Doric Group Holdings Pty Ltd v Garside

[2016] WASC 38

DORIC GROUP HOLDINGS PTY LTD -v- GARSIDE [2016] WASC 38

Jurisdiction:	SUPREME COURT OF WESTERN AUSTRALIA	Citation No:	[2016] WASC 38
Case No:	CIV:1448/2014	Heard:	20 NOVEMBER 2015
Coram:	MASTER SANDERSON	Delivered:	11/02/16
No of pages:	11	Judgment Part:	1 of 1
Result:	Application dismissed
Category:	B
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Parties:	DORIC GROUP HOLDINGS PTY LTD DORIC CONTRACTORS PTY LTD GARY DESMOND GARSIDE TERRY JAMES PILBEAM ANDREW JAMES FATIN GREGORY LINTON ALLEN ROBERT LINDSAY SHIRLEY
Catchwords:	Defendants' application for summary judgment Turns on own facts
Legislation:	Fair Trading Act 1987 (WA) Strata Titles Act 1985 (WA)
Case References:	Forsayth NL v Northern Gold NL (Unreported, WASCA, Library No 940012, 20 January 1994) Perron Investment Pty Ltd v Tim Davies Landscaping Pty Ltd [2009] WASCA 171

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION : DORIC GROUP HOLDINGS PTY LTD -v- GARSIDE [2016] WASC 38 CORAM : MASTER SANDERSON HEARD : 20 NOVEMBER 2015 DELIVERED : 11 FEBRUARY 2016 FILE NO/S : CIV 1448 of 2014 BETWEEN : DORIC GROUP HOLDINGS PTY LTD

First Plaintiff

DORIC CONTRACTORS PTY LTD
Second Plaintiff

AND

GARY DESMOND GARSIDE
First Defendant

TERRY JAMES PILBEAM
Second Defendant

ANDREW JAMES FATIN
Third Defendant

GREGORY LINTON ALLEN
Fourth Defendant

ROBERT LINDSAY SHIRLEY
Fifth Defendant

Catchwords:

Defendants' application for summary judgment - Turns on own facts

Legislation:

Fair Trading Act 1987 (WA)

Strata Titles Act 1985 (WA)

Result:

Application dismissed

Category: B

Representation:

Counsel:

First Plaintiff : Mr P Mendelow & Mr P J Hannan
Second Plaintiff : Mr P Mendelow & Mr P J Hannan
First Defendant : No appearance
Second Defendant : No appearance
Third Defendant : Mr M Hotchkin
Fourth Defendant : Mr M Hotchkin
Fifth Defendant : Mr M Hotchkin

Solicitors:

First Plaintiff : Jackson McDonald
Second Plaintiff : Jackson McDonald
First Defendant : No appearance
Second Defendant : No appearance
Third Defendant : Hotchkin Hanly Lawyers
Fourth Defendant : Hotchkin Hanly Lawyers
Fifth Defendant : Hotchkin Hanly Lawyers

Case(s) referred to in judgment(s):

Forsayth NL v Northern Gold NL (Unreported, WASCA, Library No 940012, 20 January 1994)
Perron Investment Pty Ltd v Tim Davies Landscaping Pty Ltd [2009] WASCA 171
1 MASTER SANDERSON: This is an application by the third, fourth and fifth defendants for summary judgment or alternatively to strike out the plaintiffs' substituted claim dated 6 July 2015 and refuse leave to re-plead. It is worthy of note neither the first nor the second defendant joined in this application. Be that as it may the third, fourth and fifth defendants (who for the purpose of this application I will refer to collectively as 'the defendants') have the right to make the applications and have those applications determined on their merits.

2 Turning first to the defendants' application for summary judgment counsel referred to the fact a plaintiff on a defendant's summary judgment application is confined to its pleaded case. Reliance was placed on the decision in Forsayth NL v Northern Gold NL (Unreported, WASCA, Library No 940012, 20 January 1994). Further, in establishing there is a real question to be tried it is not enough for a plaintiff to suggest some evidence as to a necessary fact will or may be adduced in the future. It must be adduced by the plaintiff on the summary judgment application. To support that proposition counsel referred to the decision of Perron Investment Pty Ltd v Tim Davies Landscaping Pty Ltd [2009] WASCA 171 [45] - [52].

3 There were three affidavits filed in support of this application and four affidavits filed in opposition. The defendants relied on an affidavit of Gilbert Alexander Flynn sworn 7 August 2015, and two affidavits of Andrew James Fatin, one sworn 13 August 2015, the other sworn 18 September 2015. The plaintiffs relied on four affidavits: two sworn by Rein Jozsef Squires, one on 19 October 2015, and the other on 4 November 2015; one sworn by Garrick Edward Smith on 19 October 2015; and one sworn by Harilaos Xydas on 16 October 2015. All seven of these affidavits were admitted into evidence. The plaintiffs' claim is set out in a substituted statement of claim filed 7 July 2015. It is a complex document. It runs to 27 pages plus annexures and has 145 paragraphs.

4 The case concerns the development of units on a property in North Fremantle. In January 2006 a company styled Northbank Bridges Pty Ltd (NBB) was incorporated to undertake the development. The development was marketed as the Rivershores Apartment Complex. The intent was to sell the apartments 'off the plan'. That is to say prior to the construction of the apartments they were to be marketed and purchasers would make a down payment on the apartment with full payment due when the apartments were completed. For this purpose contracts described as Rivershores Apartment Sale Contracts were drafted. The contracts provided for the payment of a deposit at various stages with a balloon payment when the complex was complete. All of these matters are pleaded in pars 1 - 57 of the statement of claim. (These paragraphs also contain a great deal of detail about the background and the arrangements between various parties involved in the development. For present purposes that material is irrelevant.)

5 By January 2009 although they had Town Planning Approval NBB lacked the funding necessary to complete the Rivershores Apartment Complex. To address this problem a joint venture company known as Rivershores JV Pty Ltd was incorporated. In February 2009 the first defendant, a director of NBB, sent to Mr Xydas, who was a director of both the first and second plaintiff, an email. That email:

1. invited Mr Xydas or entities associated with him to consider either constructing the Rivershores Apartment Complex on the development land or investing in the project; and

2. stated that there were pre-sales of $43 million.

6 It is this reference to the '$43 million in pre-sales' which is all important on this application. The substituted statement of claim sets out a number of instances where this representation was repeated. It is said the representation led directly to NBB and the plaintiffs entering into a joint venture to build the apartment complex. The defendants' solicitors prepared a Chronology which is drawn from the substituted statement of claim and the evidence. It is a useful guide to what (at least on the defendants' version of the pleading and the facts) occurred and I will quote it in full:

26 March 2009 Meeting in board room of Doric. G Garside in the presence of G Allen says to H Xydas and G Smith the project has about $40 (or $43) million in pre-sales. Each of H Xydas and G Smith confirm the statement was made by G Garside (cf. paragraph 64(2) of the Claim).

15 April 2009 Heads of Agreement signed providing for a confidential due diligence period for Doric to investigate the project, and Doric were to be granted full and unfettered access to all information including contractual agreements. Affidavit of Mr Xydas, attachment HX4.

27 August 2009 Email A Fatin to G Smith, AFI to Affidavit Fatin 18 September 2015 (second Fatin Affidavit) pages 5-7. Garrick Smith informed by email chain, that no law firm had done the pre-sale contracts review for Northbank Bridges Pty Ltd (NBB). A Fatin asks 'who has done the presales review??'; and the response of NBB is 'Not done as didn't get that far'. Page 6, Second Fatin affidavit.

31 August 2009 Meeting A Fatin asked to meet G Smith, in the offices Doric, regarding solicitors for presale contracts review. Second Fatin Affidavit, paragraphs 6-8, attachments AP2, AF3.


A Fatin was informed Minter Ellison, solicitors, appointed to do due diligence on pre-sales for CBA.

1 September 2009 G Garside email to G Smith and F Poeta (lawyer, acting for Doric entities - see paragraph 12, Statement of Claim filed 10 April 2015, c.f. paragraph 10 of the Claim, that now does not assert Mr Poeta acted for the plaintiffs). By this email G Garside asks whether all pages of all presales contracts are required by Doric, and requests a waiver of the requirement for originals as these were lodged for stamping. Refer attachment RS10 to the Affidavit of Rein Squires, page 83.

8 September 2009 The MOU was signed (attachment HX6 to Affidavit Xydas pages 22-43, attachment AFI to Affidavit Fatin sworn 13 August 2015 pages 7-28). This MOU Terms Sheet was subject to finance being obtained from CBA, with a condition precedent including a requirement that the contracts for pre­sales be subject to satisfactory due diligence reports (page (top page 39, Xydas Affidavit). The Terms Sheet attached to the MOU further required Jaxon by to confirm pre-sale contracts were satisfactory, before the sale of the land interest would proceed (point 4(b), page 32 Xydas affidavit).

27 October 2009 Jaxon writes to NBB seeking to extend the exclusive dealing period in the MOU for 30 days, from 6 November, to 6 December. The letter states that whilst it was anticipated that 'we will have completed our due diligence in relation to the building contract and the pre sale contract review' by 6 November, the further time was needed to confirm the funding facility will be in place.

28 October 2009 Attachment AF3 to the First Fatin Affidavit, pages 31-32 - NBB advises G Smith that it will extend the exclusive dealing period, but claims it is being kept in the dark about progress with bank funding. Doric responds by advising that they was a 'major hurdle' with CBA, being a requirement for a Doric guarantee on the debt.

29 October 2009 Report of Minter Ellison 'Presale contract due diligence report' was emailed by R Barnett (Doric) to A Fatin and G Smith. Refer attachment AF4 to first Fatin affidavit, pages 34-54.

17 November 2009 Jaxon (Doric) writes to NBB proposing to amend the MOU have Jaxon provide project funding: attachment AF5 to First Fatin affidavit, pages 55-78. In relation to the sales contract, it is stated (page 57) '3^rd point remains unchanged'. Jaxon still required to be satisfied about existing pre-sale contracts. Satisfactory due diligence by Jaxon on presale contracts is a condition precedent also to providing finance: page 62, First Fatin affidavit.

19 November 2009 A further version of the letter from Jaxon to NBB proposing to vary the MOU was sent to NBB. A Fatin called G Smith and advised that the NBB investors required confirmation that there was a senior lender, and conditions precedent to funding had been met (due diligence completed): paragraph 18, First Fatin affidavit. The variation letter was amended to insert the words: 'Jaxon acknowledge that they have received all required information and all conditions precedent to the interim funding will have been met with the injection of the initial equity as detailed in Annexure B'. Refer pages 106, 82, First Fatin affidavit. The executed version appears as GS8, to the affidavit of G Smith, pages 58-83.

26 November 2009 G Smith provides draft board papers to H Xydas. The papers disclose that the Doric knowledge following preliminary investigations into the project was that the market value of remaining (unsold) units was approximately 20% below the original asking prices. The papers also disclose that the Doric parties entered into the MOU with subsequent participation in the project being subject to 3 conditions precedent. One condition precedent was confirmation that the pre-sales contracts were legally binding (page 71, Xydas affidavit). The board was also informed that Minter Ellison prepared a due diligence report on the pre-sales contracts, and Doric received a copy (page 72, Xydas affidavit).

3 December 2009 Board Meeting Doric Group Holdings (see attachment HX9 to Xydas Affidavit.

17 December 2009 Documents signed for NBB/Doric joint venture.

7 The plaintiffs plead a substantial number of Rivershores Apartment Sale Contracts were voidable because the deposit provisions in the sale agreement did not comply with s 70 of the Strata Titles Act 1985 (WA). That meant a number of potential purchasers walked away from the agreement. It is the essence of the plaintiffs' claim that the representation that there was $43 million in pre-sales was misleading and deceptive and actionable under the Fair Trading Act 1987 (WA) or the Australian Consumer Law. There is an additional plea of negligence. That is found in par 137 of the substituted statement of claim. Essentially what is said is that the defendants ought to have known Mr Xydas and the plaintiffs would have relied upon the representations as to pre-sales and as a consequence took certain actions which has resulted in the plaintiffs suffering loss and damage. While a claim in negligence has different elements to the claims brought under statute there are no additional facts pleaded specific to the negligence claim.

8 A summary of the defendants' grounds for seeking summary judgment can be found in par 13 of counsel's written submissions. That paragraph reads as follows:

13. Of the two causes of action pleaded against the Defendants, the missing or inadequate evidence of elements required to substantiate any cause of action against the Defendants are:

13.1. How a true statement alleged to have been said by the Defendants (i.e. that there was $43 million in presales) could reasonably give Mr Xydas an impression which was false (i.e. that the contracts would ultimately be enforceable) when:

13.1.1. There is no evidence any of the Defendants knew he had such an impression at any time;

13.1.2. There is no evidence any of them were legally qualified so as to express a view about the enforceability of the Contracts; and

13.1.3. There is no evidence any of them even knew of the essential facts for such an opinion to be held, such as to:


13.1.3.1 where the deposits had been paid;

13.1.3.2. the legal consequences of that; and

13.1.3.3. the risk or likelihood of purchasers relying on payments into an unauthorised bank account to subsequently avoid their contracts.

13.2. There is no evidence as to when and how Mr Xydas formed such an impression and thereby caused the Plaintiffs to act to their detriment. Timing is crucial, as the Plaintiffs' case is pleaded to depend on a 'context' created over a number of months; and

13.3. Given the undisputed fact that solicitors for Mr Xydas and his companies asserted that they relied on a due diligence report by Minter Ellison, which assertion is indisputably reflected in a report to the board of one of the Plaintiffs, and in the absence of any legal qualifications on the part of any of the Defendants on a matter which is a question of law, there is no explanation by Mr Xydas as to how he relied on an 'impression' he claims to have had. It is no more than an unsupported and unsubstantiated self-serving assertion contradicted by objective undisputed evidence to the contrary. The assertion is rebutted by clear and undisputed evidence, in which case, there is no issue to be tried on reliance: see Elders v EG Reeves Pty Ltd [1987] FCA 332 at [190].

9 Before going through counsel's submissions in detail I should make a number of points which are important but not contentious. First, there is nothing to suggest the defendants did not believe when they made the representations about pre-sales the signed contracts would not be enforceable. Second, at all material times the pre-sale contracts were unenforceable. Third, at no time prior to 17 December 2009 when the joint venture agreement was entered into were the plaintiffs aware the contracts were unenforceable (see par 49 of the affidavit of Mr Xydas). For the purpose of this application that evidence must be accepted. It is the defendants' position the plaintiffs' case depends on a false impression formed subjectively by Mr Xydas because of what was not said by the defendants when truthfully telling him about $43 million in pre-sales contracts. The defendants say the plaintiffs' case, as pleaded, attempts the task of pleading a context which forms 'the impression' the contracts were enforceable. The plaintiffs say the pleading, together with the evidence on the summary judgment application, falls short in establishing first, a context which informs the conduct giving rise to the alleged 'impression' and second, the knowledge of the defendants about such matters.

10 As to context the defendants say the only facts pleaded and put forward in evidence by the plaintiffs is that the defendants were aware Mr Xydas was contemplating an investment in the project. It was the defendants' submission their knowledge of the nature of the transaction being contemplated was not sufficient to justify Mr Xydas making a mistaken assumption giving rise to false impression. Counsel contrasted this with a statement made by a lawyer and the decision was taken based upon the advice of the lawyer. In that circumstance it was said Mr Xydas would have been justified in assuming the contracts were legally enforceable and relying on that advice.

11 In my view it is arguable when a representation is made in the terms of the representations made in this case for a party to assume that what is being referred to are legally enforceable contracts. That assumption is based on the representation itself. The representations that were made appear not to have in any way been qualified. In other words, at no time did the defendants say something to the effect 'we have $43 million in pre-sales contracts but you will need to check those contracts to satisfy yourself they are enforceable'. In my view it is arguable - and I emphasis I am not making any finding of fact or reaching any concluded view on the matter - that what Mr Xydas believed was reasonable in the circumstances.

12 As to knowledge, the defendants say there is nothing in the pleading or the evidence to show knowledge on the part of the defendants that Mr Xydas had formed a mistaken assumption that he may act on it unless the assumption was corrected. Counsel went further. He submitted the evidence established Mr Xydas was not operating under any mistaken assumption. He pointed out the investment was subject to due diligence on the part of Mr Xydas and his related companies. In particular he referred to board papers (attachment HX8 to Mr Xydas' affidavit) referring to the requirement that the plaintiffs' participation on the project was subject to confirmation that pre-sales contracts were legally binding. Further, counsel pointed to email correspondence between the parties which discussed the need for obtaining legal advice about the enforceability of pre-sales contracts prior to the contract being completed. All of that gives rise to a submission found in par 23 of counsel's written submissions. It reads as follows:

For the purposes of determining the summary judgment application, therefore, the Defendants do not need to establish that Mr Xydas is not telling the truth in his Affidavit material. Even if his self-serving assertion that he had such a false impression is taken to be true, the Plaintiffs' case cannot succeed unless evidence is adduced consistent with their pleaded case, that justifies and explains why his mistaken assumption was reasonably justified, and points to evidence which shows that the Defendants knew or ought to have known that Mr Xydas was operating under such a false impression. The Plaintiffs have neither pleaded such a case, nor adduced evidence capable of establishing an arguable case on that ground.

13 In my view it is arguable the defendants knew the plaintiffs would be relying upon the representation as to pre-sales. The representation must be put in context. The defendants were trying to induce the plaintiffs to enter into a joint venture arrangement. Clearly the financial viability of the project was dependent in part upon a level of pre-sales. The defendants made certain representations and the plaintiffs acted accordingly. It may well be at trial a judge determines there was in fact no reliance and the defendants could not possibly have known the plaintiffs would rely on their assertions without taking some steps to establish the true position. But in my view for the purposes of summary judgment the position is arguable.

14 The same is true with the defendants' complaint of reliance. Essentially the defendants say no one in the position of Mr Xydas would rely on statements made by persons in the defendants' position. The difficulty with that argument is that Mr Xydas says just that. It may be, as was asserted by counsel, the position of Mr Xydas was 'inherently foolish'. That is for determination on another day. For present purposes it seems to me arguable Mr Xydas did place reliance on representations made to him.

15 Turning then to the negligence claim the defendants say it is put on two bases. First, the defendants had failed to check whether or not the pre-sales contracts were legally enforceable and had failed to warn the plaintiffs they should take legal advice on that issue. The defendants say the undisputed evidence establishes the plaintiffs cannot succeed on their pleaded case. It was said Mr Fatin informed Mr Smith on behalf of the plaintiffs that the defendants had not conducted any due diligence assessment of the enforceability of the pre-sales contracts. Mr Fatin suggested that Mr Smith on behalf of the plaintiffs engage Minter Ellison to undertake a review and he ensured contracts were provided to Minter Ellison in order to complete that task. Mr Smith then reported to the relevant boards of the plaintiffs or their controlling shareholders that the investment decision was subject to due diligence and the due diligence was carried out. The plaintiffs then relied on the Minter Ellison due diligence report and acted accordingly. This, it was said, rebuts the plaintiffs' pleaded case and the claims cannot succeed.

16 Were it the case the negligence action stood alone and the primary cause of action was not founded in breach of statute I might have been inclined to strike out the negligence claim. But it should be borne in mind good pleading practice requires pleading of the material facts. It does not require pleading of causes of action. There are few if any material facts additional to those pleaded elsewhere in the statement of claim which go to the negligence claim. If I was to enter summary judgment in relation to the negligence claim there would be a logical inconsistency - I would be giving judgment on a cause of action rather than determining that the facts pleaded did not give rise to a claim generally.

17 That then leaves the strike out application. As counsel for the defendants acknowledged much of the strike out application is subsumed in the application for summary judgment. In my view while the substituted statement of claim could perhaps be improved it is not sufficiently unclear or imprecise to warrant any paragraphs being struck out. Reading counsel's submissions the complaints are fundamental and would not seem to be addressed by giving leave to administer a request for particulars. In any event if the defendants wished to take that course they should be free to do so. But as the pleading stands as present I am not satisfied the substituted statement of claim is so offensive as to require all or any part of it to be struck out.

18 For these reasons I would dismiss both applications by the defendants. I will hear the parties as to the form of orders and as to costs.