Jerry Schwartz v Albert Hadid Albert Hadid v Jerry Schwartz
[2011] NSWSC 1041
•06 September 2011
Supreme Court
New South Wales
Medium Neutral Citation: Jerry Schwartz v Albert Hadid Albert Hadid v Jerry Schwartz [2011] NSWSC 1041 Hearing dates: 05/09/2011 and 06/09/2011 Decision date: 06 September 2011 Jurisdiction: Equity Division - Commercial List Before: McDougall J Decision: Hadid v Schwartz: judgment for plaintiff, with costs to date, for damages to be assessed.
Schwartz v Hadid: judgment for plaintiff against first defendant for $260,000.00 and interest, with costs. Judgment for second defendant with costs.
Catchwords: CONTRACT - deed of agreement to undertake joint venture - whether terms of deed evidence intention to have legal effect - whether terms of deed sufficiently certain for deed to have legal effect - agreement for loan - terms of agreement - whether agreement to defer payment came into existence - whether individual liable for debt advanced to company where individual admits to personal liability for debt - factual inquiry, no issue of principle. Cases Cited: WN Hillas & Co Ltd v Arcos Ltd) (1932) 147 L.T. 503 Category: Principal judgment Parties: Jerry Schwartz (Plaintiff)
Albert Hadid (First Defendant)
Vicbuy Pty Ltd (ACN 108 581 415) (Second Defendant)
Albert Hadid (Plaintiff) (2011/226988)
Jerry Schwartz (Defendant) (2011/226988)Representation: Counsel:
J Sleight (Plaintiff)
M T McCulloch SC / R Notley (Defendants)
M T McCulloch SC / R Notley (Plaintiff) (2011/226988)
J Sleight (Defendant) (2011/226988)
Solicitors:
Neville & Hourn Legal (Plaintiff)
Mahony Taren Lawyers (Defendants)
Mahony Taren Lawyers (Plaintiff) (2011/226988)
Neville & Hourn Legal (Defendants) (2011/226988)
File Number(s): 2010/99772 and 2011/226988
Judgment (EX TEMPORE)
HIS HONOUR: There are two actions that have been heard together. In one, the plaintiff, Mr Albert Hadid, sues the defendant, Dr Jerry Schwartz, for damages for breach of an alleged contract to buy and resell land that was right for residential redevelopment.
In the second action, Dr Schwartz sues Mr Hadid and a company known as Vicbuy Pty Limited to recover a loan of $260,000.
Background
Mr Hadid and Dr Schwartz had been friends of long standing. They had met at university in the 1970s. At least from 2006 on, they began to engage in business dealings together, usually on the basis that Mr Hadid would seek out and bring to Dr Schwartz opportunities for investment.
In April 2004, Mr Hadid had become interested in Vicbuy through a discretionary trust set up for the benefit of him and his family. That discretionary trust was the holder of the majority of the issued units in the Melbourne Unit Trust, of which unit trust Vicbuy was the trustee. In that capacity, Vicbuy bought land known as lot 4, or site A, at Cranbourne in the state of Victoria.
For reasons that it is unnecessary to recite, the sole director of Vicbuy at the relevant time was Mr Michael Turner. Mr Turner has since died. However, on Mr Hadid's evidence, the affairs of Vicbuy were, in effect, managed by a committee of which he and representatives of other holders of units in the unit trust were members.
The investment proposal
It is effectively common ground between Mr Hadid and Dr Schwartz that in about June 2007, Mr Hadid brought to the attention of Dr Schwartz an opportunity to buy, and consolidate for on-sale, land at Cranbourne adjacent to site A. Site A comprised about 35 acres (as the parties did, I will use the imperial measurements that are given in the evidence). It was adjoined by two lots known as sites B and D, respectively of 5 and 20 acres. A fourth lot, known as site C, adjoined lots B and D.
Site A had access to a road known as Craig Road. Site B had access to a road in a subdivision that either had been carried out or was approved to be carried out. Sites D and C had access to a road known as Botanic Drive. However, Botanic Drive was to be closed. Once that happened, absent some other form of re-subdivision, sites D and C could only obtain road access through lot A, to Craig Road, or through lot B, to the road in the subdivision to which I have referred.
Mr Hadid gave Dr Schwartz what has been called an investment proposal dated 8 June 2007. That proposal described the land to which I have referred, and identified it by reference to a diagram that was, apparently, attached. Whether or not there was also attached, or otherwise identified, a copy of the plan of subdivision on which that diagram was based is unclear.
The investment proposal described an opportunity to buy sites B, C and D and resell them at a profit in one line. It made the point that site A was "already owned by our consortium" (which I think, despite criticisms advanced by Mr Sleight of Counsel for Dr Schwartz, was a reference to Vicbuy as trustee of the unit trust). Thus, there were two available proposals. One was to sell the four lots in one line. The other was to sell at least lots B, C and D in one line.
The investment proposal stated:
The subject site is one of the fastest growing municipality in Victoria. It is 35 minutes from Melbourne city. Growth demand in residential and retirement properties is very high. The region has developed some of the best facilities for sports, education, recreation, transport and other facilities.
The site has all the service available, Bitumen road, concrete footpath and kerbs, it has road links on two sides. On the Craig Rd side there are residential houses. The site is surrounded on its boundaries by a nursing home, a retirement village, residential properties and beautiful gardens.
The property is part of a deliberate local government expansion development plan. There are 3 stages. Stage 1 has finished. Stage 2 is next and is where these properties are located.
There are 4 subject sites, see diagram provided.
A=35 acres / B=5 acres / C=20 acres / D=20 acres
The proposal is to buy B, C & D, sell them in one line as soon as possible and split the net profits. A is already owned by our consortium. The plan is to first buy B th[e]n buy or option C & D. C & D have no road access [ex]cept via A & B. If we buy B th[e]n we have both access ways to C & D. B & C are for sale. D would negotiate seeing they would have limited options.
Land size A + B + C + D = 80 acres. 80 acres offered in one line to one of the majors is a serious proposition. We believe we will sell for $200k per acre. Therefore the site will sell for approx $16m.
I believe B, C & D can be purchased for $4.7m, We can sell for $8 to $9m. The profits are $4.3m within 6 to 12 months possibly less.
Strategy: We pay $4/500k on B. We option C & D.
Mr Hadid and Dr Schwartz inspected the land on several occasions. According to Mr Hadid, between the time that the investment proposal was given to Dr Schwartz and the time that the Deed of Agreement, to which I will turn in a moment, was made, there were conversations, following those inspections, at which, in effect, Dr Schwartz agreed to participate in the proposal outlined in the investment proposal. If one were to take account of Dr Schwartz's affidavits, some of those conversations would be denied. However, since Dr Schwartz was not available for cross-examination, his affidavits were not read.
I interrupt the narrative to note that Mr McCulloch of Senior Counsel, who appeared with Mr Notley of Counsel for Mr Hadid, submitted that in those circumstances I should accept Mr Hadid's evidence. There was some matters of concern in Mr Hadid's evidence. It is unnecessary, in dealing with this dispute, to decide whether or not there was an oral agreement of the kind alleged by Mr Hadid. The reasons for that will become clear in a moment.
As I have foreshadowed, Mr Hadid and Dr Schwartz made what they described as a "Deed of Agreement". That deed was dated 23 August 2007. It recited an agreement on the part of Dr Schwartz "at his discretion to buy one or more properties at Junction Village Cranbourne Victoria". It then set out what purported to be "further agreements" of the parties, including how the proceeds of sale of the properties would be dealt with. I set out the terms of that deed:
RECITALS AS AGREED
1.1 Jerry [Mr Schwartz] and Albert [Mr Hadid] are friends and wish to enter into this business arrangement.
1.2 Jerry has agreed at his discretion to buy one or more properties at Junction Village Cranbourne Victoria "Properties"
1.3 Albert has introduced Jerry to the properties and will negotiate the purchase and sale of the properties at Jerry's discretion.
THE PARTIES FURTHER AGREE:
1. All terms in this deed are strictly confidential between the parties and may only be discussed with the parties and their lawyers and accountants.
2. Jerry will purchase the properties in entities he is comfortable with.
3. Jerry agrees whilst he is the sole Director and shareholder, he is holding 50% of the shares in the entities that own the properties in trust for Albert pursuant to this Deed.
4. On sale of the properties Jerry will first as a priority deduct the following:
1. All capital contributions he makes
2. All reasonable money or interest
3. All costs relating to the properties including but not limited to interest, accounting costs, Stamp duty costs, Land tax costs (if any), legal costs, DA costs and any other direct costs incurred by the properties.
5. After deduction of the amounts mentioned in clause 4 above Jerry will pay as directed by Albert 50% of all net profit.
The case for Mr Hadid is that the parties made an agreement, either orally (taking into account the conversations to which I have referred) and in writing; the writing being either the Deed of Agreement or that deed and the investment proposal; or wholly in writing. There were alleged to be certain implied terms.
The primary question is whether the deed was intended to have legal effect and, if it were, whether it has sufficient content to be certain in its operation, and thus a source of enforceable rights.
I start with the proposition that when people make an agreement about a matter of business, and reduce their agreement to writing, they should be taken to have intended that written agreement to have legal effect unless it specifies otherwise on its face, or unless there is a clear implication otherwise from the terms of the written agreement and the circumstances in which it was made.
In this case, the parties chose to record their agreement in the form of a deed. The starting proposition to which I have referred is, in my view, even more appropriate to be taken into account when the parties have availed themselves of the formality, or solemnity, of a deed.
If it be concluded that parties did intend their agreement to have legal effect, then it is clear that the court should strive to give content to, and to uphold, what they have agreed rather than to strike it down. The court should seek to uphold bargains reached, rather than incur the reproach of destroying them (to adopt the words of Lord Wright in WN Hillas & Co Ltd v Arcos Ltd ) (1932) 147 L.T. 503 at 514).
In seeing whether effect can be given to a written agreement, it is appropriate, where necessary, to have regard to all matters of context that were known to the parties. In this case, the context includes (apart from the conversations) the fact that Mr Hadid introduced the deal (if I can call it that) to Dr Schwartz in the investment proposal of 8 June 2007, and the fact that Mr Hadid and Dr Schwartz inspected the properties at least once. It may also be noted that the discussions were not merely bilateral; they involved other people interested in the Melbourne Unit Trust.
In my view, looking at the deed by itself, it is clear that the parties intended it to have legal effect. It starts with the "recitals as agreed". True it is that clause 1.1 describes the deed as "this business arrangement". However, clause 1.2 recites what appears to be an agreement already made and clause 1.3 imposes what appear to be obligations on Mr Hadid following the making of the deed, and as part of its performance.
The document then states that "the parties further agree" on certain terms. That is the language of agreement rather than intention or expectation. What follows is cast in mandatory terms, and consistent with the proposition that the parties intended to be bound by what was there set out.
If, as I conclude is the case, the parties intended the deed to have legal effect, then the next question is whether it can be given sufficient meaning to make it certain.
Nothing turns on the fact that the parties were expressed to include the nominees of Mr Hadid and Dr Schwartz. That is a relatively common commercial arrangement.
The first point of difficulty arises from clause 1.2, and, in particular, the reference to "discretion." As a matter of language, that could mean, as Mr Sleight submitted, that Dr Schwartz had a discretion as to whether to buy one, or two, or three of sites B, C and D. Mr Sleight submitted that Dr Schwartz could be obliged to do no more than buy one of those sites; and, that since he had done so (because he did proceed with the purchase of site B), any legal obligation was thereby fulfilled.
Mr McCulloch submitted that the discretion that was given was whether to buy the sites (or some of them) or whether to take options to buy them. In support of that, he relied both on the conversations that led up to the making of the deed and on the terms of the investment proposal.
In my view, taking into account the investment proposal, at least as a matter of context (I do not need to decide whether, as Mr McCulloch submitted in one of his iterations of Mr Hadid's case, it was a document of contractual standing) the discretion given relates to the "buy or option" part of the investment proposal. What the parties were considering was that site B should be bought, because the effect of so doing would be to "landlock" sites C and D. The effect of that would be to put the owners of sites A and B in the box seat in any negotiations for the purchase of sites C and D. Clearly, that is what the parties had in mind. As the investment proposal stated, if site B were bought then both ways of access to sites C and D were tied up. The proposal contemplated that the owners of sites C and D would have to negotiate, stating in particular that site D "would have limited options".
In those circumstances, I think, it is appropriate to construe the deed as requiring Dr Schwartz to buy site B but then, at his discretion, either to buy or to take options over sites D and C. That gives business sense to the language of the deed and ensures that it is consistent with the proposal that the parties had been discussing. There is no doubt that the hypothetical reasonable person in the position of the parties, knowing what they knew, would have taken into account the terms of the investment proposal in seeking to understand what, objectively, the parties meant to achieve by clause 1.2 of the deed.
The next possible stumbling block follows from clause 2 of the further agreements. However, I think, on its proper construction, that that does no more than give to Dr Schwartz the right either to buy whatever he decides to buy (or to take whatever options he decides to take) in his own name or instead to do those things in the name of some company.
There is no doubt that clauses 3 and 4 and 5 of the further agreements are clear enough in their import.
Thus, when one reads together the investment proposal and the deed, the following points emerge:
(i) the parties are identified, although with discretion to operate through nominees or (in the case of Dr Schwartz) other controlled entities;
(ii) the properties that are referred to in the deed are identified, taking into account what is stated in the investment proposal and the diagram referred to in it;
(iii) the joint venture itself is identified; it is first to buy site B (the key site) and then to buy or take options over sites C and D; and then to onsell those sites, preferably consolidated with site A and thus in conjunction with Vicbuy, to some major developer;
(iv) the overall price structure is defined, by reference to the investment proposal which suggested a total investment of $4.7 million for the three sites B, C and D (I interpose to note that Mr Hadid was able to negotiate prices that would fit within this cap);
(v) the division of responsibilities was agreed; and
(vi) the consideration, or more properly the rewards to flow to each party, were agreed.
On that basis, as I have said, I think that the discretion referred to in clause 1.2 is limited to the "buy or option" proposal identified for sites C and D, and that the deed has sufficient content to be sufficiently certain to be enforceable.
True it is that there was no timeframe identified for the performance of the obligations. However, it was clear that the parties wished to proceed as quickly as possible (and indeed the investment proposal identifies a six to 12 month timeframe). In any event, the law would impose a reasonable time, by way of implication, for performance.
After the deed was made, it was in part performed. Dr Schwartz proceeded to purchase site B. Mr Hadid continued with negotiations for the purchase of, or taking of options over, sites C and D.
It is common ground that, if the deed were otherwise enforceable, Dr Schwartz breached it by withdrawing, and refusing to continue with the purchase of or taking of options over sites C and D.
In those circumstances, it follows in my view that Dr Schwartz is liable for damages to be assessed.
The loan
There is now no doubt that the loan on which Dr Schwartz sues was made. To put it mildly, there is some confusion in the evidence as to by whom and to whom it was made.
Dr Schwartz asserts in his pleadings that the loan was made by him. But the records on which he relies to prove the advance show that it was made by a company controlled by him.
Mr Hadid says that the loan was made to him. But the records to which I have just referred show that the money was paid into the account of Vicbuy.
Dr Schwartz asserts that, because money was paid into the account of Vicbuy, it was a loan to Vicbuy. In support of this, he relies on a form of loan agreement that was executed by Mr Hadid, purportedly on behalf of Vicbuy, in October 2008. Mr Hadid says that this loan agreement was prepared and signed in this format at Dr Schwartz's insistence, and despite the fact that Dr Schwartz was warned (by Mr Hadid) that Mr Hadid had no authority to sign for Vicbuy, and that Mr Turner (the sole director of Vicbuy) had said that Vicbuy would not borrow the money.
The confusion is not dispelled by further circumstances surrounding the making of the loan. One of those circumstances is that, on Mr Hadid's evidence, the loan was required for the purposes of Vicbuy - to buy out an obstreperous shareholder or interest holder. Presumably, that is why it was paid into Vicbuy's account. Another circumstance of confusion is that Vicbuy was able to repay the money later when it refinanced some properties that it owned, but instead of paying the money back to Dr Schwartz, it paid it to Mr Hadid. Yet another circumstance of confusion is that in the lodgment reference prepared by Dr Schwartz when he caused the bank transfer to be made from his company's account into the account of Vicbuy, he described the transaction as:
"Loan to Hadid
SCHWARZ FAMILY C."
Putting all those matters together, and giving particular credence to what Dr Schwartz evidently thought at the time was the transaction that he was performing by transferring the money, I think that the better view is that the loan was one made to Mr Hadid but, at the direction of Mr Hadid, paid into the account of Vicbuy.
To the extent that it helps, I note that this is the way that the matter was put to Mr Hadid in cross-examination at T37.21-49:
Q. Now, Mr Hadid, in about August 2007 you went to my client and asked him for a loan of some money, didn't you?
A. In August?
Q. Yes.
A. Which year, sir?
Q. 2007?
A. No, no sir.
Q. I beg your pardon, in October 2007 you went to my client and asked him for a loan of some money, isn't that right?
A. Yes.
Q. You asked him for $260,000 because you said you needed it, otherwise you were in danger of losing some land at Cranbourne?
A. I may have used those words.
Q. You did not own any land at Cranbourne, did you?
A. No.
Q. And my client agreed to make you this advance of $260,000, is that right?
A. He did.
Q. And you prepared what you call a loan contract which is, if you could turn to page 32, it appears at page 32 of the Court book?
A. 32. Yes sir.
Taking those matters into account, and taking into account the unchallenged evidence of Mr Hadid that he told Dr Schwartz he had no authority to bind Vicbuy, I think that the better view is that there was no agreement for loan made between Dr Schwartz and Vicbuy, notwithstanding the document of October 2007 that purported to record such a transaction.
The fact that the loan was made by Dr Schwartz's family company might be thought to pose some impediment to Dr Schwartz's recovering it in his own name. However, since Mr Hadid has recognised that he is personally responsible to Dr Schwartz for the loan, it is unnecessary to pursue this fascinating point.
The substantial defence that Mr Hadid puts in his own right is that he reached an agreement with Dr Schwartz that the loan would not be repaid until one or other of various business transactions, including the joint venture over the Cranbourne land, matured into profit. I do not accept that aspect of Mr Hadid's evidence. His evidence on the loan account has been inconsistent. Thus, when the proceedings were initially commenced in the District Court (they were transferred to this Court when Mr Hadid brought his own proceedings in this Court), Mr Hadid defended the proceedings on the basis that there was no loan. That is not the position that he takes in this Court. Further, in the District Court, Mr Hadid sought to support that defence by putting on a statement that was intended to serve as his evidence in chief which simply denied the making of the loan. He said, totally inconsistently with what he now admits in this Court, that "no money was lent to me by the plaintiff".
Further, in my view, this aspect of Mr Hadid's evidence is improbable even in its own terms. On Mr Hadid's evidence, the question of repayment arose because Dr Schwartz said that he was short of cash and needed the money back. To suggest, as Mr Hadid does, that in those circumstances Dr Schwartz, having made the request, would promptly agree to defer repayment until the never-never time of collection on the various business deals, is not in my view consistent with the probabilities objectively viewed.
In this context, taking into account all the matters to which I have referred and my very strong impression that Mr Hadid would say whatever is expedient in relation to the loan, I conclude that there was no agreement as alleged to defer repayment.
For those reasons, I conclude that Dr Schwartz is entitled to judgment against Mr Hadid for the amount of the loan, $260,000, together with interest from the date of the demand. Interest should run from that date because it was initially agreed that the loan would be interest free. Thus, it is only from the time of failure to repay that interest should run.
There is no basis for setting off the loan against any amount that may be shown to be due to Mr Hadid on the judgment for damages to be assessed. However, Mr McCulloch submitted that there should be a stay if I were to come to the conclusions that I have just expressed. I will hear counsel further on that point.
(Counsel addressed.)
Mr Sleight submits that there should be no stay, on the basis that there is no evidence that Mr Hadid's claim for damages will produce anything of substance. He refers, also, to the fact that Mr Hadid has admitted indebtedness for $50,000 (in addition to the sum of $260,000) which sum has not been repaid; that admission is found in a document of 3 June 2008 signed by Mr Hadid, in which he also admits liability for the sum of $260,000. In those circumstances, Mr Sleight submits, there should be no stay.
Mr McCulloch submits that equity requires that the judgment be stayed, on the basis that the claim for damages can be prepared for hearing quickly and is likely to produce a substantial sum. He refers to the fact that Mr Hadid has no apparent source of repayment other than the proceeds of the various deals in which he and Dr Schwartz were involved.
In circumstances where I have rejected the proposition that repayment of the loan was to come from the proceeds of one or other of the projects in which Mr Hadid and Dr Schwartz were involved, it seems to me that the basis for staying any judgment, so that the monetary effect of the secondary obligations in relation to one of those projects can be worked out, is inconsistent. Further, taking into account the additional admitted indebtedness, it does not seem to me that there is any other basis for granting a stay.
There is no mutuality between the debt for which judgment is to be given and the claim for damages. In circumstances where the debt has always been admitted, the fact that there may into due course some offsetting liability (offsetting as a matter of arithmetic rather than principle) does not seem to me to be a reason for holding Dr Schwartz out of his rights.
I refuse the application for a stay.
I direct the parties to bring in short minutes of order to give effect of these reasons. That is to be done at 10 o'clock tomorrow.
I stand proceedings 2011/226988 over to the directions list on 9 September 2011 to enable direction to be given for the progression of the claim for damages.
(Counsel addressed further.)
In the former District Court proceedings, I order the plaintiff to pay the second defendant's costs, and I order the first defendant to pay the plaintiff's costs excluding the second defendant's costs.
Dr Schwartz seeks an order that his costs in the former District Court proceedings be assessed on the indemnity basis. He relies on a Calderbank letter of 28 January 2010, alternatively on an offer compromise of 20 October 2010. Both those documents require the first and second defendants in the former District Court proceedings (Mr Hadid and Vicbuy) to pay the amount of the offer. In circumstances where one of those parties has succeeded and one has failed, it is inappropriate to order costs on the indemnity basis. I hand the documents back.
I order the defendant in the Supreme Court proceedings to pay the plaintiff's costs to date of those proceedings.
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Decision last updated: 21 September 2011
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