JMS Capital Pty Ltd v. Eco Beach Developments Pty Ltd

[2008] QSC 197

[2008] QSC 197

SUPREME COURT OF QUEENSLAND

CIVIL JURISDICTION

MULLINS J

No 6979 of 2008

JMS CAPITAL PTY LTD

Applicant

(ACN 108 749 355)

and

ECO BEACH DEVELOPMENTS PTY LTD

Respondents

(ACN 128 910 190)

and

MINTER ELLISON -GOLD COAST
(ACN 017 810 413)

BRISBANE

..DATE 21/08/2008

ORDER

HER HONOUR:  The applicant and the first respondent were the

vendor and purchaser respectively under a contract for sale of

land in Wooyung, New South Wales dated 1 February 2008.

The land comprises 79 hectares of beachfront land, including

about one kilometre having the beach frontage.  The contract

was in fact the second contract that had been entered into by

the parties.  They had entered into an earlier contract dated

18 December 2007.  In each case the purchase price was $24.5

million.  The contract that is the subject of this proceeding

was effectively unconditional and was entered into after the

parties had agreed to rescind the earlier contract.

A deposit was due of $750,000.  An instalment of $100,000 was

paid upon signing the contract and a further payment of

$350,000 was made on or about 12 February 2008.  Although a

cheque was tendered for the balance of the contract, that

cheque was dishonoured and no further payment was made by way

of deposit.

The date for completion was extended by mutual agreement with

time remaining of the essence from 1 April to 4 April 2008.

The purchaser did not complete.  A notice to complete was then

served calling on the purchaser to complete by 28 April 2008.

In the meantime the purchaser purported to rescind the

contract by notice from its solicitors dated 24 April 2008,

demanding the return of the deposit on the basis of

allegations that had been raised in the purchaser's

solicitor's letter of 7 April 2008 alleging misrepresentations

against the directors Jason Paris and Cameron Davis that the

land was worth $40 million and that the vendor had a valuation

of the land at $40 million that was a genuine and reliable

valuation.

The allegation was made in that solicitor's letter that the

purchaser was induced by the representations, acted in reliance upon them and entered into the contract.  It is alleged in that letter that the vendor knew that the land was not worth $40 million and that they knew that the valuation was unreliable.

The deposit is held in the trust account of the second

respondent which were the solicitors acting for the applicant

in the transaction.  Those solicitors have held the deposit

until a determination of some sort or agreement of some sort

between the parties is reached that enables the solicitors to

deal with the deposit.  By originating application filed on 23

July 2008 the applicant applied for a declaration that the

amount of $450,000 held in the second respondent's trust

account was forfeited to the applicant and an order directing

the second respondent to pay those funds to the applicant.

The matter came on before me in the applications jurisdiction

of this Court on 30 July 2008.  The first respondent was not

legally represented that day.  A Mr Jamieson, who purported to

be the CEO of the first respondent, appeared and sought an

adjournment to enable the first respondent to formulate its

claim for damages against the applicant.  On that day Mr

Girardo, a director of the first respondent, was also present

in Court.  He had sworn an affidavit that had been prepared by

the first respondent, it appears, without the assistance of a

lawyer and that affidavit was filed before me by leave.

On the 30th of July 2008 material was relied on by the

applicant to establish the urgency of the application.  In

summary the subject land has been resold.  There is a

shortfall between the sale proceeds and what the applicant

owes to its mortgagees.  The applicant requires the sum of

$450,000 to preclude its mortgagees taking action against the

applicant.  When the sole director of the applicant, Mr Paris,

gave evidence today, he confirmed that the only asset that the

applicant has is its rights arising out of this failed

contract.  The relevance of that material was for the purpose

of opposing an adjournment.  It is also relevant today as to

whether or not the declarations that are sought by the

applicant should be made.

On the 30th of July 2008 I made directions adjourning the

hearing of the application to the civil list on 21 August 2008

and setting a timetable for the filing and serving of the

affidavits that each party intended to rely on, in addition to

those that had already been filed.  Although the applicant has

filed further affidavits, the first respondent failed to file

and serve any affidavits or to formalise the claim that had

been foreshadowed at the hearing on 30 July 2008.

Solicitor, Mr O'Sullivan, appeared today for the first

respondent.  I refused the adjournment that was sought and

refused to give the first respondent leave to make an

application to have this proceeding transferred to the Supreme

Court of New South Wales or the Federal Court of Australia

for reasons that I gave during the course of the hearing to

adduce further evidence.

The matter then proceeded with Mr O'Sullivan on behalf of the

first respondent cross-examining each of the applicant's

deponents, namely its solicitor Mr Moriarty, the valuer who

provided two valuations of the subject land at $40 million,

one Mr Kogler, and the two directors of the applicant at the

relevant time, Mr Davis and Mr Paris.

Mr Girardo's affidavit that was filed by leave on 30 July 2008 raises many suspicions that he had about the valuation and the agents that he was dealing with and the motivations of the applicant's directors in the course of their dealings with him.

His suspicions, however, do not come to deal in any way with

the factual matters that one would expect to see if the first

respondent was pursuing against the vendor a claim for

misleading and deceptive misconduct.  Mr O'Sullivan from the

Bar table outlined that the essence of the first respondent's

case against the vendor was that the vendor procured a

valuation that was overstated with a view to pumping up the

price at which the subject land was sold for and making a

purchaser who entered into a contract for less than the $40

million think that they were getting a good deal.

It was also foreshadowed that representations had been made by

the agent that the first respondent wished to sheet home to

the applicant.  Mr Girardo's affidavit deals with pressure

that was placed on him by the agent, but it does not deal with

any representations as such.

After having listened to the cross-examination of each of the

witnesses and considered the material in their affidavits, the

best case for the first respondent is that Mr Paris

acknowledges and accepts that the valuation dated 12 September 2006 by Mr Kogler was provided by Mr Paris to Mr Girardo in or about November 2007.  Mr Paris deposes to the valuation being provided as part of the due diligence performed for the Wooyung property purchase.

The valuation is addressed to the applicant and includes a

statement that it has been prepared on specific instructions

from the applicant for "pre-sale advising purposes".  There

is then the usual qualification that the report is not to be

relied upon by any other person or for any other purpose and

that the valuer accepts no liability to third parties for

relying upon the report.

Mr Girardo made much in his affidavit of the fact that at no

time was it mentioned to him that the valuation could not be

"reassigned" to Mr Girardo when he had obtained his finance

approval to settle the Wooyung property.

It is accepted by Mr Davis and Mr Paris that they had no such

discussion with Mr Girardo.  In fact, Mr Girardo does not say

that he had a discussion with those directors of the applicant

about assigning the valuation.  Mr Girardo deposes to the

negative, that there was no such conversation.

The valuation itself suggests that it's not capable of

assignment without the consent of the valuer, and Mr Girardo

had direct discussions with the valuer, Mr Kogler, who made

his position clear to Mr Girardo about the valuation.  The best part of the case that I can see for the first respondent is the fact that the valuation was physically passed over by the applicant to Mr Girardo, and depending upon the circumstances in which that was done, it may be that an

examination could allow a case to be pursued that there was

some implied representation as to the valuation of the

property being in the vicinity of $40 million.

The problem for the first respondent is that Mr Paris and Mr

Davis had no reason to believe that the valuation wasn't a

fair assessment of the current market value at the time that

it was given, and there is no evidence before me other than

one matter relied on by Mr O'Sullivan to enable me to conclude

that the valuation was not a fair assessment.  Mr O'Sullivan

says that I don't need any evidence.  The one matter he points

to is why would the applicant with a valuation for $40

million accept an offer from the first respondent to purchase

the property for $24.5 million?  This was a matter on which Mr

Paris in particular was cross-examined and I was satisfied on

the basis of his evidence that there was nothing suspicious

about the valuation of $40 million.

The land was purchased by the applicant for $5.5 million, but

they took the risk of pursuing a development application in

the New South Wales Courts and were successful and, as a result of that, had a more valuable property to market than the property presented when they purchased it for $5.5 million.

Another aspect on which the first respondent's material falls short is that there is no evidence that Mr Girardo relied on that valuation of $40 million.  Mr Girardo does not say so in his affidavit.  He was preoccupied, it appears, in his attempts to procure an assignment of the valuation, but he does not deal with what actually motivated him to offer the $24.5 million to purchase the property.

Mr Kogler confirmed in evidence today, and in his recent

affidavit, that he believed his opinion as to the valuation of

the land was a reasonable valuation.  He did another valuation

of the property for the applicant for which the first

respondent paid in March 2008 in which he arrived at the same

valuation but by reference to the evidence of value that was

available at that time, which was not the same as the evidence

that was available to him when he did his valuation on 12

September 2006.

The applicant has foreshadowed that it will be pursuing Mr

Girardo as the guarantor of the obligations of the first

respondent for the deficiency on resale and although the first

respondent has failed to date to formulate its claim against

the applicant, Mr O'Sullivan foreshadowed that the first

respondent had a claim for damages against the agent of the

vendor and was seeking to hold the vendor liable on that basis

for misleading and deceptive conduct and against the valuer.

Mr O'Donnell conveyed an undertaking that was given on behalf

of the applicant that it would not rely on any issue estoppel

that might be said to have arisen in this proceeding to

preclude the first respondent from relying on any

misrepresentation or claim for misleading or deceptive conduct

against the agent and/or the applicant in any proceeding that

the first respondent seeks to commence.

Mr O'Sullivan conceded, on the basis of the material that was

before me, that it was likely that I would have to conclude against his client.  He did endeavour, however, to convince me about ameliorating the rigor of the forfeiture of deposit clause in the contract by applying relief against forfeiture.  There is nothing in Mr Girardo's affidavit, or the circumstances of the transaction disclosed in the material before me, that raises any arguable case for relief against forfeiture of the deposit.  Mr O'Sullivan sought a stay of the orders that I might make if I decided the case against the first respondent.

The first respondent's solicitors foreshadowed a claim for

misrepresentation in early April 2008.  There is nothing that

has been done by the first respondent to formulise that claim

other than the affidavit of Mr Girardo.  That does not do

justice to the making of such a claim.

It is of concern, understandably, to the first respondent that

if the deposit is released to the applicant because of the

financial difficulties to the applicant that if there are

proceedings against the applicant by the first respondent that

the first respondent might never recover that deposit.  If the

first respondent wishes to pursue proceedings and considers

that it has grounds for an appeal in respect of the decision

that I am making today, then it is always open to the first

respondent to seek a stay on properly prepared material.

Because of the failure of the first respondent's material and

arguments today to persuade me that there is an arguable claim

for damages, I do not consider the financial difficulties of

the applicant are a reason to refuse to make the declaration

and orders that are sought by the applicant.

I therefore make an order in terms of the draft, initialled by

me and placed with the file.

MR O'DONNELL:  Could I make - we note one omission from the

draft order.

HER HONOUR:  Yes.

MR O'DONNELL:  In paragraph 2, "The second respondent pay" -

should be "to the applicant".

HER HONOUR:  Yes.  So, the order I make is order as per

amended draft.

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