De Oliveira v Udayaratna
[2016] VSC 123
•5 April 2016
IN THE SUPREME COURT OF VICTORIA Not Restricted AT MELBOURNE
COMMON LAW DIVISION
S CI 2011 03643
BETWEEN:
MANUEL JOSE DIAS DE OLIVEIRA Plaintiff by Counterclaim and ALAWATTAGE CHAMINDA SUDHARSHANA UDAYARATNA and SANDUNI RANHTHRA UDAYARATNA Defendants by Counterclaim ---
JUDGE:
Judd J
WHERE HELD:
Melbourne
DATE OF HEARING:
7, 8, 9, 10, 14 and 15 September, and 4 November 2015
DATE OF JUDGMENT:
5 April 2016
CASE MAY BE CITED AS:
De Oliveira v Udayaratna & Anor
MEDIUM NEUTRAL CITATION:
[2016] VSC 123
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CONTRACT — Terms — Rectification — Breach — Repudiation.
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APPEARANCES:
Counsel Solicitors For the Plaintiff Mr D G Robertson, one of Her Majesty’s Counsel Katherine Moorhouse Perks For the Defendants Mr D Carlisle W Jakody HIS HONOUR:
Introduction
1 The trial in this proceeding was confined to a counterclaim brought by Manuel Jose Dias De Oliveira against Alawattage Chaminda Sudharshana Udayaratna and his wife, Sanduni Ranhthra Udayaratna. I will refer to the plaintiff by counterclaim as the plaintiff or Manuel, and to the defendants by counterclaim as the defendants. Mr Udayaratna was referred to throughout the trial as Suda. I will do likewise.
2 Manuel is married to Maria Zelia Rodrigues De Oliveira, who was initially a party to the proceeding, through her trustee in bankruptcy, although not a plaintiff by counterclaim. I will refer to her as Zelia.
3 Suda, with his son, Vidu, controlled a group of companies involved in property development and construction.
4 Manuel and Zelia migrated to Australia from Portugal in 1985. They have two children, a daughter Raquel and son Diogo. At the time of the critical events that gave rise to this proceeding, Raquel was 20 years of age and Diogo had recently celebrated his seventh birthday.
5 On 27 September 2005, Manuel and Zelia became registered proprietors of a property at 175 Berwick–Cranbourne Road, Berwick. The property became their family home. They paid a purchase price of $460,000, granting a mortgage to Bluestone Mortgages to support an initial loan of $414,000.
6 Manuel was a plasterer by trade. He established a business manufacturing plaster mouldings, adopting the complex structure of a family trust. Olitex Plaster Pty Ltd acted as trustee for the Oliveira Family Trust.
7 Manuel and Zelia carried on the business, until it was sold under a contract of sale, dated 30 March 2009, for $50,000 to Olitex Mouldings Pty Ltd. A deposit of $20,000 was paid on 18 March 2009, with the balance due by 31 May 2010. The business had been carried on in a factory at 4 Bowen Street, Cranbourne. The balance of the purchase price was to be paid by instalments at the rate of $2,000 per month for 15 months. The purchaser failed to pay any of the instalments.
8 Prior to April 2009, Manuel had provided some plastering services to one or other of the defendants’ businesses. At some time in 2009 Manuel suffered what he described as a ‘seizure’, and was unable to work or drive for a period of time. The extent of his disability and duration of his unemployment, or under‑employment, was uncertain and controversial. Uncertainty over the true position was unfortunate due to the elevated importance of the issue at trial. His illness may have coincided with the sale of the Olitex Plaster business on 30 March 2009, although Manuel and Zelia said it was much later. Manuel, Zelia and Raquel said he was off work for only a month. Suda said he was told Manuel had been off work for one year.
9 In about May or June 2010, Manuel and Raquel had a discussion with Suda at his business premises. The purpose of the visit and what took place was controversial. There was little common ground between the parties on any issue. According to Manuel and Raquel, their purpose was to enquire about work for Manuel. Suda said that Manuel and Raquel sought his help in finding a solution to a financial predicament.
10 As a result of this and other meetings between Manuel (sometimes with Zelia and Raquel) and Suda, Suda agreed to develop the property by constructing multiple homes or units on it. He also agreed to re‑establish Manuel’s plaster moulding business. The oral evidence did little to define the terms upon which those objectives were to be achieved. There was disagreement about who initiated proposals. One point of agreement was, however, that the property would be transferred into Suda’s name for the value of the outstanding liability under the mortgage. The price was $450,000. The value of the property was around $800,000. It was agreed that Manuel, Zelia and their children would have a right to occupy the property rent free until the development had been completed, at which time a new home would be made available to them.
11 Manuel alleged that during these initial discussions, in late May or June, Suda agreed, as part of the development proposal, to pay all of his and Zelia’s existing debts, which were substantial, and to meet their ongoing living expenses except for food and clothes. It was not controversial that Suda became involved in the management of their debts, and was provided with a detailed list by 8 July 2010 at the latest. Suda denied any obligation to pay the debts or expenses.
12 The defendants insisted that the full terms of the agreement with Manuel and Zelia were to be found in a written document prepared by Suda and executed by Manuel, Zelia and Suda on 30 August 2010. By that time Manuel and Zelia had entered into a contract of sale, and signed a transfer of land. Settlement of the sale was due to occur on the following day.
13 The document was prepared following an initial meeting in Suda’s office that day, attended by Suda, Manuel, Zelia and Raquel. There was a subsequent meeting on the same day, attended by Suda, Manuel, Zelia, Raquel and Diogo, when the document was executed. As might be expected, there was a dispute as to who initiated the meeting, its purpose, what was said, and the circumstances in which the document came to be printed, executed, copied and subsequently amended and initialled.
14 The important terms of the agreement, according to the defendants, were Manuel and Zelia’s entitlement to ‘a town-house’ of a particular description, and payment of ‘all holding costs’ of the property out of the re‑established business. The defendants also relied on an ‘Entire Agreement’ clause in the document. The ‘holding costs’, according to the defendants, included interest on Suda’s loan to purchase the property. The scope of ‘holding costs’ was not explored. Did they also include rates and any land tax if payable? Did such costs include all bank charges and interest, or were they to be apportioned by reference to the amount Suda had borrowed to discharge the mortgage? As it turned out, unbeknown to Manuel and Zelia, Suda had used the property as security for a much larger facility used to support his other businesses.
15 Manuel contended that the written document was inaccurate and contained only part of their agreement. Manuel alleged that Suda expressly promised to provide two townhouses, whereas the agreement referred only to ‘a town‑house’. Each of Manuel, Zelia and Raquel gave evidence that Suda told them, in the course of reading the document on his computer screen, that they were to have two townhouses following completion of the development.
16 Manuel alleged he and Zelia were deceived into signing the document by the promise of two townhouses made by Suda. Manuel alleged that the electronic form had been corrected on the screen, although the corrections were omitted from the printed form, which contained the same errors as those corrected on the screen. Some errors were later corrected by hand. There was conflicting evidence about when handwritten corrections were made, and by whom.
17 According to Manuel, Zelia and Raquel, some days, or a few weeks after the document was executed, they consulted a solicitor who identified errors and made some handwritten amendments, including the insertion of the number ‘2’ in Recital A to change the words from ‘a town-house’ to ‘2 town‑houses’. When confronted with the amendments, Suda acknowledged that he had promised two townhouses, but refused to initial a change to that effect, claiming he could only afford one townhouse. Manuel sought rectification of the document to include a reference to ‘2 town-houses’. His rectification claim was based on the failure of the document to record the common intention of the parties; alternatively, the defendants were estopped from denying the existence of the term by reason of Suda’s representation that they would be entitled to two townhouses.
18 As McHugh JA pointed out in State Rail Authority of New South Wales v Heath Outdoor Pty Ltd,[1] the existence of writing which appears to represent a written contract between the parties is no more than an evidentiary foundation for a conclusion that their agreement is wholly in writing. The defendants did not contend otherwise. Rather, they submitted that the relevant terms of the 30 August document were clear and sufficient, and there is no basis for rectification, or any oral or implied term.
[1](1986) 7 NSWLR 170, 191.
19 The preparation and execution of the written document on 30 August 2010 occurred the day before settlement of the sale of property to Suda and his wife. Manuel and Zelia say they insisted on the meeting with Suda, prompted by the imminent settlement, his failure to pay the debts, and the absence of anything in writing to record his obligations. Raquel spoke of a list of grievances presented by Manuel to Suda on that day. Suda said he arranged the meeting to document the various aspects of his agreement with Manuel.
20 The evidence of negotiations and agreement in June and July was unreliable and sometimes incoherent. It was also commercially irrational, unless explained as part of a scheme to quarantine the property from creditors, and avoid assets falling into the hands of Manuel and Zelia. In addition to their mortgage debt, of approximately $450,000, Manuel and Zelia owed more than $150,000 to other creditors. One such creditor, Lion Finance Pty Ltd, had obtained judgment against Zelia in the sum of $41,414.77 plus interest and costs. Unless paid promptly, Zelia’s bankruptcy was a virtual certainty. In the events that occurred, the debt was not paid and bankruptcy resulted.
21 There was some evidence from which an unlawful scheme or design to defeat creditors might be inferred. Not surprisingly, no such allegation was made by either party, and their evidence was not directed to establish any such purpose. Even in the absence of an allegation, had the evidence established such a purpose to the requisite degree of satisfaction, the consequences for the parties might have been serious. As it transpired, the evidence from which adverse inferences might be drawn did not provide the necessary degree of satisfaction of an unlawful purpose to defeat creditors. In the circumstances, and in the absence of any such allegation, I am bound to determine only the case as presented by the parties.
22 The starting point of the defendants’ case, and a central issue, was the document executed on 30 August 2010. The relevant parts of the document, eventually printed by Suda, prior to handwritten changes made subsequently, are set out below:[2]
[2]T 193–4.
THIS AGREEMENT is made on the 30th day of August 2010
BETWEEN:
Chaminda Sudharshanan Udayaratna and Sanduni Ranithra Udayaratna of no 57 Glenview rise Berwick Vic 3806
AND
Mariza Zelia Oliveria and Manuel Joseph Oliveira no 175 Berwick Craneburen road, East Craneburne East Vic 3977
RECITALS:
On 8th August 2010 Zelia Oliveria and Manuel Joseph Oliveira entered into a contract of sale with Suda and Sandu Udayaratna for the sale of 175 Berwick-Cranbourne Road, Cranbourne East VIC 3977, for the sum of AUD $ 450,000/= and as per the conditions below:
A.After the development of the land at 175 Berwick-Cranbourne Road, Cranbourne East VIC 3977 into a multi-unit subdivision Maria Zelia De’ Oliveira and Manual Joseph De’ Oliveira will be awarded the possession of a town-house with 4 bedrooms, 2 toilets/bathrooms, double lock-up garage, up-to 160m2 at no cost.
B.Maria Zelia De’ Oliveira and Manual Joseph De’ Oliveira will be on-going tenants in the property at 175 Berwick-Cranbourne Road, Cranbourne East VIC 3977 without any rental commitments.
C.Raquel Rodrigues De’ Oliveira will be awarded 50% shares of the entity operating under the trading name: Eco-Cladding and Mouldings.
D.Eco-Cladding and Mouldings will be managed and operated in a profitable manner by Maria Zelia De’ Oliveira, Manual Joseph De’ Oliveira and Raquel Rodrigues De’ Oliveira.
E.Eco-Cladding and Mouldings will pay all holding costs of 175 Berwick-Cranbourne Road, Cranbourne East VIC 3977.
F.All profits & losses generated by the operations of Eco-Cladding and Mouldings will be divided as per the shareholdings.
23 In late July 2010 a business known as Eco-Cladding & Mouldings had been established by Suda. Manuel and Zelia had contracted to sell their property to the defendants and signed a transfer. Settlement was to take place on 31 August 2010.
24 The written agreement made no mention of debts which Manuel alleged Suda had promised to pay. A list of debts had been prepared by Raquel on her computer by 8 July 2010 at the latest. That was also the date of the contract of sale of the property. It was not clear whether an earlier iteration of the list existed.
25 Some debts were owed by Zelia, while others were owed by Manuel. In this proceeding, Manuel made a claim for his debts. No claim was made for Zelia’s unpaid debts. The list of debts prepared by Raquel consisted of the following:
DEBTOR AMOUNT CREDITOR Manuel
$ 9,060.00
MasterCard
Manuel
$ 10,456.00
Citibank
Manuel
$ 23,000.00
Westpac
Zelia
$ 17,122.00
Coles Group Master Card
Manuel (or his previous business)
$ 6,920.00
GMA Accountants Pty Ltd
Manuel (or his business)
$ 8,263.07
Australian Taxation Office
Zelia
$ 41,614.17
Lion Finance Pty Ltd
Manuel and Zelia
$ 35,000.00
Teresa
TOTAL
$151,435.24
26 Manuel alleged that as part of the initial discussions, probably in June 2010, Suda promised that following the sale he and his family would be permitted to continue to live in their home, rent free, until completion of the proposed development. That part of the agreement was not disputed. Suda was to provide a new home to replace the existing home. Manuel also alleged an agreement with Suda to share the profit from the development on a 50/50 basis. Suda rejected any agreement to share profit or pay debts.
27 Most aspects of the development proposal under discussion prior to 30 August were vague and imprecise. For example, how would profit be calculated? Presumably, profit on development would be calculated after deducting the development costs incurred by Suda. What about the amount of Manuel and Zelia’s debts paid by him? Manuel and Zelia also claimed that Suda promised to pay their ongoing expenses, such as credit cards, electricity bills, car registration, fuel costs, but not food and clothes.
28 The uncertainty surrounding the development proposal was manifest in the evidence given by Manuel. He was not sure how his share of the profit would be calculated, or the basis upon which he would be entitled to a new home. Nevertheless, on 8 July 2010, Manuel and Zelia entered into a contract of sale with Suda as purchaser of the property in the sum of $450,000.
29 Suda only paid one of the debts in full. Some time in July 2010, he negotiated with Manuel’s former accountants, who were owed $6,920, for a reduction in their account, and paid $5,000 in four instalments in apparent discharge of that liability. The first payment was made on 20 July 2010. In September he also paid a small amount off the debt due to the Australian Taxation Office.
30 In late July 2010, Suda took steps to set up the Eco-Cladding & Mouldings business. On 20 July 2010, he signed a lease for the premises, previously occupied by Olitex Plaster, at 4 Bowen Street, Cranbourne. The lessee was Finance & Investment Services Pty Limited, as trustee for the Udayaratna Family Trust, trading as Golden Heavens Property Developers. The company later changed its name to Udaya Pty Ltd. The monthly rental was $1,800.
31 Settlement of the sale of the property occurred on about 31 August 2010. For that purpose, the defendants arranged a line of credit with the Bank of Queensland, with an approved limit of $735,000. The line of credit was secured by a mortgage over the property. It was not suggested that Manuel or Zelia knew or agreed to the facility.
32 Manuel and Zelia commenced to work in the new business in about September 2010. There was some evidence they may have commenced a little earlier. From 10 September 2010 until late November Suda paid them a weekly wage of $1,000. On 29 November 2010 a cheque drawn by Suda, and deposited by Manuel and Zelia into their account, was dishonoured. Another cheque deposited the following week was also dishonoured. The circumstances surrounding the dishonour of the cheques was, of course, in dispute. Suda claimed to have stopped payment in order to attract Manuel’s attention. There was evidence that Suda’s business was experiencing financial stress at the time. There was also a dispute about what, if any, work Manuel had done for the business.
33 Manuel said that most of the mouldings made by the business in September, October and November were supplied for ‘Suda’s jobs’,[3] although he sold a moulding directly to another customer, who paid by cheque, which was passed on to Suda. Evidence of the payment was not challenged. Manuel said that he received no money from the sale of mouldings. He also did hard plastering work for Suda on projects outside the factory. Manuel claimed to be an employee in a business owned and controlled by Suda. Suda maintained that the business was a joint venture between his family and Manuel’s family.
[3]T 84.
34 The Eco-Cladding & Moulding business came to an end in December 2010. Suda claimed it ended because Manuel refused to work. Manuel claimed it was because Suda refused to pay wages. Following the breakdown of that part of the relationship, there were discussions between Suda and Manuel over a proposal under which Manuel would become a sub-tenant at the factory and pay some rent and operate a business on his own account. Part of the factory was used by Suda to store containers. If a sub‑tenancy agreement had been reached between Suda and Manuel, it was never implemented. In January 2011, Zelia broke her leg and was unable to work at all. Her labour was apparently necessary to operate the moulding machines. No rent was ever paid by Manuel, and on 25 February 2011 he was directed by Suda’s solicitor to vacate the factory premises.
35 The defendants alleged that the negotiations following the dishonoured cheques in December 2010 concluded in an agreement which varied the agreement made on 30 August 2010. They alleged that Manuel and Zelia breached the agreement as varied, by failing to pay $1,000 per month as sub‑tenants, and because they ‘would not operate Eco‑Cladding as previously agreed’. I take the defendants to put those grounds in the alternative. Their case for a variation depended on an agreed cessation of the previous arrangement for the operation of the business. In earlier pleadings, the defendants alleged a breach by Manuel because he ‘refused to work for them and informed them that he would continue the moulding business in his own name and would not be making any further payments’ to the defendants. This theme emerged again in final submissions, when the defendants submitted that the repudiatory conduct was Manuel and Zelia’s failure to pay the holding costs, which included payments to the mortgagee, the Bank of Queensland (over which Manuel and Zelia had no control, and about which they had no knowledge), rates and presumably other outgoings. Thus, the allegation of repudiation was mercurial.
36 The defendants alleged that by their conduct, Manuel and Zelia had repudiated the whole agreement. They alleged that the repudiation had been accepted in January 2011, although the conduct of acceptance was unexplained. In an earlier pleading the defendants identified the letter from their solicitor, dated 27 June 2011, as constituting their acceptance.
37 On 14 July 2011, the defendants commenced this proceeding to obtain possession of the property from Manuel and Zelia. They sought a declaration that Manuel and Zelia had breached their obligations under the agreement by refusing to continue ‘to work for them’, and by conducting the moulding manufacturing business on their own account. The defendants sought an order that the property be sold and the proceeds applied in discharge or the mortgage to the Bank of Queensland in the sum of $450,000, plus the costs of and including the sale of the property, and any sum the court may find due and owing to them under the agreement. It was only after those claims had been satisfied that Manuel and Zelia would become entitled to any surplus.
38 The defendants’ statement of claim did not disclose that at the time the proceeding was commenced the property secured a debt to the Bank of Queensland of over $700,000. The debt was increasing. There was never a real likelihood that any surplus would be available to Manuel and Zelia.
39 The bank served a notice to pay on the defendants, dated 28 May 2012, and a notice to vacate on Manuel and Zelia in June 2012. The notice to vacate was subsequently withdrawn. On 23 November 2012 the bank entered judgment in default of appearance against the defendants, and a few days later served another notice to vacate on Manuel and Zelia, based upon its judgment for possession. That notice was also withdrawn. On 7 March 2013 the bank commenced a proceeding against Manuel and Zelia for possession of the property. Manuel, Zelia and their children were evicted on 15 October 2013. The bank subsequently sold the property at auction, obtaining a price of $980,000, which was insufficient to discharge the secured liabilities.
40 Not surprisingly, the sale of the property by the bank brought an end to the utility of the proceeding commenced by the defendants. It was against this background that this trial proceeded on the counterclaim, with the defendants alleging, by way of defence, repudiation of the agreement of 30 August. They sought to set off, against any amount for which they might be liable to Manuel, the sum of $897,932.84 comprising the following:[4]
[4]The defendants formulated particulars of loss and damage, dated 12 September 2014. They relied on those particulars at trial, but subsequently filed another document, in response to a request from the court to align their claim with court book references. The subsequent document, dated 22 October 2015, was not identical, although there was a substantial overlap. One significant difference was the omission, in the claim dated 12 September 2014, of the purchase price for the land. In the absence of clarification, the more recent document, involving a larger claim, has been used for the purpose of this judgment to reflect the defendants’ claims.
Price of land purchased $ 450,000.00
Stamp duty$ 22,070.00
Expenses incurred in selling the mortgage property
(as per statement of account of HWL Ebsworth Lawyers) $ 56,467.83
Interest on loan from April 2011 $ 149,757.73
Bank fees on loan including bank legal fees $ 91,928.33
Interest paid to Bluestone Mortgages $ 4,750.47
Expenses incurred up to 24 March 2011 in setting up
Eco-Cladding & Moulding factory at 4 Bowen Street,
Cranbourne and weekly payments made to Manuel and
Zelia$ 104,958.48
Lease paid for factory at 4 Bowen Street, Cranbourne for
10 months from and including May 2011 to February 2012
@ $1,800 pm. $ 18,000.00
TOTAL$ 897,932.84
41 By an amendment made to his counterclaim at the conclusion of the evidence, Manuel alleged an implied term of the agreement to the effect that Suda would not encumber the property except to refinance the existing mortgage or for the purpose of the proposed development.
Issues
42 According to Manuel, his agreement with Suda was made in and between May and August 2010. He alleged that the document created on 30 August 2010 did not contain a number of important elements of their agreement. He alleged that the agreement was partly in writing, partly oral and partly to be implied. The written components were the contract of sale of land dated 8 July 2010 and the document created on 30 August 2010, as rectified. The 30 August document did not contain Suda’s oral agreement to pay debts and expenses. Thus, Manuel alleged five components to the agreement:
(1)to transfer the land to the defendants;
(2)the defendants would, following the redevelopment of the land, convey to the plaintiff two townhouses;
(3)the defendants would establish and operate a business utilising the plaintiff’s moulding machines;
(4)payment of the plaintiff’s debts and expenses; and
(5)Suda would not encumber the property except to refinance the existing mortgage or for the purpose of the proposed development.
43 According to the defendants, the principal issue in dispute was whether Suda promised to pay all expenses, except for food and clothing, until completion of the development. There were, however, many other significant disputes, not the least of which involved the alleged obligation to pay the debts. The other key dispute identified by the defendants was ‘what happened on 30 August 2010 when the agreement was signed’. Once again, that definition of the dispute was far too limited.
44 The defendants contended that the claim for rectification must fail because, on the evidence, Manuel and Zelia were aware of the operative terms of the written agreement prior to execution. Alternatively, they contended that even if Manuel and Zelia had been misled as to the content of the document on 30 August 2010, the content was acknowledged and confirmed by them at the meeting with Suda a few weeks later when some amendments were initialled by him, but not others. This alternative contention assumed the veracity of an account given by Manuel, Zelia and Raquel of a subsequent meeting when Suda initialled handwritten amendments. The defendants denied any such meeting, although their denial at trial and in submissions was equivocal.
45 The defendants also relied upon evidence given by Manuel and Raquel to the effect that it was they who required their agreement with Suda to be recorded in writing. At the same time, they rejected such evidence. But from that premise, they argued that it was clear that Manuel and Zelia intended the written agreement to set out the whole of their agreement with Suda. Suda insisted he initiated the preparation of the written document, not Manuel or Zelia.
46 The defendants contended that Manuel’s evidence prior to his re‑examination was to the effect that certain errors had been identified in the document shortly after it was printed, and immediately corrected and initialled. Thus, the defendants submitted, there was no dispute as to the content of the document at the conclusion of the meeting on 30 August. On the other hand, in their final submissions, the defendants appeared to accept that amendments had been made to the document on a later date, including the change in the number of townhouses.
47 The defendants submitted that the evidence of Manuel’s solicitor, Michael Mach, should only be accepted in part. Relevantly, Mach claimed to be the one who made amendments to the document. The defendants would have his evidence accepted only to the extent of the amendment made to the number of townhouses, by inserting the numeral ‘2’. Mach’s evidence was criticised as embarrassing and hopeless, because it was imprecise, he had not opened a file and it was possible he confused the occasion with another, in 2011, when he received instructions to lodge a caveat.
48 The defendants contended that it was Manuel who approached Suda with a proposition for the development of the property. They submitted that Manuel and Zelia were in a serious financial trouble, but unwilling to sell the property. They sought Suda’s assistance to find another solution. The defendants criticised Manuel and Zelia for understating the seriousness of their financial predicament.
49 Suda denied having agreed to pay the debts listed by Raquel on 8 July 2010. The defendants submitted that it was ‘self‑evident that Suda did not agree to pay the list of debts prior to the execution of the Sale of Land, as it was not done prior to the date of the agreement.’ I take that submission to argue that Suda could not have agreed prior to 8 July to pay the debts first listed on that date. The defendants also argued that it was simply implausible that Suda would have agreed to pay the debts. They invited the court to accept the evidence of Suda, that the list was prepared so that he could discuss with Manuel and Zelia how to deal with the financial predicament.
50 It is against that background the following questions arise for determination:
(1)What are the terms of any enforceable agreement between the parties? A resolution of this issue requires a consideration of the following:
(a)Does the written document, dated 30 August 2010, constitute the entire agreement between the parties?
(b)Did Suda agree to provide two townhouses to the plaintiff prior to execution of the document?
(c)Is the plaintiff entitled to rectification of the written document to include a reference to ‘2 town‑houses’?
(d)Were the defendants required to discharge any and if so what debts?
(e)Were the defendants required to pay any and if so what future expenses?
(f)Should a term limiting the right to encumber the property be implied?
(2)What, if any, terms of the agreement were breached by the defendants?
(3)Did Manuel and Zelia repudiate the agreement by ‘walking away’ from the Eco‑Cladding & Moulding business, and if so, with what consequences?
51 Answers to the foregoing questions will determine the defendants’ liability to the plaintiff for any breach, and any entitlement they might have to set off claims against the plaintiff.
The evidence — an overview
52 The evidence at trial left much unexplained, and was often confused. English was the second language for Manuel and Zelia, as well as Suda. Language difficulties did not, however, adequately explain all evidentiary deficiencies. Much of the evidence might have fallen into place had one or other of the parties explained their arrangement in terms of a scheme to quarantine the property from the grasp of creditors.
53 There was a great imbalance in commercial sophistication between Suda and Manuel. Suda and his son, Vidu, who gave evidence, presented themselves as sophisticated entrepreneurs, but explained their dealings with Manuel and Zelia as entirely altruistic. Suda claimed his purpose was to help fellow human beings in need.
54 Manuel and Zelia were commercially naïve, defensive and reluctant witnesses. Their grasp of the English language was limited. The experience of giving evidence in the English language, and enduring cross‑examination, was obviously traumatic and exhausting. At times they became quite emotional. Whoever or whatever the cause, they had experienced life‑changing events, which probably commenced with Manuel’s seizure in 2009, concluding with their eviction in October 2013. Their evidence was often disjointed and sometimes contradictory. I have no doubt that Manuel, Zelia and Raquel spent years discussing their financial ruin and the reasons for it. Collusion and rehearsal was alleged against them. Thus, it was necessary to approach their evidence with great caution.
55 Each side gave entirely different accounts about almost every important event. As is often the case, only documents and objective facts made the task of assessing the evidence possible. In the end, it was necessary to decide which of two unsatisfactory accounts was most plausible. It was also necessary to decide whether the burdens of proof, assumed by Manuel on his counterclaim, and the defendants on their defence of repudiation and set off, were satisfied.
56 While their grasp of the English language in 2015 was barely adequate, it was probably less than adequate in 2010. Communications between Manuel and Zelia, on the one hand, with Suda on the other, must have been difficult. Raquel played an important role as interpreter. She attended most important meetings. Language, and perhaps cultural differences, made it difficult for Manuel and Zelia to tell a coherent story from the witness box. They had great difficulty responding to cross‑examination, in the formal context of a trial. Misunderstandings were common. The conventional approach to examination and cross‑examination was unhelpful. Responses by a witness often related to a different time period or misunderstood an attempt by counsel to frame a ‘nuanced’ question. This deficiency was highlighted in an attempt to cross‑examine Zelia on pleadings, affidavits, an outline of evidence and transcript. It was not clear that she understood what question was buried in the statements of examining counsel. Raquel did not suffer from the same limitations, but was equally unfamiliar with the trial process, which must be arresting to any inexperienced lay person, and in particular persons from other cultures. Suda and Vidu had little difficulty giving their evidence, although Suda was prone to make speeches.
57 Manuel understood short, precise questions, but floundered when more complex questions were framed. His spoken English was reasonably clear. He was challenged on his claim of inadequate language skills. Zelia had some competence at writing, although the full extent of her grasp of the English language was unclear. She was not questioned about her ability to read the English language. Her ability to speak English was less well developed than Manuel’s. It was clear she did not understand many of the questions she was asked, particularly in cross‑examination.
58 There were times when Zelia’s evidence was confusing because of the absence of a clearly defined timeframe in questions and answers. She persistently maintained that in 2010 their financial position was being adequately managed by her. In fact, it was near hopeless absent a drastic step, such as refinancing or selling the home. Manuel was obviously not generating enough income to pay the debts.
59 The credit attack on Manuel, Zelia and Raquel was unsurprising. At the heart of the attack was their evidence about what had been read by Suda from his computer screen on 30 August 2010; whether a different document had been produced from the computer than had been read from by Suda; whether typographical errors had been corrected on the afternoon of 30 August 2010 and initialled by Suda at his office or at some later time; whether Manuel and Zelia had only appreciated for the first time, a few days after 30 August, that the document signed by them did not mention ‘2 town‑houses’, but only ‘a town-house’; whether they went to see their solicitor, Mach, a few weeks after 30 August; whether it was Mach who made the handwritten alterations to the document; whether they were advised by him to return the document to Suda and have him initial amendments, including the amendment to the number of townhouses; whether Manuel confronted Suda immediately after meeting his lawyer; whether Suda then went to the De Oliveiras’ home and acknowledged that he had agreed to provide ‘2 town-houses’ but could now only afford one; and whether, on that occasion, Suda initialled some amendments to the document, but refused to initial others.
60 The attack on Manuel’s credit was not confined to the new evidence given by him in re‑examination. The defendants submitted that he pretended to be unable to read the English language. They submitted that Manuel was unreliable and dishonest. The defendants also submitted that Manuel and Zelia sought to downplay their financial predicament to lend weight to their version of events.
61 Raquel was criticised because her evidence was generally consistent with that given by her parents. The reason given by her for refusing to sign a transfer of units in a trust was said to be contrived. Other evidence, such as her lack of enthusiasm about Diogo’s birthday party, hosted by Suda, and her characterisation of the sale of the property as ‘simply a transfer’ was said to be unreasonable. I take the defendants to mean unpersuasive.
62 The evidence given by Manuel and Zelia about amendments made to the document, and meetings with Suda after 30 August, attracted criticism for good reason. The evidence was first given by Manuel in re‑examination. There was no application by his counsel to elicit further evidence‑in‑chief, but nor was there any objection to Manuel giving the evidence. That is not to suggest that counsel for the defendants was not taken by surprise. Nevertheless, given an opportunity to further cross‑examine, the defendants’ counsel declined. Thus, Manuel was not challenged on his evidence.
63 Zelia and Raquel, who followed Manuel into the witness box, gave similar accounts of the subsequent meeting. Counsel for the defendants was invited to put directly to Zelia that her account was a fabrication, recently invented, but seemed reluctant to do so. That is not to say her evidence on the topic was not tested. Raquel’s evidence about the events of 30 August and subsequent meeting with Suda was more detailed and coherent.
64 The defendants complained that Manuel had not pleaded his visit to the solicitor in about September 2010, that the amendments had been made after 30 August, and Suda’s acknowledgement that he agreed to provide two townhouses. While not material facts, requiring a specific plea, the important evidence remained undisclosed until trial. Zelia also conceded that she had said nothing of those events when examined by her trustee in bankruptcy.
65 All of these circumstances might, in a different case, constitute strong evidence of recent invention, contrived by members of a family to bolster their case. Had Manuel informed his legal representatives of a meeting with Suda, days or weeks after 30 August, following a meeting with his solicitor, it might be thought that such evidence would be prominent in his evidence‑in‑chief, and that Mach would have been included as an important witness. I am persuaded that the new evidence emerged for the first time shortly before it was given by Manuel. But that does not mean it was necessarily false. This case was unusual.
66 The solicitor Mach, whose evidence was an afterthought, recalled the events. Thus, there was corroboration as well as other objective support for the evidence given by Manuel, Zelia and Raquel on this topic, notwithstanding the most unfortunate circumstances of its introduction. Mach recalled the meeting and claimed responsibility for making handwritten amendments that Suda claimed were his. Mach verified other aspects, such as his advice to Manuel to have the amendments initialled by Suda.
67 If the account given by Manuel and Zelia of the early development proposal, from which Manuel claimed a 50/50 profit share, is accepted, there is a logical basis upon which Suda might have sought a compromise, with an offer of two townhouses. By 30 August it was also plain that he would not be paying the debts, which might also have provoked a compromise.
68 Another factor to weigh in this difficult assessment is my overall dissatisfaction with the evidence of Suda. Unless corroborated by documents or other objective facts, Suda’s evidence was adorned by a façade of the ‘good Samaritan’. It was false. I regard his evidence as contrived and opportunistic, as was his conduct towards Manuel and Zelia. His denial of the subsequent meeting was also less than vigorous. When asked in cross‑examination if he went to Manuel’s home in September 2010 and initialled the document at that time, Suda answered,
I don’t remember. I don’t think so … I think this initial was done in the office after we signed …
69 Suda had been described by his counsel as altruistic in his approach to the De Oliveira family. In his evidence‑in‑chief, Suda presented himself as a thoughtful, selfless man whose purpose was to assist a family in a desperate financial position. His only thought was to re‑establish Manuel’s moulding business so that Manuel could get back on his feet. It was only in response to pressure from Manuel to buy the property, or undertake a redevelopment, that Suda became engaged in the formulation of a development proposal. Suda claimed to have advised Manuel to engage a real estate agent to sell the property, and told him that it was worth much more than the value disclosed in the rate notice. When Manuel suggested Suda take over the mortgage, or ‘get the mortgage transferred’, Suda declined, on the basis that he did not have the means to support the mortgage.
70 Thus, Suda claimed to be the reluctant participant in a proposal to redevelop the land. He was unsure about how long that would take, but if it took five to 10 years, Manuel and his family must have an opportunity to live in the property and generate income. Suda claimed that it was Manuel who asked him to set up a factory. He said, speaking of the Sunday meeting with Manuel and his family at his home:
At that time, the primary objective was in my heart, to help Manuel to get back his life back on track and then finding the solution. So basically it was focused on – more on how to establish the moulding factory back. It’s not about the property development.
71 When asked what his interest was in the re‑establishment of the business, Suda responded:[5]
Original intention was just to help him because this is our nature, because if someone come and wanted to help, I help and especially known person and in a completely broken - you know, state of financial situation and on top of that, outside world again, cheated him by taking the machines away so he really needs some help from someone to get back on track. When he asked for help, honestly, truly that was the intention because at that time we had enough orders, we are having a wonderful life. I don’t want to think about making another dollar out of somebody else’s misery so I was pinpointed focus only one thing, objective number one, to get Manuel back on track, get some relief for him and the family, that’s it.
[5]T 431–2.
72 Suda said he was going to use his half interest in the Eco‑Cladding & Moulding business to ‘help another family or this family again’.[6] Suda’s evidence continued in this vein which, if accepted, was completely at odds with the account of the relationship given by Manuel, Zelia and Raquel.
[6]T 443.
73 I do not accept that Suda’s conduct towards the De Oliveira family was altruistic, as was submitted. The evidence given by Suda concerning his motives and intentions was, I am persuaded, designed to mask conduct that was opportunistic and manipulative. I have no doubt that the De Oliveira family was in a state of financial crisis at the time Manuel and Raquel first approached Suda for work in late May or June 2010. But I am also persuaded that Manuel and Zelia were reluctant to reveal the truth about their financial predicament. I am satisfied that when Manuel first approached Suda he wanted work. In the course of their discussion, Suda became acquainted with Manuel’s financial predicament, and discovered that he and Zelia owned a valuable asset. Suda formulated a plan and strategy to acquire the asset and deploy it for his own benefit. The question for Suda was how best to achieve that objective.
74 Suda’s plan involved ingratiating himself with the whole of the De Oliveira family. He embraced the children as if his own. He exuded generosity. He sought information about the indebtedness of Manuel and Zelia. He had them prepare a list of debts. He promised to pay their debts if the property was transferred into his name for the amount due under the mortgage. He offered to provide work for Manuel, by assisting him to re‑establish the moulding manufacturing business. I am also persuaded that Suda told Manuel and Zelia he would pay their future expenses, although the extent of that obligation was so unclear as to be unenforceable. It emerged in evidence that Zelia’s understanding of the way this would be done was by wages of $1,000 per week. I accept that such a payment was the way Suda proposed to assist with future expenses.
75 The defendants argued that evidence given by Manuel, to the effect that Suda planned to allow Zelia to go bankrupt, was inconsistent with the agreement executed on 30 August, and the payments that were made by Suda. The particular payments were for wages ($1,000) per week, and various other expenses for the business, including the lease. It is true Suda continued to pay a debt he had renegotiated with Manuel’s former accountants, and made a small payment to the ATO. But Suda sought to explain and differentiate these payments as business related, and not personal.
76 Manuel and Zelia were ridiculed for their claim that once the property was in Suda’s name his attitude changed and he stopped making payments. The event bringing about such a change might have been execution of the contract, execution of the transfer, or settlement. If the contract of sale is to be given any weight as a binding agreement, the die was cast on or about 8 July 2010. That event coincided with the preparation of the list of debts.
77 I accept the evidence of Manuel and Zelia that once they were committed to a sale of the property there was a change in Suda’s demeanour. He was no longer willing to pay all of their debts. I accept that Suda seized upon the imminent bankruptcy of Zelia to avoid any continuing obligation for those debts. By 30 August he was not prepared to pay what he regarded as personal debts.
78 The defendants challenged Manuel’s allegation that he and Zelia had been deceived by Suda. The defendants to bolster their credit by relying on the formulation of their claim in the original proceeding, by which they sought an order for the sale of the property, with the balance of money to be repaid to Manuel and Zelia. They submitted that by acknowledging an obligation to repay any balance following a sale, they demonstrated a state of mind that was inconsistent with the proposition that Suda intended to keep the property for his own benefit, or to deprive the defendants of that to which they were rightfully entitled. The submission was illogical. It relied on a self‑serving pleading, which contradicted the point sought to be made. The defendants’ submission overlooked the fact that Suda had in fact used the property for his own purposes, making it almost inevitable that when it was sold, Manuel and Zelia would receive nothing. The defendants also submitted that had Manuel and Zelia consented to the sale of the property in July 2011, they would have been no worse off than had they sold the property in July 2010. That submission is irreconcilable with the facts.
79 In another attempt to bolster Suda’s credit, the defendants submitted that his conduct in assisting with the establishment of the Eco-Cladding & Moulding business was inconsistent with an intention to trick or deceive. That may be so, but only if the defendants’ altruistic motivation is accepted. Suda and Vidu were attempting to launch a new product. Manuel provided an opportunity. Once the contract for the sale of the property had completed, and the line of credit obtained, Suda had effective control over the economic wellbeing of Manuel and his family.
80 Suda’s mask as a disinterested ‘good Samaritan’, whose purpose was to help out another human being and his family, was dislodged by a number of events which revealed his real character. Notwithstanding the undisputed agreement by Suda to permit Manuel and his family to occupy the property free of rent, he procured Manuel and Zelia to sign a Residential Tenancies Bond Authority, dated 13 September 2010. Barry Plant Real Estate of Pakenham was appointed the landlord’s agent. The landlord was identified as Udaya Financial Investment Service Pty Ltd. The document acknowledged a weekly rental of $475. It was on the basis of this agreement that Suda, through his agent Barry Plant, sought to evict Manuel and his family in February 2011, by serving a termination notice under the Residential Tenancies Act 1997, requiring the De Oliveiras to vacate on 8 March 2011. The notice was dated 17 February 2011. In the notice Suda alleged that two weeks’ rent, in the sum of $750, was unpaid, but stated that rent had been paid up to 31 January 2011 — presumably a typographical error. Suda’s preparation and deployment of the agreement provided an important insight into his character and the credibility of his evidence.
81 When asked to reconcile these documents with his agreement that no rent be paid, Suda said:[7]
Okay. As I told you, that when we set up this factory and the accounting system and then it was a part of the agreement to pay the holding cost of the project back to me. So what really happened, the holding cost has got two components, one is his residence, 157 Berwick-Cranbourne Road, the other holding cost is the rent and leases of the factory as expenses. So these all are done on borrowed money from this entity which we both have contributed my property and his property. So then when the money comes out, the factory, you can — you have a legal entity because the factory is operating, you can account it but the money going into the project for holding costs you can’t account so then I explain, Mr Manuel and Mrs Manuel, this for accounting purposes, this money, you need to take from the Eco-cladding account and pay it as rent to the real estate, from the real estate, then they will give me and then it goes back to support the holding cost. That was the reason why we signed this Barry Plant and then he understood, he signed the bond form and then after that I gave direction to the Barry Plant Real Estate to complete the documentation and then I forward it.
[7]T 453–4 (emphasis added).
82 The explanation given by Suda was confusing and incompatible with his agreement to provide rent‑free accommodation. Suda’s counsel described the arrangement as one made for ‘tax purposes’. That was consistent with Suda’s explanation. If so, the arrangement formed some part of a contrivance. The tenancy agreement was a sham. It was not intended as a binding obligation to pay rent, but for another purpose. In all likelihood, its purpose was to persuade the Commissioner of Taxation that the holding costs were a deductible expense incurred for the purpose of generating rental income. Suda’s willingness to concoct such an arrangement, later employed in an attempt to evict Manuel, Zelia and their children, did not reflect well on his character. It was dishonest. Contrary to his asserted position, Suda was opportunistic and self‑interested. The fact that Suda persuaded Manuel and Zelia to execute such a document revealed him as dishonest and manipulative. The fact that Manuel and Zelia executed the document revealed them to be vulnerable, naïve and manipulated.
83 On 9 March 2011, Suda’s application for possession was dismissed. The circumstances remain a mystery, but may be explained in part by the fact that the landlord, for the purpose of the application was, not surprisingly, the landlord recorded in the rental agreement, Udaya Financial Investment Services Pty Ltd. Suda acknowledged that his company was not the owner of the property, but blamed the estate agent for the error. Nevertheless he acknowledged giving instructions to his agent to obtain possession of the property.
84 On 11 March 2011, Manuel and Zelia lodged a caveat over the property claiming an interest in the land pursuant to an agreement dated 30 August 2010. On 27 June 2011, Suda’s solicitor challenged the basis for the caveat, claiming that Manuel and Zelia had repudiated the agreement dated 30 August 2010. The repudiation conduct was when:
Your clients in December 2010 advised our clients that the arrangement was off.
This proceeding was commenced by the defendants soon afterwards.
85 Another insight into Suda’s character involved his use of the property as security. Having acquired title to the property, Suda immediately used it to secure a line of credit that was deployed by him to support his businesses. Use of the property for that purpose was not disclosed to Manuel or Zelia. Such a use of the property was inherently inconsistent with the notion of holding (and protecting) the property for development, and sharing net profits with Manuel. An honest man in Suda’s position, having agreed to hold property acquired at undervalue for future development, would not have further encumbered the property, thus exposing it to increased risk.
86 Suda explained the line of credit ($735,000) as his estimate of what would be sufficient ‘to kick‑start the factory’.[8] I reject his explanation as a recently formulated attempt to explain what he must have understood to be unjustifiable. Suda explained:[9]
No, it’s 50/50 because as the CEO, as the president of the group always I had to equate the transparency and the fairness in the deed so when you compute the numbers, Manuel property, let’s say 750 and then between 750 and the mortgage value around 435, 450 there was around $300,000 his contribution. So if I’m going to make a unit trust 50/50, I need to contribute 50 per cent of whatever he brings in. So how the structure was created, I promised to give this one - the townhouse for him, plus free living in the house, that’s my commitment. So then when you look at the numbers, total numbers – I can write it and show you.
[8]T 443.
[9]T 443–4 (emphasis added).
87 There was nothing transparent or fair in Suda’s dealings with Manuel and Zelia. Suda had never explained the basis upon which he had arranged and drawn down on a line of credit secured by the property.
Early discussions
88 The chronology is conveniently divided into three parts: events prior to 30 August 2010; events that occurred on 30 August 2010; and events that occurred afterwards. The first controversy was over the purpose of the initial meeting between Suda, Manuel and Raquel in May or June 2010. Manuel and Raquel said that their purpose in visiting the office of Suda was to find work. Suda claimed they sought relief from a financial crisis. The defendants sought to portray Manuel as a broken man, desperate for a solution to his crisis. Manuel, Zelia and Raquel sought to downplay the extent of the financial crisis.
89 Manuel said he contacted Suda only to find work. He had worked for Suda in the past. He told Suda of his illness, and need for work. Suda asked whether they had debts. Manuel said there may have been some discussion at the first meeting about the family home, and a possible development on the land.
90 Raquel recalled the visit to Suda in about June. She had never met him before. Raquel said the purpose of the visit was to find rendering work. Suda asked where they lived. When he discovered their home was on three acres in Cranbourne, he suggested a development of the land. Raquel said Suda asked about debts.
91 Manuel said that following the first meeting, he received a telephone call from Suda inviting him and his family to Suda’s home, instructing him to ‘bring all the documentations’.[10] Manuel understood this request to relate to the debts. Manuel said that he, Zelia, Raquel and Diogo went to Suda’s home on a Sunday, a few days after the first meeting. According to Manuel, during the meeting at Suda’s home, Suda proposed an arrangement under which he would develop the land, deduct the costs and divide the balance 50/50 with Manuel. Suda agreed to pay all of the debts and recover the money out of the development, presumably as a cost. Manuel and his family would be permitted to remain in occupation of the existing house, and would eventually move into one of the new houses. It was not clear whether the right to occupy or own a new house on the land was in addition to a 50 per cent share of any surplus. Even on Manuel’s version of events, the development proposal was vague and uncertain. The basis upon which Manuel and Zelia would contribute their property, and the way in which their profit share would be calculated, were essential elements of any such arrangement, but left unresolved.
[10]T 66.
92 Raquel agreed that re‑establishment of the moulding business and splitting profits had been discussed during the meeting on the Sunday at Suda’s home. Suda offered to assist Manuel recover his moulding machinery from the defaulting purchaser. According to Manuel, it was Suda who proposed that the business should be recommenced, and agreed to pay all ongoing expenses other than food and clothing. Manuel claimed that those expenses included car registration, electricity, gas and other recurring expenses, such as credit cards. The scope of such an obligation was, of course, incalculable.
93 Following the Sunday meeting, Suda inspected the property with his nephew. According to Manuel, Suda told him, ‘You have a goldmine here, you don’t need to work anymore’.[11] A few days later, Manuel and Zelia met with Suda at his office and were told that the property would have to go into Suda’s name because he could save money as an owner‑builder. Manuel said Zelia was not happy about the proposal, but ‘unfortunately, I did’.[12] Suda introduced Manuel and Zelia to Plaiche Lawyers, who agreed to act on their behalf, to prepare a contract of sale of property to Suda.
[11]T 72.
[12]T 72.
94 Under cross‑examination Manuel said that had Suda not proposed to develop the land, he and Zelia would have sold the property, paid out the debts and retained enough to buy another property. Counsel for the defendants challenged that evidence by suggesting such a proposal had been advanced by the defendants in their statement of claim, but rejected by Manuel. The challenge was misconceived, because the defendants must have known there was no prospect of anything left over for payment to Manuel and Zelia.
95 Zelia also gave evidence of the Sunday meeting at Suda’s home. She said that Suda promised to pay all the bills. She understood the proposed development may take up to 10 years, but in the meantime her family could stay in the house rent free. Zelia seemed uncertain whether Suda had merely agreed to pay all of the existing bills, or would also pay future expenses.
96 Raquel said that Suda mentioned a 50/50 arrangement at the Sunday meeting. While there were, from time to time, two 50/50 arrangements in play — the property development and the business — Raquel spoke on this occasion of the property development proposal. She said Suda offered to develop the land and build units or townhouses, deduct the costs and divide the profit 50/50. Suda asked to see ‘all the love letters, bills, he would call them love letters’. According to Raquel, Suda said he would pay all the debts, which would be added to the cost of the development, as well as future bills, such as electricity, phone, petrol, water and gas. He also discussed the moulding business. Suda said he would assist Manuel to get back his moulding equipment. He also discussed a new product made with polystyrene panels. According to Raquel, Suda even suggested that her brother attend a better school and Suda would pay for his school fees.
97 It was put to Manuel in cross-examination that he was the one who suggested a 50/50 division of profit, and Suda would not agree. It was not suggested that a 50/50 profit share was a figment of his imagination. Manuel may well have insisted on a 50/50 profit split. Suda appeared to have gone along with that proposal, or at least did not openly reject it, until 30 August 2010.
98 Suda gave evidence that he received a telephone call from Manuel in May or June 2010. He had not heard from Manuel for about one and a half years. Manuel arrived at Suda’s office with his daughter Raquel. He was in a very dishevelled state, with an overgrown beard, overgrown hair and torn clothes. According to Suda, Manuel said he had been sick for one year and was in a deep financial crisis. He could not even meet day‑to‑day living costs. Manuel asked for help. Suda asked what kind of help. Manuel told him his house was going to be taken by the bank, and he wanted a quick sale. Manuel told Suda he had sold his moulding machinery because of his financial difficulty, but that the purchaser had failed to pay the balance under the contract.
99 Suda said he told Manuel he was in no position to buy the property. According to Suda, Manuel showed him mortgage documents and a rate notice. Suda told Manuel the value of the property should be around $750,000 to $800,000. Suda asked why Manuel did not list the property for sale with a real estate agent. Manuel said he had no time.
100 Suda gave evidence that when he told Manuel he was unable to purchase the property, Manuel asked him to take a transfer of the mortgage so that he could stay at the property. This evidence from Suda might have formed the basis of a contention that Manuel sought to involve Suda in a scheme to defeat creditors. No such allegation was, however, made by the defendants, who characterised the agreements they made with Manuel and Zelia as wholly commercial.
101 According to Suda, Manuel was pleading for help. After reflecting on Manuel’s plea, Suda decided to invite Manuel and his family to his home the following Sunday. They brought their mortgage file. It was on that occasion, according to Suda, he told them the land had development potential in the next five to 10 years.
102 Suda claimed it was Manuel’s idea to set up a moulding factory again. Suda agreed it was a good idea. They discussed the possibility of recovering the moulding machinery. Suda said that his primary objective was to help Manuel get his life back on track and then find a solution to his financial problems. According to Suda, the focus of the discussion was to establish the moulding business, not property development.
103 Suda said he went to inspect the property at Manuel’s invitation. When he did so, he realised its potential to subdivide and ‘create some wealth for both families’. After his inspection of the property, Suda said:[13]
… and then I went back and then I started doing some research about creating a mission and a strategy to achieve this objective. The first objective is to get the machine back, set up the factory and then start the business and then get Manuel to have his living and then I made a telephone call to the council the next week and then had a chat with the planner and asked this particular address, how long it takes to develop? They said at least five to 10 years, it cannot be confirmed. So that is the final information I got from the council. So then I started thinking, okay, if it is going to be taking five to 10 years to develop then I have to create a strategy independent of development story, so that Manuel can live and take care of the mortgage and keep living his life, so when the opportunity comes in the future, then we can work together. So that’s the whole thing happening in the next week.
[13]T 432–3.
104 Suda went on:[14]
At that time I never thought about this aspect in the property development because it was not my intention about the development. My intention was how to get the factory up and running, get the moulding manufacturing done so that Manuel can live and Manuel’s family can live. So that was the only intention. So I gave least concern about future development because it’s not going to help for five to 10 years’ time, I’m 52 years old man, maybe I may not be even here.
[14]T 433–4.
105 There can be no doubt that by July 2010, and probably months earlier, Manuel and Zelia faced a financial crisis. They had debts exceeding $617,000, including approximately $450,000 owed to Bluestone Mortgages, secured by a first mortgage over the property. At the time, the property was worth around $800,000. Manuel had incurred credit card debts exceeding $40,000. Zelia had a credit card debt exceeding $17,000. Payments were overdue. More than $8,000 was owed to the Australian Taxation Office. They owed their accountant nearly $7,000. By 30 June 2010, Lion Finance Pty Ltd had obtained judgment by default in the Magistrates’ Court at Frankston against Zelia in the sum of $41,414.77 plus interest and costs. They also owed their friend Teresa $35,000.
106 Manuel, Zelia and Raquel claimed Manuel was unable to work for only one month, although unable to drive for six months. Zelia maintained, like Manuel, that their financial position was not desperate in May 2010. She said she was able to pay the bills. But all of the evidence pointed to a family in financial crisis by May 2010.
107 Zelia said Manuel went to hospital in September 2009, but started working with a friend in the same trade about a month later. By May 2010 he was trying to start his own business up again. Raquel also said her father had been off work through illness for only one month, but could not drive or go on scaffolding.
108 The debt to Teresa of $35,000 was explained by Manuel to have been borrowed ‘when I had the sickness’. A review of the customer statement prepared by Bluestone Mortgages revealed defaults occurring in loan repayment obligations from early 2007, with repayments becoming increasingly erratic from around the time of the sale of the business. Nevertheless, payments were being made, at least to the extent necessary to avoid action by Bluestone.
109 While Manuel, Zelia and Raquel maintained that Manuel was incapable of working for only a month, it was probably for a much longer period of time. A letter dated 3 August 2010, prepared by Suda on behalf of Zelia, to Jones King Lawyers, acting for a debt collection agency on behalf of Lion Finance, stated that:
My husband was sick for one year and could not work entirely during last year. We struggled in life to meet our expenses and please advise whether we can arrange a payment plan with you as below.
That letter, coupled with the timing of the sale of the moulding business, and the recent borrowing of $35,000 from a friend suggest that Manuel’s illness had prevented him from working for longer than he was willing to acknowledge. While the letter was drafted by Suda, it was on Zelia’s instructions. Suda and Zelia may, of course, have embellished the facts to obtain an indulgence. But the time off work, set out in the letter, is consistent with other evidence pointing to an extended illness and consequential financial stress.
110 Manuel was cross‑examined with the object of establishing that he was under severe financial stress during the initial discussions with Suda. He denied telling Suda that he was in ‘deep trouble’. He may not have done so, but I accept that he was in a state of financial crisis.
111 To this point in his evidence, Suda’s version of the events was consistent with objective facts concerning Manuel’s financial crisis. Manuel, Zelia and Raquel underplayed the seriousness of their predicament. If the evidence went no further, and the only question for determination was the purpose of Manuel and Raquel’s first visit, and whose evidence on that topic should be accepted, I would have been inclined to accept Suda’s version. But that was not the only question, and the evidence went much further.
112 The purpose of the initial visit, the question of who proposed a transfer or sale of the property, and who made the development proposal were factual issues elevated by the defendants to challenge the credibility of the plaintiff’s witnesses. Merely because some evidence given by a witness or witnesses is rejected, or the witness is found to have overstated the true position on some issue, will not necessarily contaminate all of their evidence. But it will require caution if other evidence is to be accepted without corroboration. In the present case, there were a number of areas in which the plaintiff’s evidence was reasonably criticised by the defendants. This was one such topic. In the end, however, it was necessary to focus on the issues requiring determination, and cautiously examine the evidence in relation to those issues.
113 The fact that Manuel and Zelia were under severe financial stress made them vulnerable. I am persuaded that Suda took advantage of their vulnerability, and the opportunity it presented to obtain a valuable property at around half its value. I reject Suda’s evidence that his only purpose was to help Manuel and his family.
114 Suda claimed that Manuel pursued him to purchase or develop the property and to set up his business again. I accept that Manuel wanted work, although he was plainly amenable to a development proposal. I accept Manuel’s evidence that, but for Suda’s development proposal, they would have sold their home. They had little choice. While Manuel was attracted to the idea of a development, I am persuaded it was Suda’s proposal. For reasons given below, I am also persuaded that Suda promised to pay the existing debts in order to obtain the transfer.
115 Suda made further attempts to explain the fairness of the transaction proposed by him, and the way in which Manuel and his family would be rewarded for their investment in his scheme by contributing their property at less than its full value. He explained:[15]
I took their property, around 750 for 450 so there was a net equity of 300,000, true. So one day I had to give him more than $300,000 worth economic benefit. When you look at the setting up the factory and I totally study it, I need to have $300,000 cash in the bank or develop a credit line to get the factory up and running without any problem, hiccup, and therefore I had to - so the $150,000 is a future benefit that is it not available into cash at that time. That’s why I created this one single townhouse worth around $400,000 as the future economic benefit with the future money value, that 150 would have grown up to that level. So the balance 150 which I drew from his equity, put it in the factory, get started the factory and everything done and with the back up of my other 150 standby, so that I would have never failed and I - until I get to this - very severe financial distress that I cannot service the mortgage, repeatedly Manuel kept failing to deliver his assigned responsibility and obligation.
[15]T 508–9.
116 Suda explained that the benefit of the equity contributed through the property was required to set up the new business which was to be owned 50/50. The explanation was contrived, disingenuous and designed to conceal Suda’s true purpose. As the basis for a commercial transaction, it was irrational. It is unlikely that, even if explained to Manuel and Zelia, it would have been understood. I do not accept that Suda approached his scheme on this basis.
117 Having regard to all of the evidence, I am persuaded that the more likely account of the first meeting was that given by Manuel and Raquel. I am persuaded that Suda saw an opportunity to obtain valuable land at a cheap price from distressed debtors, and pursued that opportunity.
Debts and the sale of land
118 A contract of sale for the property was prepared and dated 8 July 2010. The purchase price was $450,000. The contract recorded a deposit of $5,000 having been paid, with the balance due on 30 July 2010. It was common ground that the market value of the property at the time was up to $800,000. The price under the contract was calculated as the amount sufficient to discharge the mortgage to Bluestone.
119 Suda took Manuel and Zelia to the office of Plaice Lawyers, who purported to act on their behalf in the transaction. That firm also acted for Suda and his businesses. Manuel and Zelia were then taken by Suda to his accountant’s office. The accountant’s name was Michael. Suda introduced Michael to Manuel as his new accountant. Michael advised Manuel to close his existing business in anticipation of establishing a new business. Manuel said the contract of sale was signed a few days later in Suda’s office. Settlement eventually took place on 31 August 2010.
120 The accountant and solicitor providing advice and assistance to Manuel and Zelia on Suda’s initiative were intimately involved in Suda’s business affairs, including an ‘investor club’ in which ‘members’ were invited to invest in property or units in a trust undertaking a property development project.
121 Raquel said she was not involved in the sale of the property, although was asked to write a list of debts, which she prepared on her computer. The list was apparently prepared on 8 July 2010, the date of the contract of sale. Raquel said that when she prepared the list, much of the documentation concerning the debts was with Suda.
122 Suda claimed to have counselled Manuel to seek advice from Cliffords Lawyers, who acted on his behalf in the sale transaction, but Manuel insisted that Suda find him a lawyer. If Suda is to be believed, he reluctantly introduced Manuel and Zelia to his solicitor and accountant. I reject Suda’s evidence in this regard. I find that it was Suda’s initiative to introduce Manuel and Zelia to Plaiche Lawyers. Suda would have known that an independent lawyer, acting for Manuel and Zelia, would almost certainly have advised them against the transaction.
123 I find that the contract of sale was part of a much broader agreement between Manuel and Suda that involved a plan to develop the property at some time in the future. There were discussions about a profit‑sharing arrangement and a plan to re‑establish Manuel’s moulding business. Also, as part of the agreement, Suda had promised to pay the outstanding debts. He had also agreed to pay an amount as wages to Zelia and Manuel to enable them to cover future expenses.
124 The list of debts prepared by Raquel, on or before 8 July 2010, was prepared at Suda’s request. The computer generated document bears a date of 8 July 2010. The printed document contained Suda’s handwritten notes. Insofar as it is legible, Suda wrote:
Property purchase price $ 450,000.00
Total debt on property $ 450,000.00
Truck $ 15,765.52
Total debts $ 167,191.76
125 Zelia said that after Suda was given the list of debts created by Raquel, he created another list of his own. The second list, entitled ‘List of debts of Manuel & Zelia’, contained substantially the same information as the list prepared by Raquel. Suda denied having prepared the second list. He said:
How can I know their debts, how can I prepare a list like this? This is their personal debts that they have written.
Suda’s response was disingenuous. It was an attempt to isolate himself from knowledge of the detail of the debts and the true reason the list was prepared.
126 The version of the list that Zelia claimed had been prepared by Suda contained some annotations in Zelia’s handwriting, indicating that the debt due to GMA Accountants had been paid ($5,000) and that $720 had been paid to the Australian Taxation Office. This would suggest the handwriting was placed on the document at some time in or after September 2010. Zelia said that from time to time she contacted Suda concerning payments which were due.
127 Zelia said that Suda asked her to—[16]
make a list because he’s the one going to take over the land and he said all the bills he going to pay, all the expenses, everything, just he do the deal when he start to do the deal with work for him, he said he going to pay us $1,000 for the food and the clothing and all the rest he going to pay…
[16]T 242.
128 Suda said that it was only after he and Manuel agreed to set up the factory, and it commenced operation, that Manuel started to disclose credit card and other debts. Suda told him to prepare a list. Suda claimed that before the list was created, Manuel asked for money to pay for truck registration and his licence fee. Suda made some payments. He claimed those were necessary to run the business. Contrary to Suda’s evidence, the list was created by Raquel well before the new business was established, and months before it commenced operation.
129 After denying his preparation of the second list, Suda was asked about the document prepared by Raquel, which contained his handwriting. He became defensive, claiming he made some notes on the document, including a reference to ‘the truck that was missing’ and gave the document back to Raquel with instructions to:
rewrite again and the purpose of doing it is to give an education, you go back to the debtors and negotiate a payment plan because these are all your personal debts.
130 Manuel was challenged on his claim that Suda had agreed to pay all of the debts, and a threat by Suda to allow Zelia to go bankrupt. Manuel suggested that Suda seized on bankruptcy to avoid payment of a substantial part of the debt burden he had undertaken. The following exchange took place during Manuel’s cross‑examination:[17]
[17]T 119–120.
So I suggest to you that the reason he never paid a dollar is because he never agreed to pay a dollar?---No, because Mr Suda, after he had the house in his name, he tell me and my wife, “I’m going to make her bankrupt”, he say, “I’m not going to spend all this money to pay the finance companies, I can use this money to do other things” and I remember my wife say, “No, you have to pay, you must pay because I don’t want to stay home and the debt collectors come” and this and that and he say, “Don’t worry about it, I can come and take the house and take everything” and he says doesn’t matter, if he take the TV today, I bring another one tomorrow.
So the position is you say at some time he said he’s not going to pay any moneys because they are going to bankrupt her?---Yes.
The timing of the conversation about which Manuel gave evidence was uncertain. The cross-examination continued:[18]
Can you explain a little more about the circumstances in which Suda proposed that your wife should go bankrupt?---Yes, because when he stop doing the payments, me and my wife go to his office and we tell him, this must be paid, that’s the first one to be paid and Suda fix that paper, the one my wife sign it, to send it to these people, I think just to get more time and — can you ask me the question again?
I was asking about where this conversation took place about your wife’s bankruptcy?---Yes.
In what circumstances? How did it come about?---Yes, and after that he tell us he’s not going to pay this one because that money can be used for other things so he going to make her bankrupt and he just want myself with a clean name and my wife say, “No, I don’t want to be bankrupt” and he say, “No, I’m not going to pay.”
[18]T 120–1.
131 Suda’s explanation of his purpose in having the list of debts prepared, to segregate business from personal debts, was false. He deployed this explanation was deployed to explain his negotiation with GMA Accountants to have the debt of $6,920 reduced to $5,000, which Suda then discharged by four instalments of $1,250 each. The first such payment was made on 20 July. The negotiation with GMA Accountants must have been earlier. Suda explained the payment:
205 Accordingly, the agreement should be rectified to record that obligation.
Repudiation
206 The basis upon which the defendants claim to be entitled to damages is by reason of Manuel’s unlawful repudiation of the agreement dated 30 August 2010. The alleged repudiation, initially relied upon by the defendants was said to have been accepted by letter dated 27 June 2011 from their solicitors. By reference to the letter, the act of repudiation was in advising Suda ‘that the arrangement was off’. By reference to the statement of claim filed with the writ on 14 July 2011, the repudiatory conduct was constituted by Manuel and Zelia ‘refusing to work for them’ [ie the defendants] and ‘not making any further payments to [the defendants] under the agreements’, and perhaps, although it is not entirely clear, the further act of walking away from the defendants’ moulding manufacturing business.
207 The defendants’ characterisation of the moulding manufacturing business as their business was, in my opinion, an accurate concession. By their subsequent defence to the counterclaim, dated 14 April 2014, the defendants defined ‘the Oliveiras’ repudiatory conduct’ to be constituted by Manuel’s refusal to pay rent under an alleged variation to the 30 August agreement, or to operate the business as previously agreed. That is, Manuel’s refusal to pay $1,000 per month as a sub‑tenant and continue to carry on the Eco‑Cladding & Moulding business.
208 Manuel said that shortly after the payments from Suda stopped, he stopped work. There was a lack of clarity about the reason for the termination of payments. Suda said he put a stop on the payments because Manuel was not producing mouldings. Vidu gave similar evidence, complaining that they were unable to contact Manuel, and when asked, Zelia did not know where he was. The evidence of Suda and Vidu is contradicted by evidence given by Manuel and Zelia on this topic, as well as invoices prepared by Suda describing the time they claim to have spent with Manuel in managing the business. Manuel said he worked in the business from its commencement, producing mouldings for Suda. He also did hard plastering work for him.
209 After Manuel stopped work in December 2010, there was a meeting. Manuel told Suda he did not want to continue working for him, and agreed to pay $1,000 per month to lease part of the factory. Shortly afterwards, Zelia broke her leg and they were unable to operate the factory. That agreement was never implemented and is not the subject of any claim. The defendants also alleged that Manuel agreed to pay rental of $475 per week for the home property, to replace the obligation to meet the ‘holding costs’ under the agreement. Manuel rejected that suggestion.
210 Suda said that in December, Manuel came with his wife and daughter and said, ‘I think we would like to run the factory by ourselves and also we would like to continue to live in the house’, to which Suda responded, ‘No problem, if you think you can run the factory by yourself, pay half the factory rent, pay the existing mortgage, at that time I think is $450 or whatever, pay for the house’. Suda said they agreed on payment of the minimal holding costs ‘and then we walk away, they can do their business’. Suda said as a consequence, he would:
have some peace and let them live their life and then when it happen in future date we go and do the development, whenever day comes, we don’t have a problem because Manuel is going to pay for the house, pay for the factory so we don’t have any problem.
Suda’s evidence on this topic seemed to involve a confluence of conversations with Manuel, and conversations with his son Vidu. From Suda’s evidence it is difficult to discern the basis for any agreement with Manuel. I reject Suda’s evidence of any agreement to pay rent for the property. The discussion about a sub‑tenancy to Manuel followed Suda’s failure or refusal to pay Manuel and Zelia $1,000 per week.
211 The divergence between the evidence concerning the reason Manuel and Zelia stopped work involved the circumstances in which the regular weekly payments stopped. Suda said he stopped payment of the cheques in order to get Manuel’s attention. He said that Manuel had been unresponsive to attempts to contact him by telephone. Manuel denied that from September until December he had refused to accept calls or return calls from Suda and Vidu.
212 There was some evidence that numerous telephone calls had been made to Manuel’s mobile number, but not answered. There may be explanations for that apart from Manuel’s refusal to take a call. It was not put to Manuel he deliberately cut off communication with Suda. There was other evidence, in the form of the invoices prepared by Suda and Vidu, to support the defendants’ set off that was inconsistent with the alleged absence of communication.
213 Unfortunately, the reason for the dishonoured cheques was not explored in evidence by either side. At around the time the cheques were stopped, Suda’s businesses appeared to be experiencing financial difficulty. Suda conceded as much. On 9 February 2011, Vidu had sent a message to Zelia and Manuel, ‘We are struggling to make the repayments for the home and the factory as no rent is being received’. The text went on to express concern that the bank would take the property. While Vidu sought to explain the text, as no more than an attempt to startle Manuel into action, the content revealed the truth about Suda’s financial position. The bank later sold the property.
214 Moreover, the sequential dishonour of cheques is more consistent with financial difficulties than a deliberate decision to stop payments. Why draw the cheques in the first place? I find that the payments stopped because of Suda’s financial difficulties and not for the reasons given by Suda. It was Suda’s inability to continue to pay wages that caused Manuel and Zelia to abandon the business.
215 Suda explained that after ‘we lost the factory, we had no capacity to manufacture anything and neither did we have the expertise to actually manufacture any of the polystyrene related items’. I find that evidence surprising, given the value attributed by them to the product. I find that the loss of the factory, and any opportunity to manufacture the new product, was a consequence of Suda’s financial difficulties.
216 Vidu sent a text message to Manuel and Zelia on 5 December 2010, in which he said he had not been able to sleep ‘because of this problem’ but had come up with ‘a solution’. Vidu described the ‘problem’ as Manuel’s absence from the factory. He was uncertain about the solution, but thought it might have involved Manuel doing something other than manufacturing panels or mouldings. Vidu claimed to have asked himself,
Should we start rendering as well instead of just doing cladding and moulding because he was out there looking for work, I can’t contact him and when I come back or when we finally get a hold of him he’s hasn’t done any work, so we are not getting any revenue. So my idea was, can we do something else? Should we - can we start rendering, can we offer something else as an alternative to start generating some sort of cash flow because we are going for months on end and we are acquiring raw materials and nothing keeps coming in and then we had to give them $1,000 a week and nothing keeps coming in. We had to find a solution to the problem we have of having no cash generated from any of our efforts.
217 Both Suda and Vidu complained that while they were paying Manuel and Zelia $1,000 per week, there was no money coming in. Manuel said he was selling mouldings and undertaking work on behalf of Suda. The issue was unexplored in evidence, apart from allegation and counter‑allegation. Where were the records, invoices or delivery dockets? The business was, of course, in its infancy. Invoices prepared under Suda’s instructions for the purpose of making the defendants’ claimed set off, dated November 2010, referred to ‘receiving orders, start manufacturing, delivering orders’. If that was a true reflection of what was being done, November was the first month in which product was being actively sold. Vidu’s text was dated 5 December. That would leave very little time for payments to be received in the ordinary course of business.
218 I reject the defendants’ characterisation of Manuel’s conduct as a repudiation of the agreement. The business failed because Suda was unable to perform his side of the bargain and continue to pay wages to Manuel and Zelia. Furthermore, even if Manuel had walked away from the business in December 2010 or January 2011, having simply become dissatisfied with the arrangement, his conduct would not have amounted to a repudiation of the agreement. The business had not been established as agreed. It was established and owned by Suda or his entities. Manuel and Zelia were employees.
219 A significant component of the set‑off compromised a claim for management time expended by Suda and Vidu. The claim for $52,000, as part of the cost of setting up the business, was supported by invoices prepared on behalf of Suda and Vidu. The invoices were contrived in the sense that they were prepared to support the claim rather than delivery to and payment by Manuel. There was no suggestion that Manuel had ever agreed, expressly or by implication, to pay such charges.
220 Suda said that when the relationship broke down in December 2010, he had his staff prepare a series of invoices directed to Manuel to recover costs associated with the establishment of the business. The first invoice, in the name of Golden Heavens Property Developers, was dated 30 July 2010 in the sum of $7,500. Suda’s time was charged out at $300 per hour. The second invoice was dated 30 August 2010, in the name of Udaya Pty Ltd. The amount claimed was $6,000 for consultations with Suda. The third invoice was dated 30 September 2010, claiming the sum of $6,000 for consultation with Suda. The fourth invoice was dated 30 October 2010, in the sum of $5,100. The content of the invoice is important, because Suda recorded, over five days, 17 hours ‘directing Manuel to promote the product with our network of builders and with his past client base’. In the month of November, over four days, Suda charged for 13 hours, at $300 per hour, for ‘receiving orders, start manufacturing, delivering orders’. The last such entry was for 26 November 2010. The total amount claimed in the invoice was $3,900. For December, a charge of $3,600 was made, over three days. The description of work on each of 1 December, 7 December and 10 December, involving four hours, five hours and three hours of Suda’s time respectively, was ‘Manuel stopped working and refused to work with us any more’.
221 Similar invoices were prepared describing consultations with Vidu. The July invoice charged $4,000, the August invoice $4,000, the September invoice $4,000, the October invoice $3,000, the November invoice $2,600 and the December invoice $2,600. There was a great deal of uniformity between the description of the work undertaken by Vidu and Suda. Vidu’s charge out rate was $200 per hour. He was directing Manuel for two hours on 5 October, five hours on 13 October, three hours on 22 October and five hours on 29 October. In November, Vidu was involved in receiving orders, manufacturing and delivering orders for three hours on 2 November, two hours on 10 November, four hours on 18 November and four hours on 26 November. He also charged for work done on 1, 7 and 14 December, described as ‘Manuel stopped working and refused to work with us any more’.
222 If Suda’s evidence is accepted, at the time these invoices were prepared, in December 2010, Manuel had only just stopped work. Arrangements had been made under which Manuel would lease part of the factory and pay $1,000 per month. Zelia had not yet broken her leg. In such circumstances, there was a surprising rush to recover time allegedly spent on the Eco‑Cladding & Moulding business which, according to Suda, had been established out of Suda’s good will to assist a struggling family.
223 If the content of the invoices is accepted as bearing any relationship to work actually undertaken by Suda and Vidu, the description is inconsistent with Suda’s complaint about Manuel’s absence and failure to work productively in the business up to December. Both accounts cannot be correct. I accept the evidence of Manuel, that he was working diligently in and from the premises at 4 Bowen Street throughout that period, taking orders, manufacturing and despatching product on behalf of Suda’s businesses.
224 Under cross‑examination Vidu suggested that the invoices may be incorrect. He said they were not prepared by him. He was uncomfortable with the reference to ‘receiving orders’ mentioned in the November invoices. He was also uncomfortable with the reference to ‘directing Manuel’.
225 I do not accept that a lack of revenue, if there was a lack of revenue from the business, was the product of Manuel’s failure to work in the business. I do not accept Vidu’s evidence that he was only aware of the sale of one casting made in the factory. Nor do I accept his evidence that he was unaware of moulded products leaving the factory.
226 Given the significance of these events to the defendants’ allegation of repudiation, one might have thought evidence of a communication to the bank to stop payment on cheques, if it existed, would have been adduced. I infer there is no such evidence, because the cheques were, as the account into which they were paid revealed, dishonoured. They were dishonoured because of Suda’s financial difficulty.
227 The depth of the financial crisis confronting Suda’s business is evidenced by the fact that it was necessary for the Bank of Queensland to undertake a mortgagee’s sale of at least two properties, including 175 Berwick–Cranbourne Road.
228 I am satisfied that Manuel and Zelia stopped work in the business as a direct consequence of Suda’s failure or inability to pay wages of $1,000 per week. Furthermore, the business was not established as agreed, to be owned as to half by Raquel and Diogo. It was and remained Suda’s business.
Implied term — not to further encumber the property
229 Near the conclusion of the trial the plaintiff amended his counterclaim to allege an implied term that the plaintiff would not encumber the property except to refinance the existing mortgage or to finance a development project. It was alleged that such a term was necessary in order to give business efficacy to the agreement. The implication of such a term must satisfy the requirement set out in BP Refinery (Westernport) Pty Ltd v Shire of Hastings.[36] The passage is so well known as to not require repeating. The difficulty with the plaintiff’s case for an implied term is that the sale for under value, but a price sufficient to discharge the mortgage, was effective without a constraint upon further encumbering the property. In other words, the implication of such a term was not so obvious that ‘it goes without saying’. Other value was to be given for the purchase, including a profit share and the payment of debts. The object of the transfer was to achieve a future redevelopment. That would inevitably involve further expense. It might be entirely reasonable to further encumber the property for that purpose. The plaintiff’s proposed term acknowledged that possibility, but lacked necessary precision. In what circumstances would it be reasonable to further encumber the property, and to what extent? In my opinion there is no occasion to imply such an imprecise term into the agreement.
[36](1977) 180 CLR 266, 282–3.
230 The plaintiff relied on a breach of the implied term as a repudiation by the defendants. The conduct alleged to constitute acceptance by the plaintiff of the defendants’ repudiation was his ceasing to work in the Eco‑Cladding & Moulding business in December 2010 and January 2011. The plaintiff was unaware of the further encumbrance until well after Suda attempted to evict his family from their home.
Plaintiff’s entitlement to damages
231 By attempting to evict Manuel and his family from the property in February 2011 the defendants breached a fundamental term of their agreement with the plaintiff. That breach constituted a repudiation of the agreement, which was accepted by Manuel when instituting his counterclaim.
232 The plaintiff’s entitlement to damages flowing from the defendants’ breach includes the value of one townhouse,[37] and an amount calculated by reference to rental for accommodation. Manuel is not entitled to the unpaid debts, which were effectively abandoned on 30 August 2010. His claim for expenses is also rejected. The value of Manuel’s loss calculated up to the end of September 2014, being the date of the plaintiff’s counterclaim, is as follows:
[37]The parties agreed on a range of values and the plaintiff selected the midpoint of $400,000, to which there was no dissent by the defendants.
(a)value of one townhouse $ 400,000
(b)loss of possession of the property until
end of September 2014 at $2,000 per month[38] $ 22,000
Calculation of the amounts was not in dispute between the parties.
[38]On Suda’s assessment, the development of the land might have taken up to 10 years. The plaintiff, reasonably in my view, elected to claim for a much shorter period of time.
233 The claim for ongoing expenses cannot succeed. Suda’s obligation to pay such expenses was to be discharged through the payment of a wage of $1,000 per week. In any event, the plaintiff’s claim as formulated was too vague and indefinite. It is impossible to discern any reasonable limit to such expenses.
234 Nor am I prepared to make any allowance for goodwill in the Eco‑Cladding and Moulding business. At the outset, Manuel started with nothing, having sold his business. What was later established was owned by Suda or his entities, and the business was conducted on their behalf. The obligation in the agreement of 30 August 2010, to set the business up with a particular ownership, was not pursued after the confusion that occurred in July 2010. As a consequence, Manuel accrued no interest in the business which was, in any event, intended under the agreement to be held by Raquel and Diogo.
Set off
235 I have rejected the defendants’ allegation of breach by Manuel and Zelia in December 2010, or January or February 2011.
236 From a review of the invoices, and the items of expenditure claimed by the defendants as damages for breach, to set off against the any award of damages to Manuel, it is apparent that the amounts attributed to the establishment of the Eco‑Cladding & Moulding business involved expenditure or cost incurred by companies within Suda’s group. When cross‑examined on the topic, Suda’s counsel expressed surprise that a challenge might be taken to the validity of the claim made by the defendants merely because items of expense were not incurred by the defendants personally. It seems clear from the documents introduced into evidence by the defendants that most of the expenses incurred in establishing the business were not incurred by the defendants.
237 I am not satisfied that the claims made for the establishment of the business were, even if it be found that Manuel and Zelia had somehow repudiated the agreement, recoverable by the defendants, or capable of establishing a defence, by way of set-off, to the claims against them. The business was a creature of Suda’s corporate empire. There was no evidence that the expenses were incurred on account of the defendants. Payments made to Manuel and Zelia were in the nature of wages. There is no basis on which to impose a liability on Manuel to repay Suda for his expenses in establishing and operating the business. He did so at his own risk.
238 As for the other components of the loss claimed by the defendants, with the exception of a payment to Bluestone Mortgages on behalf of Manuel and Zelia, the loss related to the purchase, holding and sale of the property. The cause of that loss was the defendants’ impecuniosity. They were unable to continue to meet their obligations to the bank.
239 Finally, the defendants relied upon their proposal, reflected in their statement of claim in which they claimed an order for the sale of the property. They alleged, as part of their set off, that if the De Oliveiras had vacated the property, then the plaintiff would have sold it and paid out the loan to the Bank of Queensland. Such a contention was entirely unrealistic. It was apparent that the bank moved quickly in relation to two properties owned by Suda. In any event, there was nothing left after satisfaction of the mortgage.
240 Consequently, even if the defendants had established a breach by Manuel and Zelia, they are not entitled to set off any amount claimed by them against damages payable by them to the plaintiff.
Conclusion
241 The plaintiff is entitled to judgment on his counterclaim against the defendants in the sum of $422,000, calculated as at the end of September 2014, together with interest. I will hear the parties on costs and final orders.
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