Gracievski Investments Pty Ltd v Gracievski Enterprise Pty Ltd
[2024] VSC 399
•10 July 2024
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
COMMERCIAL LIST
S ECI 2023 00544
| GRACIEVSKI INVESTMENTS PTY LTD (ACN 618 227 286) | Plaintiff |
| v | |
| GRACIEVSKI ENTERPRISE PTY LTD (ACN 635 659 595) | Defendant |
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JUDGE: | Cosgrave J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | On the papers |
DATE OF JUDGMENT: | 10 July 2024 |
CASE MAY BE CITED AS: | Gracievski Investments Pty Ltd v Gracievski Enterprise Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2024] VSC 399 |
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COSTS – Proceeding issued alleging breach of agreement to fund property development project – Consent orders made regarding joint account and agreed fund distribution procedure – Court never resolved substantive issues – Court cannot readily assess evidence, credibility of witnesses and legal issues – Parties to bear own costs.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Ms B Slocum | Madgwicks Lawyers |
| For the Defendant | Mr S Stuckey KC | Zervos Lawyers |
HIS HONOUR:
Introduction
This judgment concerns an application by the defendant for the costs of the proceeding. This is the sole remaining issue between the parties.
Background
The plaintiff commenced the proceeding by generally endorsed writ on 15 February 2023. It is one of several proceedings which have arisen from the breakdown in the professional and personal relationship between three people, namely, Ile (‘Elliot’) and Atanas (‘Alex’) Gracievski on the one hand and Kosta Gracievski on the other. The main proceeding relates to a dispute about the property development and construction joint venture between the parties, or entities controlled by them. The present case concerns a dispute about the project carried out at 53 Jutland Way, Epping (‘the Jutland property’). The writ alleged that in August 2021, the plaintiff agreed to sell, and the defendant agreed to buy, a 19.2% interest in the Jutland property project. A term of the agreement was that ‘the defendant would pay 19.2% of the ongoing costs of the development of the Jutland property’. The plaintiff alleges that the defendant through its director, Kosta, repudiated the agreement and would not fund 19.2% of the cost of the development of the property. The parties agreed that Gracon Group should be the builder of the 47 commercial units on the Jutland property. The three men agreed on the price for the building contract in about March 2022.
The parties arranged to finance the project through Balmain NB Commercial Mortgages Ltd (‘Balmain’). The initial amount of funding, obtained in about February 2022, was $16.19 million. The parties and the individual directors were borrowers and guarantors and they granted Balmain security over the Jutland property.
According to the plaintiff, in around August 2022, Kosta identified that more funding was needed to complete the development of the Jutland property and settle the sale of the lots which had been pre-sold. The plaintiff contends that Kosta asked Elliot and Alex to arrange an extension of Balmain’s loan facility. Balmain produced a funding proposal in December 2022 and Elliot and Alex signed the documents on behalf of their various entities and themselves personally. The defendant did not sign the document or advance any alternate funding proposal. Unless the parties obtained further funding, they would be unable to meet their obligations to the Gracon Group under the building contract and would not be able to complete the contracts in relation to the pre-sold lots which were due for settlement in May 2023. These lots required occupancy certificates in order to settle and, without extra funding, the necessary work could not be finished.
Balmain produced a second funding proposal in early January 2023. While the plaintiff contacted the defendant about this, the latter did not respond until 25 January 2023, the day upon which the second funding proposal expired.
In the defendant’s email of 25 January 2023, it suggested that it was prepared to go through with the loan extension subject to certain conditions. The defendant proposed that the parties agree that any loan amount be paid into the trust account of the defendant’s solicitor and released in stages only upon both parties agreeing. The defendant said that its consent for any progress was conditional upon it being satisfied with the amount of additional loan funds being sought and it reserved its rights to review any invoices, quotations, reports and other documentation in connection with the loan extension.
On 31 January 2023, the plaintiff’s solicitors responded by rejecting that proposal. The plaintiff made a couple of alternative suggestions. First, they said that the plaintiff could agree to initially draw down $1.5 million to pay the outstanding creditors and those due to be paid shortly in connection with the Jutland project to ensure that the project continued without interruption. Another possibility was for the plaintiff to finance the completion of the Jutland project alone and for the defendant to grant a charge over its share of the project to the extent of 19.2% of the expenses paid by the plaintiff to complete the project.
After the defendant failed to execute the necessary documentation in connection with the funding proposal made by Balmain on 31 January 2023, Balmain made a final finance proposal on 9 February 2023.
As noted above, the plaintiff issued a generally endorsed writ on 15 February 2023. The writ recited the history of the Jutland project and stated that in breach of its obligations under the agreement between the parties, the defendant had failed, neglected and refused to execute the further funding agreement and had not agreed to find alternate funding nor to compensate the plaintiff in the event that the plaintiff paid for the completion of the defendant’s lots on the Jutland property. The defendant noted that the plaintiff did not contend that the defendant was under an arguable obligation to enter a loan agreement or give security as sought by the plaintiff. The defendant said it was not alleged that the defendant promised to enter into a loan agreement with Balmain and it was not alleged that the defendant promised to enter a funding agreement with the plaintiff. The defendant’s view was that it was not required to accept whatever arrangements the plaintiff demanded in connection with the further funding.
By the time the proceeding was issued, Gracon, the builder, was unable to pay its subcontractors to complete development of the Jutland property. The plaintiff had a final offer from Balmain to extend the funding to complete the development. Without additional funding, the plaintiff would not have been able to settle the pre-sold lots or meet various financial commitments with potential consequences including default under the contracts for the sale of the pre-sold lots and Balmain exercising enforcement rights against the Jutland property under the mortgage facility which it had advanced.
On 17 February 2023, the defendant put another proposal to the plaintiff. Under this proposal, the parties would open a joint bank account to which both parties were signatories. The additional funds would be paid into that joint account and payments would be made from the account either by the agreement of the parties or failing that, upon the determination of a quantity surveyor.
On 23 February 2023,[1] the Court made consent orders pursuant to which the parties agreed that the monies would be paid into a joint bank account and monies would be paid out of the account under an agreed procedure.
[1]These orders were authenticated on 28 February 2023.
Parties’ submissions
The plaintiff contends that its application and issue of proceedings was reasonably made. Unless the plaintiff had taken some action, the future of the Jutland project was put at risk because funding was urgently required in order to complete the contract, to avoid potential breaches and to prevent the exercise by Balmain of its rights as mortgagee.
The plaintiff said that the merits of the parties’ respective positions was never resolved by the Court. In those circumstances, it was difficult for the Court to make a proper assessment of the evidence to determine where responsibility for costs should lie. Accordingly, it was appropriate that each party should bear its own costs.
The defendant argued that issuing proceedings was unreasonable because it was unnecessary. According to the defendant, the plaintiff did not articulate a legal right to the relief which it sought on an interlocutory basis. It said that the plaintiff simply did not like the terms upon which the defendant was prepared to jointly borrow funds with it in order to complete the project.
Analysis
In my view, there is force in the plaintiff’s submission. The fact is that the Court has not been, and never will be, required to resolve the substantive issues between the parties. For that reason, the Court cannot readily assess the evidence, the credibility of witnesses or the legal issues. The Court will not conduct a trial simply for the purpose of determining where the burden of costs should lie. I have reservations about part of the conduct of the defendant in connection with the proceeding. Nonetheless, overall, I consider it a fair outcome that the parties should bear their own costs. Accordingly, with respect to the issue of costs I order that each party bear its own costs of the proceeding.
Conclusion
For the reasons given, I order that each party bear its own costs of and incidental to this proceeding.
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