builder-developer with whom my client has had any dealings and the purpose of that letter was to express interest in acquiring land from Howship at some future point in time’ .
As events have unfolded your assertion was untrue and, with respect, your conduct was deceptive and completely unacceptable professional practice.
We also note that from time to time we have engaged your firm for legal advice on other matters and whilst we appreciate you have a duty to Howship Holdings Pty Limited (including the issue of substantial outstanding fees which Howship Holdings Pty Limited owes Clayton Utz) we believe that your conduct is unacceptable and respectfully request a formal apology.”
486 I admitted the letter of 14 September 1999 from Coudert Brothers to Clayton Utz subject to objection. It was headed “without prejudice” and was clearly part of a chain of correspondence dealing with further attempts to settle the matter. However, I took this step so that, in due course, all material would be before the Court and the issue could be argued fully. That letter referred to a letter of 13 September 1999 in which Clayton Utz had made an offer on behalf of the defendant; stated that the offer was rejected and at least one reason therefor; and continued that Coudert Brothers were instructed that the plaintiff remained prepared to settle on the basis of one of the two alternative offers set out in Coudert Brothers’ letter of 10 September 1999, which were repeated.
487 The final paragraph stated:-
“This offer is made on the basis that our client reserves its rights under the Heads of Agreement and other documentation, and the offer should not be taken as a waiver of our client’s rights.”
488 In response the plaintiff tendered a bundle of correspondence, which became Exhibit K and which was admitted subject to objection and subject to relevance: Tp.447.
489 In his submissions on this point, Mr Hughes referred to the letter from Coudert Brothers to Clayton Utz of 5 August 1999, in which Ms Harpur stated, inter alia:-
“We are instructed that our client is not prepared to proceed to settlement under the Heads of Agreement, and that we are to apply to the Supreme Court of New South Wales seeking to have the Heads of Agreement set aside.”
Thereafter Ms Harpur set out at length the plaintiff’s version of the history of the matter, and concluded:-
“Our client intends to apply to the Court for the Heads of Agreement to be set aside by the Court.”
490 Mr Hughes posited the hypothetical question as to the principles brought into play when a plaintiff firstly disaffirmed the Heads of Agreement and then, as he submitted, sought to retain the right to rely on them in the terms of the final paragraph of the letter of 14 September 1999.
491 He submitted, at the outset, that in August and September 1999, the plaintiff was fully aware of all material facts and, as I understood it, it was for that purpose that he tendered the evidence of Mr Gould and the letter of 6 August 1999. So much was not in issue. Mr Hughes submitted that the relevant principles in relation to affirmation were set forth by the High Court in Sargent v ASL Developments Limited (1974) 131 CLR 634. Before going to those I note that in Greig & Davis “Law of Contract” at p.868, the authors, under the heading “Bars to Rescission - In General”, stated, under the sub-heading “Affirmation”:-492 At p.869, they continue:-
“Once a party becomes aware of the true situation, he is entitled to exercise his right to rescind the contract. However, he is not obliged to do so; he may decide to proceed with the contract, notwithstanding the misrepresentation. The manifestation of that decision is said to constitute an affirmation of the contract. It amounts to an election by the representee to adopt one of the two inconsistent courses open to him, between avoiding, or continuing with, the contract.”
493 In Haynes v Hurst (1927) 27 SR (NSW) 480, Long Innes J, after noting the requirement that the right of repudiation must be exercised, if it is to be exercised at all, as soon as the defect is ascertained, said, at p.486:-
“A representee will be taken to have affirmed the contract if, at any time after discovery of the truth, he indicates by express words or unequivocal act his intention to treat the contract as binding ( Brown v Smitt (1924) 34 CLR 160 at 167I-168 per Isaacs and Rich JJ); for an act to be unequivocal in this sense, it must be consistent only with the exercise of the right to affirm, and inconsistent with the exercise of the right to rescind ( Sargent .. at 646 per Stephen J). Thus a purchaser of shares who pays a call on them, or receives a dividend, after discovering the falsity of the representation, will be taken to have affirmed …, as will the purchaser of land who requires a defect in the vendor’s title to be remedied … .”
494 In Sargent, Stephen J said, at p.646:-
“The reason for the rule is, I think, that when a person has two alternative courses open to him, or two alternative remedies to take, he must elect between them, and is bound to exercise his election in such a way that the other parties to the transaction may know which attitude he is adopting. When he has exercised his election he is bound by it, and if he has said or done something which has caused the other party to incur expense or to act on the footing that the contract is still subsisting, he is not entitled to revert to his prior right to treat the contract as entirely at an end.”
495 His Honour then continued to consider detriment to the other party and stated that on this topic there was a divergency of views. At p.647, he said:-
“The words or conduct ordinarily required to constitute an election must be unequivocal in the sense that it is consistent only with the exercise of one of the two sets of rights and inconsistent with the exercise of the other; thus for a lessor to continue to receive rent under a lease will be consistent only with his rights as lessor and inconsistent with the exercise of a right to determine the lease … However, less unequivocal conduct, only providing some evidence of an election may suffice if coupled with actual knowledge of the right of election ( Elder’s Trustee case). There need be no expressed intention to elect, nor will an express disclaimer of such an intention be of any avail in preserving one right if in fact there be an exercise of an inconsistent right ( Croft v Lumley: Mathews v Smallwood ). For an election there need be no actual, subjective intention to elect ( Scarf v Jardine ), an election is the effect which the law attributes to conduct justifiable only if such an election had been made .. .”
496 Part of the reason for the objection to the tender of the letter of 14 September 1999, was that it was headed “Without Prejudice”. In Haynes v Hurst, Long Innes J considered this matter in the context of what he was deciding, at p.489:-
“I conclude that at least in the case of election between affirmation of a contract or its disaffirmation pursuant to rights conferred by that contract detriment to the other party is not a necessary element in election, whatever may be the position in other election situations.”
“A party cannot, except in a strictly limited class of cases, protect himself against the legal consequence of his acts by stating that he does them without prejudice. No one, for instance, would suggest that a person could protect himself against liability for a breach of promise of marriage by taking the precaution of making the offer without prejudice. Nor can a debtor, who gives notice that he is about to suspend payment of his debts, protect himself against the consequences flowing from the commission of this act of bankruptcy, by giving such notice ‘without prejudice’ .. . Nor, in my view, can a person, having a right to sue either in tort or in contract in respect of a claim arising out of the one transaction, reserve his right to sue in tort after suing in contract, by prefacing his declaration by the averment that he sued in assumpsit without prejudice to his right to sue in tort. For similar reasons it appears to me that a purchaser, having the option of either repudiating the contract by reason of a defect in title, or of keeping it alive for the benefit of the other party as well as his own, cannot, while electing to treat the contract as subsisting and not requiring the vendor to remove the objection and to alter his position to his detriment in attempting to do so, avoid the consequences flowing from this exercise of his election by stating that he does so without prejudice to his right to repudiate. In plain language a man can only elect once, and when once he has elected he is bound by his election and cannot again avail himself of his former option, merely because he claimed in the first instance to exercise his election without prejudice. A man, having eaten his cake, does not still have it, even though he professed to eat without prejudice.”
His Honour was there dealing with an act done openly, i.e. not pursuant to “without prejudice” correspondence for the purpose of seeking a settlement, but one where the party doing the “open act” was trying to retain the benefit of another position.
497 In Brown v Smitt Isaacs and Rich JJ said, at pp.167-168:- 498 After referring to certain examples, their Honours continued:-
“The law as to election in such a case is perfectly clear. For its essentials it is unnecessary to refer to prior authority since the case of Abram Steamship Co v Westville Shipping Co . The test, as there put, is stated in the judgment of Lord Dunedin - which was assented to by the Earl of Birkenhead and Viscount Finlay - whether what the respondent has said and done should be ‘taken as a considered affirmation of the contract’. The same view is expressed by Lord Atkinson, whose judgment was also adopted by the Earl of Birkenhead. At pp.786-789 various authorities are reviewed. The decisive principle is contained in a passage cited by the learned Lord from Clough v London and North Western Railway Co , namely, Did the party defrauded at any time after knowledge of the fraud either by express words or by unequivocal acts affirm the contract?”
“But, referring to that passage, if the landlord merely stated his intention to distrain or receive the rent, and yet did not distrain, and refused to receive the rent, could that be treated as in law a waiver? It is apprehended not. Neither in the circumstances can the acts and letter of the respondent be so regarded. When the whole of the circumstances are considered, such as the absence of any express confirmation, the rest of the letter referred to, the subsequent communications between the parties and the probabilities of the case, the proper conclusion is the respondent did not either expressly or by an unequivocal act affirm the contract.”
499 In response to Mr Hughes’ submissions, Mr Rares submitted that there was nothing in the letter of 14 September 1999, which became Exhibit 3, which could be treated as an affirmation or an election. His submission was that one had to look to the circumstances in which that letter was written.
500 Whilst the principles to which I have referred are well known, there is another principle, which, in the circumstances of the present case, is of high significance. It is that parties should be able to negotiate for the settlement of a dispute without fear that those negotiations will be disclosed to the Court, particularly where they are carried out in “without prejudice” correspondence. It would be quite inimical to the interests of justice if parties were not able to negotiate freely for a settlement because of a fear that such negotiations, even carried out on an express “without prejudice”, would be revealed to the Court for the purpose of seeking to raise, such as in the present case, a defence of affirmation. This principle, in my opinion, is quite different from that with which Long Innes J was dealing in Haynes v Hurst for the reasons I have stated. His Honour was not concerned in that case with attempts by parties to resolve litigation, but rather with an attempt by one party, by the use of the words “without prejudice”, to preserve a position, contrary to the asserted position the party sought to adopt. In such a situation, such as, for example, the receipt of rent “without prejudice”, there is no suggestion of any attempt to resolve the proceedings by negotiations, but rather the attempt is made to preserve a position contrary to that for which the party is openly maintaining as being the position either at law or in equity.
501 In the present case the letter of 14 September 1999 was written in the context of “without prejudice” correspondence intended to seek to resolve the proceedings. This is made clear by the correspondence contained in Exhibit K.
502 By its letter of 10 September 1999, Coudert Brothers made a “without prejudice” offer, the letter expressly referring to the “without prejudice discussions between our respective clients”, which were held at Clayton Utz’ offices on 8 September 1999. The letter makes it transparently clear that an attempt was being made to resolve the matter and the letter concluded:-503 On 13 September 1999, Clayton Utz responded that the offer was rejected, the letter once again being headed “Without Prejudice”, and set out the basis on which the offer was being put. That letter concluded:-
“This offer is subject to our respective clients entering into Heads of Agreement or a Deed which more fully gives effect to the terms of the settlement.”
“Please again note that in accordance with our earlier discussions this offer is made without prejudice any rights our clients might have in respect of the Heads of Agreement, or any other documentation or earlier agreements made between our respective clients. This offer should not be taken in any way to waive, or otherwise affect our clients’ rights.”
504 The response of 14 September 1999, which was again headed “Without Prejudice”, set forth bases for settlement and concluded with the paragraph which, in essence, matched that at the conclusion of Clayton Utz’ letter of 10 September 1999.
505 On 17 September 1999, Clayton Utz wrote another “Without Prejudice” letter to Coudert Brothers stating that the defendant was not prepared to vary the form of the offer made in the facsimile transmission of 15 September 1999, and concluding:-
“As you know, the continued inability to finally resolve this matter costs our client money on a daily basis. Negotiations, having come this far, can hopefully be continued to a mutually satisfactory conclusion early next week.”
506 Thereafter, negotiations continued.
507 I admitted the letter of 14 September 1999 subject to objection, so that, in the fullness of time, its admissibility in the context of the defence of affirmation could be considered. I also admitted the correspondence in Exhibit K on the same basis. When the correspondence is considered in its entirety it leads, in my opinion, to the conclusion that the parties were seeking to negotiate a settlement. They were doing so in the conventional way on a “without prejudice” basis. I venture to think that any suggestion that this correspondence could have been made the subject of a defence of affirmation, or otherwise used in the proceedings, would, at the time it was taking place, have been rejected by the solicitors for the reasons to which I have referred.
508 In my opinion the proper course, in the light of the totality of the evidence and the submissions I have received, is to hold that neither Exhibit 3 nor Exhibit K was properly admissible. Accordingly, the critical letter on which Mr Hughes relies should not be treated as before the Court and, hence, the defence of affirmation must fail. By taking the course I have, the material is now available, although not as evidence, and if the matter proceeds to the Court of Appeal, that Court will have before it the documents marked as exhibits and can determine whether, on the basis of the material to which I have referred, the ruling I have made is correct.
509 A further matter to be considered is that the unequivocal act of the plaintiff was not the alleged affirmation contained in the letter of 14 September 1999, but rather the stance it adopted in the letter of 5 August 1999 to the tender of which no objection was taken. At that point it was made clear that it proposed to seek to have the Heads of Agreement set aside. What happened thereafter, and prior to its commencing the proceedings to achieve that end, was that there were “without prejudice” negotiations, the idea of the retention of the rights under the Heads of Agreement being stimulated by the letter from Clayton Utz.
510 In all these circumstances, there is no evidence of any affirmation or election. If one or other of the offers put forward by the parties had been accepted by the other there can be no suggestion that a refusal to perform the agreement thereby created was in some way over-ridden by the statement in the final paragraph of the letter of 14 September 1999. This further points up the context in which that paragraph was written and deprives it of the necessary consequences for which the plaintiff contends. The defence of affirmation must be rejected.
Conclusions
511 In the result I am satisfied that the plaintiff has established that but for the conduct in which the defendant engaged it would not have entered into the Heads of Agreement of 16 July 1995 and that it is entitled to relief from those Heads of Agreement on both bases for which it contends.
512 No submissions were made, if I were otherwise to find for the plaintiff, that the declarations and orders sought in the Further Amended Summons were in any way inappropriate.513 1. I make declarations in accordance with paragraphs 1 and 5 of the
Declarations And Orders
Further Amended Summons filed on 20 November 2000.
2. I make orders in accordance with paragraphs 2 and 6 thereof.
3. I order the defendant pay the plaintiff’s costs of the proceedings.
4. I order that exhibits be returned at the expiration of twenty eight
(28) days (allowing also for the long vacation period), unless, within that time, an appeal against this judgment has been brought.
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