Farah Construction Pty Ltd v Say-Dee Pty Ltd

[2004] NSWSC 800

CITATION:	Farah Construction Pty Ltd v Say-Dee Pty Ltd [2004] NSWSC 800
HEARING DATE(S):	16 to 18 August, 2004
JUDGMENT DATE:	19 August 2004
JURISDICTION:	Equity Division
JUDGMENT OF:	Palmer J
DECISION:	Claim for constructive trust dismissed.
CATCHWORDS:	JOINT VENTURE - FIDUCIARY OBLIGATION - CONSTRUCTIVE TRUST - Joint venture for development of particular property - one party to venture buys adjoining properties - whether that party had fiduciary obligation to offer participation in adjoining properties to other joint venturer - whether participation in fact offered - whether adjoining properties held on constructive trust.
LEGISLATION CITED:	Conveyancing Act 1919 (NSW) - Div 6 of Part IV
CASES CITED:	Noranda Australia Ltd v Lachlan Resources NL (1988) 14 NSWLR 1
PARTIES :	Farah Construction - Plaintiff/First Cross Defendant Farah Elias - Second Cross Defendant Lesmint Pty Ltd - Third Cross Defendant Margaret Elias - Fourth Cross Defendant Sarah Elias - Fifth Cross Defendant Jade Elias - Sixth Cross Defendant Say-Dee Pty Ltd - Defendant/Cross Claimant
FILE NUMBER(S):	SC 1956/03
COUNSEL:	V.R.W. Gray - Plaintiff/Cross Defendants R.J. Weber SC, D.K.L. Raphael - Defendant/Cross Claimant
SOLICITORS:	Strathfield Law - Plaintiff/Cross Defendants Esplins - Defendant/Cross Claimant

Introduction

1 The Plaintiff (“Farah”) and the Defendant (“Say-Dee”) are the registered proprietors as tenants in common in equal shares of the property comprising Folio Identifier 1/1012934, being the property known as 11 Deane Street, Burwood (“No 11”). 2 By Summons filed on 19 March 2003 Farah seeks the appointment of a trustee for sale of No 11 upon the statutory trusts for sale under Division 6 of Part IV of the Conveyancing Act 1919 (NSW). Say-Dee concedes that if it fails in its Cross Claim the orders sought by Farah in the Summons must be made. 3 By its Cross Claim Say-Dee seeks:


– a declaration that Farah and five other Cross Defendants hold their respective interests in two parcels of land adjoining No 11, namely, Nos 13 and 15 Deane Street, Burwood (“No 13” and “No 15”) upon a constructive trust for a partnership alleged to exist between Say-Dee and Farah;

– a declaration that the alleged partnership has been dissolved;

– an order that a receiver be appointed to the alleged assets of the partnership, namely, Nos 11, 13 and 15;

– alternatively, an order vesting Nos 11, 13 and 15 in a trustee for sale upon the statutory trust for sale in Division 6 of Part IV of the Conveyancing Act ;

– an order for the taking of accounts of the partnership before the Master;

– damages by way of equitable compensation;

– consequential orders.

4    The Cross Claim for relief is founded upon an allegation that Farah acquired an interest in Nos 13 and 15 in breach of fiduciary duties which it owed to Say-Dee under the alleged partnership. In essence, the alleged breach is that Farah, in the course of conducting the partnership business, acquired information highly pertinent to the partnership business, failed to disclose that information to Say-Dee and then exploited that information for its own benefit to the exclusion of Say-Dee. The other Cross Defendants are said to be knowing participants in Farah’s breach of fiduciary duty. 5    In summary, the issues for determination are:


– whether Farah and Say-Dee formed a partnership or a joint venture;

– what were the terms of the partnership or joint venture and what was the scope of the activity to be conducted thereunder;

– whether the opinion of the Group Manager, Environmental and Community Services, of Burwood Council expressed in a report to the Council’s Building and Development Committee in a report made on 20 June 2000 that No 11 was too narrow to maximise its development potential and that it should be amalgamated with the adjoining properties to achieve its maximum development potential and a more appropriate development permissible under the relevant planning regulations was information which it was the duty of Farah to disclose to Say-Dee;

– whether, in breach of its fiduciary duty, Farah failed to disclose the said information to Say-Dee;

– whether it was the fiduciary duty of Farah to offer to Say-Dee the opportunity to purchase together with Farah Nos 13 and 15 when those properties came onto the market for sale;

– whether the purchase by Farah and the other Cross Defendants of Nos 13 and 15 without offering to Say-Dee the opportunity of participating in the purchase and in the development of all three sites was a breach of Farah’s fiduciary duty;

– if so, whether the Cross Defendants are knowing participants in Farah’s breach of fiduciary duty.



Facts

6    The facts are quite straightforward and, for the most part, are not in dispute. 7    Say-Dee is a company controlled by Ms D. Dagher and Ms S. Elias. They are partners in a business which runs service stations and coffee shops. Farah is a company controlled by Mr Farah Elias, who is not related to Ms S. Elias. Farah has for some time carried on business as a real estate developer. The Third Cross Defendant is a company controlled by Mr Elias and the Fourth, Fifth and Sixth Cross Defendants respectively are Mr Elias’ wife and daughters. 8    In 1998, Ms Dagher and Ms Elias were contemplating becoming involved in real estate development. They had no experience in development but they had some capital which they wished to invest. 9    Through a mutual friend, Ms Dagher and Ms Elias contacted Mr Elias. They had a meeting with him and he suggested that they invest in a certain property at Burwood which Farah was then considering for development. Ms Dagher and Ms Elias went to look at the property but they did not like it and nothing came of the proposal. 10    However, Ms Dagher and Ms Elias kept in touch with Mr Elias and later in 1998 he suggested another property in Burwood in which they might be interested. That property was No 11. 11    On the site of No 11 is a building comprising four rather run-down units. Mr Elias’ proposal was that the units would be refurbished and rented out during the time it would take to draw up a development application and have it approved by Burwood Council. The rental income from the units would service the interest payable on the loan which would be required for the balance of the purchase price after the capital contributed by Say-Dee. The proposed redevelopment of No 11 would be partly commercial and partly residential and on sale of the project the profits would be divided equally between Farah and Say-Dee. 12    Ms Dagher and Ms Elias liked the proposal and agreed to proceed. The essential terms of the agreement between the parties are as set out in a letter dated 20 April 1998 from Say-Dee’s solicitors to Farah’s solicitors, as follows:

“ We understand that the parties to the purchase of the above property, wish to formalise their arrangement in a joint agreement.

As we understand the situation:

1. Both parties are the purchasers in equal shares.

2. Say-Dee is to advance to the joint venture $225,000.

3. Balance of funds to be borrowed by the joint venture and secured by way of mortgage over the subject property.

4. Upon completion of the project the profits are to be allocated as follows:

a) 1st priority – repay Say-Dee $225,000.

b) 2nd priority – pay all agents commission and legal expenses.

c) 3rd priority – distribute balance 50/50 to joint ventures.

Please let us know if the above is in accordance with your clients instructions. Do you propose to prepare a Joint Venture agreement for our clients consideration?

We look forward to your clients response.”
13    There was no formal agreement drawn up and signed by the parties, but there is no dispute that the terms set out in this letter were agreed. In addition, it was agreed that Farah would undertake the responsibility for managing the progress of the development application and the construction and sale of the development. 14    On 2 April 1998, contracts were exchanged for the purchase of No 11 by Farah and Say-Dee as tenants in common in equal shares. The purchase price was $630,000. Entry into this contract, at the latest, marks the date upon which the agreement between Say-Dee and Farah took effect. 15    On 17 September 1998, the purchase was settled. Of the purchase price of $630,000, $230,000 was provided by Say-Dee, which also paid stamp duty of some $31,500. The balance of the purchase price came from a loan from the National Australia Bank. The units in No 11 were refurbished and rented out. Farah undertook the preparation of a development application to the Burwood Council. On 5 January 2000, the development application was lodged. 16    On 20 June 2000, the Group Manager, Environmental and Community Services, of Burwood Council gave a report on the development application to the Council’s Building and Development Committee. The report was discussed at a committee meeting at which Mr Elias attended. He had been provided with a copy of it prior to the meeting. 17    The report recommended refusal of the development application on the ground that it did not comply in many respects with planning requirements. The principal objection may be summarised as that the proposal, an eight storey development, was too large for the site. In the course of the report, the General Manager said:
“Even if the building did conform with [relevant planning standards] it is considered that the site is too narrow to maximise its potential development.
… The proposed development is considered an over-development of a narrow 11m wide site as evidenced by the inability to provide for car parking due to the lack of manoeuvring space available. The site should be amalgamated with the adjoining properties to achieve its maximum development potential and a more appropriate development permissible under [the relevant town planning provisions] .”
18    The committee did not accept the General Manager’s recommendation to refuse the application outright. Mr Elias made representations to the meeting to the effect that a relaxation of the relevant planning requirements might be made after discussion with the Department of Urban Affairs and Planning. The committee resolved to defer consideration of the application to allow the issues raised by Farah to be discussed with the Department. 19    The committee’s decision was conveyed to Farah by letter dated 28 June 2000. By letter dated 12 July 2000, Farah wrote to the chairman of the committee making further submissions as to why the development should be approved. 20    On 3 April 2001, the Council’s Group Manager provided a further report to the Building and Development Committee. The report noted that the original application had been forwarded to the Department of Urban Affairs for approval and that the Council had, in fact, supported the application, citing the need in the area for affordable accommodation. The Department had declined to vary the applicable development standard. 21    The report contained the statement:
“The Urban Design Assessment suggests that the site is too small to achieve its full development potential and return a positive urban design outcome. The site needs to be amalgamated with adjacent sites to maximise its development potential.
…
The assessment report suggests that the site is too small to support the scale of development being sought and suggests that the site should be amalgamated with adjacent sites to achieve a proper urban design outcome as part of a new development proposal.”
22    The amended development application was, in consequence, formally refused by a notice of determination dated 4 April 2001. 23    On 30 June 2001 Mr Elias, his wife and two daughters each entered into a contract for the purchase of one of the four units in the building on No 15. The total purchase price was $1,080,000. I will shortly return to the circumstances in which these acquisitions were made. 24    It is appropriate to note here that No 11 is adjoined on the left (facing the property from Deane Street) by No 13, which is in turn adjoined on the left by No 15. No 15 is a corner block, fronting both Deane Street and Mary Street. On each of Nos 11, 13 and 15 is erected a block of four units. From the photographs in evidence, the three buildings appear to be almost identical and to have been constructed at about the same time. 25    On 7 December 2001, Farah lodged a second development application for No 11. It was withdrawn some time about mid-2002. 26    On 15 August 2002, the Third Cross Defendant entered into a contract to purchase No 13 for a price of $1,680,800.


Conflict in the evidence

27    Ms Dagher and Ms Elias say that they were told by Mr Elias that the Council had rejected the first development application “because there were too many units in the submission” . However, they say that they were not told of the opinion of the Group Manager that No 11 was too narrow to maximise its development potential and that No 11 should be amalgamated with the adjoining properties. Although Mr Elias says that he kept Ms Dagher and Ms Elias informed of his discussions with the Council, he does not expressly say that he made known to them these particular statements in the Group Manager’s report. 28 A significant conflict in the evidence is whether or not Mr Elias told Ms Dagher and Ms Elias about the possibility of buying Nos 13 and 15 before he procured their purchase for himself and his interests. Ms Dagher and Ms Elias say that he did not tell them; Mr Elias says that he did. 29 Mr Elias’ evidence is to the following effect. In early May 2001 he was negotiating for the purchase of two sites, No 15 and No 20 George Street, which is in the same block as No 11 but does not adjoin it. In May 2001, he had a meeting with Ms Dagher alone. At that time Ms Elias had been diagnosed with cancer and was ill. 30 At the meeting with Ms Dagher he told her that he had been negotiating with the owners of No 15 and No 20 George Street and said that the owners wanted a total of $2M. He asked whether Ms Dagher and Ms Elias were interested in the properties. 31 Ms Dagher responded that:
“… we can hardly manage our businesses as it is. Financially things are not going too well and Sadie is very sick. Good luck to you, George, we are not interested. We are already trying to sell our businesses, a food chain store and coffee lounges, to minimise our commitments. This is enough for us.”
32    Soon afterwards Mr Elias and his wife met Ms Dagher and Ms Elias at a coffee shop and Mr Elias said that they were buying the properties he had previously discussed with Ms Dagher. Ms Dagher said:
“Good luck to you. We wish you the best. We’re in no financial position to commit ourselves on this one. We just can’t do it.”
33    In August 2002, Mr Elias rang Ms Dagher and told her that No 13 had come onto the market. He asked to meet her urgently. The meeting took place at a coffee shop in Burwood between Mr Elias and Ms Dagher alone. Mr Elias told Ms Dagher that No 13 was a good proposition for redevelopment in conjunction with No 11. The owner of No 13 was asking about $1.55M, possibly more. He said that it was not a matter of how much the price was, but rather a matter of securing the property for a development with No 11. Ms Dagher said:
“George, we are not in a position to purchase anything at this time. We currently have financial difficulties. We are having problems with Westfield, our business landlord at the Miranda Centre. It looks as though we could lose $350,000. Our business is in a lot of trouble. I am not interested in more investment. You buy it and if we can later develop it with 11 Deane Street, we can take a space equivalent to our space in 11 Deane Street. Otherwise, if we get a good price for our property we will consider selling it. It is too much pressure on us at this point of time.”

Mr Elias then said that he would have to make other arrangements on his own.

34    In her first affidavit sworn 18 June 2003, Ms Dagher says at para.26 that in mid to late 2002 Mr Elias said to her and Ms Elias: “I’m buying some other properties in the area” . She says “Mr Elias never told me or Sadie in my presence which properties he was buying or any details of the purchase” . 35    In her affidavit of 17 June 2004, which responds to the affidavit of Mr Elias in which he gave evidence of disclosure of the possibility of purchasing Nos 13 and 15, Ms Dagher denies that the conversations with her recounted by Mr Elias ever took place. Further, in amplification of her denial, Ms Dagher says in para.25 of that affidavit that the reason that Say-Dee had given up its business in Miranda was that the lease on the premises had expired and Say-Dee did not wish to renew it. 36    This evidence amounts to an assertion that neither Ms Dagher nor Ms Elias knew that Mr Elias’ interests had purchased Nos 13 and 15 until well after the acquisition had already taken place. 37    However, in paras.29ff of her first affidavit, Ms Dagher recounts a meeting between herself, Ms Elias and Mr Elias at a coffee shop in late October 2002. At that meeting, Mr Elias said that he had been approached by a group of people wanting to buy No 11. Ms Dagher asked why Say-Dee would want to sell the property rather develop it. Mr Elias said that the two development applications for No 11 had already been rejected. 38    Paragraph 33 of the affidavit continues:

“Me: Why don’t we do a development that is a bit smaller so the Council won’t reject the development application?

Mr Elias: It’s not worth it.

Me: Then why don’t we do a development with the building next door which you own?

Mr Elias: I am selling properties as well.

Me: Why would you be selling when you know the potential of the area and we’ve waited for so long to maximise our investment?

Mr Elias: The project is too big even for me. The offer is $1.5M which is a fantastic offer and means you will have doubled your money.

Me: If that’s what you are going to do then I think we should at least negotiate a better price.”
39    This evidence makes unequivocally clear that Ms Dagher knew by the time of this meeting in October 2002 that Mr Elias’ interests owned “the building next door” , i.e. No 13. There is no suggestion in this affidavit that it was at this meeting that Mr Elias had disclosed for the first time that his interests had acquired Nos 13 and 15. 40    However, in paragraph 28 of her affidavit of 17 June 2004, Ms Dagher gives a different account of this conversation in the coffee shop. She says:

“Mr Elias went on to say: There is a buyer for Deane Street.

I said: Why are we selling, I thought the plan was to develop the site.

He said: No, I want to sell out. I am going to sell all my other properties in the area as well.

Sadie Elias said to Mr Elias: What other properties do you own in the area?

Farah Elias said: Next door to 11 and next door to that.

Sadie Elias then said: Well, why aren’t we building together?

Farah Elias replied: It’s too big even for me, I’m also selling all my properties.

Sadie Elias then said: If you are a developer and you own them all why don’t you develop?

Farah Elias replied: It’s too big and I don’t want to build.”
41    It will be seen that in the first version of this conversation Ms Dagher suggests a joint development with Nos 11 and 13 and Mr Elias counters with the statement that he is selling his properties. In the second version, Mr Elias says that he is selling his properties and Ms Elias asks what those properties are, to be told that they are Nos 13 and 15. 42    The inconsistency is a significant one. If the first version is correct, Ms Dagher knew of the acquisition of Nos 13 and 15 before October 2002 and found out about the acquisition in circumstances which she did not explain in her first affidavit, which would leave unchallenged the evidence of Mr Elias in his affidavit that he had told her before the proposed acquisitions were made. In Ms Dagher’s second version of the conversation, she seeks to explain that she found out about the acquisition of the properties after they had already been acquired by Mr Elias’ interests, by an enquiry made during the course of the October conversation. 43    In her affidavit of 19 June 2003, Ms Elias says that in mid to late 2002 Mr Elias said to her and Ms Dagher:

“I’m buying some other properties in the area”

She continues:
“Mr Elias never told me or Ms Dagher in my presence which properties he was purchasing or any details of the purchase. He never offered Ms Dagher or myself to become involved in the purchase.”
44    In the following paragraph of the affidavit, Ms Elias gives evidence about the same meeting with Mr Elias in October 2002 at the coffee shop, which Ms Dagher recounted in paras.29ff of her first affidavit. The account given by Ms Elias generally accords with the account given by Ms Dagher. According to Ms Elias, when Ms Dagher suggested that they should reduce the number of units in the proposed development on No 11, Mr Elias said:

“I think we are wasting our time and I’m going to sell my other properties as well.

Ms Dagher said: We don’t want to sell, we really want to develop this property and think it would be a really great site. Why don’t we get together and do a big development with your other properties?

Mr Elias said: That sort of development would be out of my league. I think the best option is just to sell.”
45    The suggestion of a “big development with your other properties” can only mean a development with the adjoining properties Nos 13 and 15, which Ms Elias obviously knows are owned by Mr Elias’ interests. A development with non-adjoining properties would not be feasible. This evidence makes it clear that by October 2002 Ms Elias already knew that Nos 13 and 15 were owned by Mr Elias’ interests. Again, there is no suggestion in Ms Elias’ affidavit that she heard at this meeting for the first time that Mr Elias’ interests had acquired Nos 13 and 15. 46    However, in her affidavit of 16 August 2004, her third affidavit, Ms Elias gives a different version of the conversation in the coffee shop. This version is very close to the second version given by Ms Dagher. Ms Elias says:

“Mr Elias said words to the effect: I have a buyer for 11 Deane Street. I’ve got a great price of $1.5M.

I said words to the effect: We don’t want to sell out, I thought we were supposed to be developing the site.

Mr Elias said words to the effect: I’m selling out all my properties too, the development in the area is too big for me to handle on my own.

I said words to the effect: What other properties do you mean? What else do you own?

Mr Elias said words to the effect: 13 and 15 Deane Street.”

There are the same inconsistencies between Ms Elias’ two versions of the conversation as there are in Ms Dagher’s two versions and the inconsistencies have the same significance.

47    Ms Dagher and Ms Elias were not cross examined on these inconsistencies; neither did they explain how the inconsistencies arose. I regard the inconsistencies as material and the absence of any explanation as to how they occurred leaves the evidence of Ms Dagher and Ms Elias on this point in an unsatisfactory state. 48    In her cross examination, Ms Dagher conceded a state of affairs as to the financial position of Say-Dee at the time of acquisition of Nos 13 and 15 which shows that what she had said in paragraph 25 of her affidavit of 17 June 2004 had been less than frank and forthcoming. 49    Say-Dee had purchased a café business at Miranda in April 1999 for $285,000, $245,000 of which was apportioned to goodwill. The rent for the premises was $193,500 and the lease was to expire on 2 August 2000. 50    Ms Dagher conceded that the Miranda café business proved very uneconomic and that it would have been very difficult to make the business profitable if the lease had been renewed. She conceded that Say-Dee was not able to sell the goodwill of the business and that by August 2002 it had lost its investment of $285,000 in the business. 51    Further, in March 2000 Ms Dagher had sold her interest in a restaurant business called “Italian Flavour”. Ms Dagher conceded that that business had not been doing well. As at the date of sale, there were arrears of rent and interest amounting to just over $31,000. 52    The income tax returns of Ms Dagher and Ms Elias for the years ended 30 June 2000, 2001 and 2002 disclose that neither received a substantial income in those years. 53    This evidence is consistent with Mr Elias’ evidence that when he proposed to Ms Dagher the acquisition of Nos 13 and 15 he was told that the businesses of Ms Dagher and Ms Elias were “not going too well” and that it looked as if Say-Dee could lose $350,000 in the café business at Miranda, so that Say-Dee could not afford any more investment in the Deane Street development. 54    I find it inherently probable that Mr Elias would have asked Ms Dagher and Ms Elias if they were interested in acquiring Nos 13 and 15. His unchallenged evidence was that he found great difficulty in raising the money for these acquisitions. The two sites were obviously suitable for an amalgamated development with No 11 and there is no suggestion in the evidence of any reason, whether of animosity, necessity or greed, for Mr Elias to keep secret from Ms Dagher and Ms Elias the possibility of a larger development incorporating all three pieces of land. It would have made obvious commercial sense for Mr Elias to endeavour to raise funds for the proposed acquisition of Nos 13 and 15 from his co-investors in No 11. If, as he says, he had asked Ms Dagher and Ms Elias, it is probable that he would have been met with the response which he says he received. 55    I am not satisfied that Mr Elias failed to disclose to Say-Dee the proposed acquisition of Nos 13 and 15 and failed to invite its participation in the investment. On the contrary, I am satisfied that he did so and that his invitation was declined, as he says. 56    As will have appeared from the discussion above, my reasons are: the unsatisfactory evidence of Ms Dagher and Ms Elias as to how and when they learned of the acquisition of Nos 13 and 15; the inherent probability that Mr Elias would have asked Say-Dee to provide funds for the acquisitions and the inherent probability that Say-Dee would have declined through financial inability. 57    In making this finding, I have not overlooked the submission that Mr Elias’ credit should not be accepted because of contradictions in his evidence in cross examination and because of an allegation that he endeavoured to mislead Ms Dagher and Ms Elias as to the identity of the interests proposing to acquire No 11 in late 2002 or early 2003. 58    I do not think that Mr Elias was untruthful in the evidence which he gave in cross examination. Mr Weber SC, who appears with Mr Raphael for Say-Dee, points to apparent contradictions in Mr Elias’ evidence but I do not think that they are of the character which Mr Weber ascribes. I take into account that although Mr Elias is perfectly fluent in English, it is not his first language and he sometimes expresses himself in a way that is not idiomatic, particularly in his use of tenses and moods. This, I think, has led to some ambiguity and confusion in his answers. 59    I am prepared to find that in late 2002 or early 2003 Mr Elias put forward to Ms Dagher and Ms Elias an offer to purchase No 11, representing that he was a consultant to the offeror when, in fact, his interests solely controlled the offeror. I think that his motivation for this misrepresentation was to avoid the disputation which was likely to arise if he himself made an offer directly. His conduct is certainly not excusable but it may be understandable in the circumstances. 60    I take into account that I gained the impression during Mr Elias’ cross examination that he was making an honest endeavour to give his answers truthfully and carefully. He remained unshaken in the essentials of his evidence although he was not very assertive in manner. 61    My impression of Mr Elias as an essentially truthful witness, coupled with the other considerations to which I have referred, have led me to the conclusion that I should accept his evidence as to his offers to Ms Dagher and Ms Elias to participate in the acquisition of Nos 13 and 15. 62    The consequence of this finding is that, even if Farah had a fiduciary duty to Say-Dee to offer it the possibility of participation in the development of Nos 13 and 15, Farah discharged that duty. The offer having been declined, Farah was free to take up the opportunity for itself. Say-Dee’s Cross Claim fails on this ground. 63    However, for the sake of completeness, I should deal with the issue as to whether there was any relevant fiduciary obligation imposed on Farah at all.


Scope of Farah’s fiduciary duty

64    Mr Weber characterises the venture between the parties as a partnership; Mr Gray, who appears for Farah, characterises it as a joint venture. In the end, the distinction does not matter as Mr Gray concedes that in all aspects of managing the development of No 11 Farah was acting on behalf of Say-Dee and therefore had fiduciary obligations. The real issue is how far those fiduciary obligations extended in the factual circumstances of the present case. 65    Mr Weber submits that it was part of the obligation of Farah to disclose to Say-Dee any relevant information about the Council’s attitude to the development on No 11. This obligation was inherent in the contractual duties undertaken by Farah and bore a fiduciary character as well. Mr Gray does not dissent from this proposition. 66    Mr Weber says that it was the fiduciary duty of Farah to disclose to Say-Dee that the Council was of the view that No 11 was too narrow to maximise its development potential and that it should be amalgamated with the adjoining properties. Mr Gray originally took the position that this information was not confidential but ultimately accepted that it was information conveyed to Farah in the course of its management of the project and was, therefore, information which should have been conveyed to Say-Dee. I am prepared to find that that information was not, in terms, conveyed to Say-Dee. The real question is, however, what follows from that? 67    The view of the Group Manager of Burwood Council that No 11 was “too narrow to maximise its development potential” did not mean that no development of any sort was possible on No 11. It must be borne in mind that when the parties agreed to go into the venture and when No 11 was purchased, Farah had not drawn up any particular development proposal for the project showing how many units would be constructed and of what description. All that one can say is that the common intention of the parties must then have been to develop No 11 in the best and most profitable way which would be permitted by the Council. What the Group Manager was saying in his report was nothing more than that the proposal actually advanced in the development application submitted by Farah was much too large for No 11 and, if one wanted to develop something of that size, one would have to look at acquiring a larger site by incorporating adjoining properties. 68    Mr Weber says that that information received by Farah was information which it was not entitled to exploit for its own benefit without the informed consent of Say-Dee. However, the information was really no more than that if Say-Dee and Farah wanted to construct a development of the size proposed they would have to acquire adjoining properties, and that would involve an acquisition of property beyond that which had been agreed between the parties. 69    There is no question but that all that was discussed and agreed between Farah and Say-Dee when they entered into their contract for the investment was the acquisition and development of No 11. There could be no suggestion that the parties contemplated in their contract a partnership or joint venture for real estate development generally. It is clear, therefore, that if the subject matter of the agreement were to be expanded from development of No 11 to development of any additional property there would have to be an express and unequivocal variation to the existing contract between the parties. 70    Mr Weber submits that real estate development is a dynamic thing. As a matter of commercial practicality, he says, it was impossible to confine the development of No 11 within the boundaries of that land, necessarily and for all time, so that it is unrealistic to say that a property development on No 11 would never contemplate the possibility of the necessity of an attempt to acquire adjoining land in order to achieve a desirable outcome. In this case, he says, when Farah was confronted with the Council’s view that the proposed development of No 11 was too large, the need to explore acquiring Nos 13 and 15 became part of the business of the partnership or venture between the parties and the fiduciary duties of Farah extended to the exploration of that possibility. 71    Mr Gray submits that the scope of the venture was the development of No 11 and nothing more. Accordingly, the scope of the fiduciary obligations owed by Farah extended no further, as he says, than the boundaries of that property. The economic interests of the parties beyond the development of No 11 were untouched by fiduciary obligation so that if Farah became aware of opportunities to develop other properties it owed no duty to disclose those opportunities to Say-Dee or to invite Say-Dee to participate. 72    Mr Gray points out that when No 15 became available for purchase, there would have been no possibility of amalgamating it into a development with No 11. No 13 stands in between the two properties and in early 2001 No 13 was not on the market, nor was there any indication when, if ever, it would come onto the market. The acquisition of No 15 could not, as a matter of practicality, have been regarded at the time of its acquisition as an extension of the projected development on No 11. 73    Further, as Mr Gray points out, it could not said that Farah acquired knowledge of the opportunity to acquire No 15 (or No 13, for that matter) in the course of performing its duties in the development of No 11. 74    In my view, the submissions of Mr Gray should be accepted. The scope of the fiduciary duties of Farah are defined by the nature and scope of the obligations which it assumed in its contract with Say-Dee. 75    All that Farah contracted to do was to manage the development of No 11. It did not contract to provide opportunities for Say-Dee to participate in any project other than such development as could be constructed within the boundaries of No 11. The fiduciary obligations of Farah cannot be extended to cast upon it burdens which do not find their source in the contract which Farah entered. This principle is aptly illuminated in Noranda Australia Ltd v Lachlan Resources NL (1988) 14 NSWLR 1, at 16. 76 Here, Say-Dee seeks to impose upon Farah a fiduciary duty to make available to it the opportunity to invest in one or more development projects which are quite different from the one which was the subject of its contract with Say-Dee, namely, a possible development of No 13, or a possible development of No 15, or a possible amalgamated development of Nos 13 and 15, or a possible amalgamated development of Nos 11, 13 and 15. Farah did not contract to do anything in relation to any such developments and it cannot be required by resort to the law of fiduciaries to undertake responsibilities or obligations which have no source in its contractual responsibilities. 77 In my opinion, Farah was under no fiduciary duty to disclose to Say-Dee the opportunity to acquire Nos 13 and 15, nor was it under any fiduciary inhibition in acquiring those properties for itself directly or indirectly.


Orders

78    For these reasons, Say-Dee fails in its Cross Claim. There will be judgment for the Cross Defendants on the Amended Cross Claim. 79    As I have noted, Say-Dee concedes that if its Cross Claim fails, the order for sale of No 11 upon the statutory trusts sought by Farah must be made. Accordingly, I make orders in terms of paragraphs 1 and 2 of the Summons. 80    I will hear argument as to costs.
– oOo –

Last Modified: 09/02/2004