Key Infrastructure Australia Pty Ltd v Bensons Property Group Pty Ltd
[2019] VSC 522
•14 August 2019
IN THE SUPREME COURT OF VICTORIA Not Restricted AT MELBOURNE
COMMERCIAL COURTS CI 2017 00073
BETWEEN:
KEY INFRASTRUCTURE AUSTRALIA PTY LTD Plaintiff v BENSONS PROPERTY GROUP PTY LTD Defendant AND BETWEEN:
BENSONS PROPERTY GROUP PTY LTD Plaintiff by Counterclaim v KEY INFRASTRUCTURE AUSTRALIA PTY LTD First Defendant by Counterclaim BARRY RICHARD GALE Second Defendant by Counterclaim BRUNO GATSBY Third Defendant by Counterclaim NIGEL ROBERT HUTCHINSON-BROOKS Fourth Defendant by Counterclaim ---
JUDGE:
ROBSON J
WHERE HELD:
Melbourne
DATE OF HEARING:
11, 12, 13, 14, 18, 19, 20, 25, 26 and 28 February 2019, 1 and 6 March 2019
DATE OF JUDGMENT:
14 August 2019
CASE MAY BE CITED AS:
Key Infrastructure Australia Pty Ltd v Bensons Property Group Pty Ltd
MEDIUM NEUTRAL CITATION:
[2019] VSC 522
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CONTRACT – Development management agreement – Term that planning permit be issued by a certain date – Whether defendant elected to appeal to VCAT pursuant to term of agreement – Holding that defendant did not elect to appeal – Whether decision by VCAT that permit should be granted satisfied the term – Holding that decision by VCAT granting permit did not satisfy term.
CONTRACT – Whether terms of development management agreement included implied terms of good faith and co-operation – Duty of co-operation implied – Duty of good faith not implied – Holding that defendant had breached duty of co-operation – Plaintiff entitled to nominal damages.
EQUITY – Whether defendant estopped from relying on strict wording of term of development management agreement – Conventional estoppel – Equitable estoppel – Holding that estoppel not established.
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APPEARANCES:
Counsel Solicitors For the Plaintiff Mr A Felkel Michael Benjamin & Associates For the Defendant Mr C M Scerri QC
with Mr R M PetersArnold Bloch Leibler TABLE OF CONTENTS
Introduction.......................................................................................................................... 1
The claims and counterclaims........................................................................................... 5
Main issues and summary of findings............................................................................. 8
Credit of witnesses............................................................................................................ 11
The application for the planning permit........................................................................ 11
Meeting of 1 February 2016.............................................................................................. 13
Agreement on price after 1 February meeting.............................................................. 19
Meeting of 15 March 2016................................................................................................. 21
Meeting of 5 April 2016.................................................................................................... 24
The DMA............................................................................................................................. 29
Meeting of 15 April 2016.................................................................................................. 30
Meeting of 26 April 2016.................................................................................................. 34
Meeting of 5 May 2016...................................................................................................... 36
Events after 10 May 2016.................................................................................................. 46
Events of 18 May 2016....................................................................................................... 47
Events after 18 May 2016.................................................................................................. 53
Did Bensons elect to go to VCAT under clause 2.3(e) of the DMA?.......................... 60
Did KIA procure the issue of the planning permit before the Sunset Date?............ 61
Did Bensons prevent KIA from procuring the issue of the planning permit?......... 67
Alleged duties of good faith and co-operation............................................................. 73
Did Bensons owe KIA a duty of co-operation under the DMA?................................ 74
Did Bensons owe KIA a duty of good faith under the DMA?.................................... 77
Is Bensons estopped from relying on the strict wording of clause 2.3(e) of the DMA? 81
What loss did KIA suffer as a result of Bensons’ breach?........................................... 90
Conclusion.......................................................................................................................... 97
HIS HONOUR:
Introduction
1 The plaintiff, Key Infrastructure Australia Pty Ltd (‘KIA’), carries on business providing professional services in property planning and engineering. Its activities relevantly include preparing properties for development, including having plans drawn up, dealing with the relevant council and finding a developer to buy the property with all the relevant permits and plans.
2 There are three principals and owners of the plaintiff: Mr Barry Gale, Mr Nigel Hutchinson-Brooks and Mr Bruno Gatsby.
3 The defendant, Bensons Property Group Pty Ltd (‘Bensons’), is a property developer which has about 40 employees. Bensons mainly purchases development sites without a planning permit, obtains the permit and carries out the development. The developments are usually apartment blocks.
4 Bensons is owned and controlled by Mr Elias Jreissati, who is also its chairman. Bensons’ chief executive officer is Mr Richard Curtis. At relevant times, Mr George Semenov was a development manager at Bensons who reported to Mr Curtis.[1]
[1]At the time of the hearing, Mr Semenov no longer worked for Bensons.
5 A short summary of the factual background to this matter follows. A much more detailed consideration of the relevant facts and evidence will be given later in this judgment.
6 Prior to March 2015, KIA identified a potential development site at 103 Beach Street, Port Melbourne. The site, directly opposite Station Pier, was occupied by a supermarket. The proposed development included shops and a café on the ground floor, with apartments on the second and third floors. A basement was to be included for car parking.
7 In March 2015, KIA agreed to purchase the land and the business being conducted on the site with a view to developing the site itself, and paid deposits under relevant contracts totalling $100,000 to the owners, who I will refer to collectively as the Mandile parties.[2]
[2]$80,000 was paid as a deposit to Blue Sands Pty Ltd for the sale of the land and $20,000 was paid as a deposit to Mandile Nominees Pty Ltd for the sale of the business.
8 In June 2015, KIA applied to the City of Port Phillip (‘council’) for a planning permit for the proposed three-level development (‘planning permit’ or ‘permit’).[3] The council, however, prevaricated about issuing the permit. Frustrated by the delay and daunted by the sums involved, KIA and the Mandile parties began looking for a joint venture partner in January 2016. They subsequently were contacted by Bensons. Bensons was invited to inspect the proposed project, which it did on 1 February 2016.
[3]CB 654–657.
9 It is alleged by KIA, and disputed by Bensons, that at all times from this first meeting on 1 February 2016, Bensons understood that there was difficulty obtaining the planning permit from the council and that it was likely that an appeal from the failure of the council to grant a planning permit would have to be made to the Victorian Civil and Administrative Tribunal (‘VCAT’) to obtain a planning permit.
10 KIA alleges that in negotiations leading up to the execution of the agreement between the parties, Bensons made representations to the effect that it would appeal to VCAT in relation to the planning permit. By this time, KIA had done a great deal of work in preparing the application to the council for the planning permit, which KIA costed at approximately $2.5 million. KIA initially sought a fee of $3 million from Bensons to compensate it for the work it had already done towards getting the permit and for future costs to obtain the permit. KIA subsequently agreed to accept a lower fee, it claims, on the basis that Bensons, not KIA, would incur the costs of a future appeal to VCAT to obtain the permit.
11 On 5 April 2016, the parties executed a development management agreement (‘DMA’). Under the DMA, KIA was to procure the planning permit by 31 December 2016, designated ‘the Sunset Date’, and Bensons was to pay KIA a development management fee of $2 million (plus GST) in four instalments. The first instalment of $40,000 was paid prior to entry into the DMA. The second instalment of $360,000 was paid on the signing of the DMA. If KIA did not obtain the issue of the planning permit by the Sunset Date, KIA was not entitled to the third and fourth instalments and was required to repay to Bensons the instalments it had already received. This repayment was guaranteed by Mr Gale, Mr Gatsby and Mr Hutchinson-Brooks.
12 Also on 5 April 2016, KIA cancelled the sale contracts it had with the Mandile parties and Bensons entered into sale contracts directly with the Mandile parties.
13 The DMA did envisage that an appeal to VCAT may be made by Bensons. Clause 2.3(e) of the DMA provided:
If Bensons elect (without being obliged to do so) to appeal any decision of the Responsible Authority in connection with the Planning Application or the issue of the Planning Permit all costs in doing so are to be borne by Bensons.
14 When the council continued to delay, KIA encouraged Bensons to file an application with VCAT. KIA contends that, by reason of its conduct at meetings on 15 April 2016, 26 April 2016 and 5 May 2016, Bensons elected to appeal the failure by the council to issue the planning permit under clause 2.3(e) of the DMA. Bensons disputes that it so elected.
15 On 10 May 2016, Bensons communicated to KIA that it did not intend to appeal to VCAT at that stage, citing concern about the prospects of such an appeal. Bensons stated, however, that KIA was free to appeal at its own cost.
16 On 18 May 2016, KIA lodged an application with VCAT, appealing the council’s failure to make a decision in respect of the planning permit. Although Bensons was not aware of the application, on the same day, its solicitors wrote to KIA informing it that, contrary to its stated position on 10 May 2016, any application by KIA to VCAT without Bensons’ consent (which was refused) would be in breach of the DMA. Further, the letter stated that a planning permit obtained through VCAT would not, in any event, satisfy KIA’s obligations under the DMA.[4] As a result of Bensons’ stance, KIA withdrew its application to VCAT.[5]
[4]Exhibit P3 (CB 2090–2093).
[5]Exhibit D5 (CB 2103).
17 KIA was concerned to meet its obligations under the DMA and to earn its management fee. Accordingly, KIA made further attempts to obtain the permit through the council, however, this was unsuccessful. KIA also made attempts to meet with Bensons to discuss the issue, however, these attempts were rebuffed. On receipt of its own legal advice, KIA lodged two further applications with VCAT. KIA expended considerable time and effort in preparing and conducting the VCAT applications, including having counsel retained to appear at the hearing.
18 Between June and November 2016, Bensons claimed KIA was in breach of the DMA by failing to provide Bensons with documents relevant to launching an appeal (such as counsel’s advice as to merits) and by failing to inform Bensons of the applications in fact made to VCAT. Bensons also issued notices of default under the DMA.
19 On 22 December 2016, VCAT made orders for the granting of the planning permit.[6] The council was obliged to observe the order of VCAT and on 6 February 2017, the council issued the permit.[7]
[6]Exhibit P43 (CB 2760–3794).
[7]Exhibit P46 (CB 2950–2962).
20 KIA then sought payment of the third and fourth instalments (totalling $1.6 million plus GST) under the DMA. Bensons contended, however, that as KIA had failed to comply with the DMA (the planning permit being issued after the Sunset Date of 31 December 2016), it was not obliged to pay those instalments, and that KIA (and its directors) were obliged to repay those instalments already received.
21 In January 2017, Bensons gave notice that the DMA was at an end and did not settle the sale contracts it had entered into with the Mandile parties.
22 With Bensons no longer interested in proceeding with the purchase of the development, KIA sought to interest another purchaser in the site, and between January 2017 and June 2017, continued to work on the development.
23 As a result of its further efforts, in June 2017, the land and business (now with permit) was sold to a third party, V-Leader Pty Ltd (‘V-Leader’), for the sum of $11.2 million.[8] KIA received $2.232 million of the sale proceeds.
[8]CB 337–653.
The claims and counterclaims
24 KIA makes the following claims against Bensons:
(a) Representations were made by Bensons on 1 February 2016, 22 February 2016 and 5 April 2016 to the effect that Bensons would appeal to VCAT and in reliance on those representations, KIA entered into the DMA. KIA suffered loss as the assumption induced by those representations was departed from.
(b) By its conduct at meetings on 15 April 2016, 26 April 2016 and 5 May 2016, Bensons elected to appeal to VCAT pursuant to clause 2.3(e) of the DMA, and accordingly it was obliged to exercise its rights, powers and discretions under clause 2.3(e) of the DMA to appeal any decision (including a failure to make a decision) of the council in connection with the planning application or the issue of the planning permit, and to bear all costs of doing so.
(c) There was a term of the DMA that Bensons was under a duty to do all such things as were necessary to enable KIA to have the benefit of the DMA, and not to do anything which would make it materially more difficult for KIA to satisfy the DMA (‘duty of co-operation’).
(d) There was a term of the DMA that Bensons was under a duty to perform its obligations and to exercise its rights, powers and discretions under the DMA in good faith (‘duty of good faith’).
(e) Bensons refused to proceed to VCAT, or alternatively refused to fund proceedings in VCAT in relation to the planning permit application, and in doing so breached clause 2.3(e), the duty of co-operation and the duty of good faith.
(f) Bensons sent KIA the letter dated 18 May 2016 which, inter alia:
(i) informed KIA that Bensons refused to proceed to VCAT;
(ii) informed KIA that Bensons refused to fund VCAT proceedings; and
(iii) asserted that any proceeding commenced by KIA in relation to the development without the express prior written consent of Bensons (which consent was refused) would constitute a breach by KIA of its obligations under the DMA
and in doing so, breached clause 2.3(e), the duty of co-operation and the duty of good faith.
(g) Between 18 May 2016 and 5 July 2016, Bensons failed and refused to meet with KIA to discuss these matters or at all, and in doing so, breached the duty of co-operation and the duty of good faith.
(h) By reason of Bensons’ breaches, KIA, at its own cost, sought to mitigate any loss it may suffer by seeking to obtain a planning permit by means other than an application to VCAT, including engaging further with the council.
(i) KIA satisfied the conditions under the DMA when VCAT granted the planning permit on or about 22 December 2016, and that Bensons breached the DMA by failing to pay the instalments due in the sum of $1.6 million (plus GST).
(j) In breach of the DMA, Bensons denied that the development management conditions under the DMA (and therefore the planning permit conditions under the contracts of sale with the Mandile parties) were met by the Sunset Date. Bensons failed or refused to settle under the contracts of sale with the Mandile parties, and KIA suffered loss and damage, including the loss of the deposit of $100,000.
(k) Bensons is estopped from relying on the strict wording of clause 2.3(e) in order to deny liability for VCAT costs.
(l) KIA suffered loss and damage as a result of Bensons’ breaches of the DMA.
25 KIA claims damages from Bensons under the following heads:
(a) the third and fourth instalments of its development management fee;
(b) the loss of deposits to the Mandile parties;
(c) costs it incurred in its VCAT applications;
(d) costs it incurred in mitigation in attempting to obtain the permit through the council; and
(e) costs it incurred in mitigation in re-selling the land to V-Leader.
26 Bensons denies these allegations and has counterclaimed against KIA. Bensons claims that it was not obliged to effect settlement under the sale contracts with the Mandile parties prior to the issue of a planning permit, and that the balance of the development management fee was due only after satisfaction of the development management conditions, provided these were satisfied on or before 31 December 2016.
27 Pursuant to clause 2.3(d) of the DMA, if the development management conditions were not satisfied by 31 December 2016, KIA was obliged to repay to Bensons any instalments already received, such repayment being personally guaranteed by Mr Gale, Mr Gatsby and Mr Hutchinson-Brooks.
28 According to Bensons, the planning permit did not issue on or before 31 December 2016, and Bensons’ demand for the return of the instalments already paid has not been met.
29 As a consequence, Bensons alleges that KIA is indebted to Bensons in the sum of $440,000. Bensons also claims against the directors for the sum of $440,000 pursuant to their personal guarantees.
30 Bensons asserts that KIA must give credit for the $2.232 million sale proceeds it received pursuant to the V-Leader contract, and therefore its entitlement to anything other than nominal damages depends upon KIA proving it suffered loss exceeding $2.232 million.
Main issues and summary of findings
31 Despite the extensive pleadings the main issues are:
(a) Did Bensons elect to go to VCAT under clause 2.3(e) of the DMA?
(b) If so, did Bensons breach any and what obligations to KIA?
(c) Did KIA procure the issue of the planning permit before the Sunset Date?
(d) If not, did Bensons prevent KIA from procuring the issue of the planning permit?
(e) Did Bensons owe a duty of co-operation to KIA under the DMA?
(f) Did Bensons owe a duty of good faith to KIA under the DMA?
(g) If so, did Bensons breach those duties:
(iv) by refusing to proceed to VCAT;
(v) by refusing to fund the proceedings in VCAT;
(vi) by instructing KIA not to commence any proceeding in VCAT;
(vii) by informing KIA that any proceeding commenced by KIA in relation to the development without the express prior written consent of Bensons (which consent was refused) would constitute a breach by KIA of its obligations under the DMA;
(viii) by seeking to prevent KIA from appealing to VCAT and threatening to terminate the DMA if KIA did appeal?
(h) Is Bensons estopped from relying on the strict wording of clause 2.3(e) of the DMA?
(i) If Bensons did breach the DMA, what loss or damage, if any, was suffered by KIA?
32 For the following reasons, I have found in substance, that:
(a) Bensons did not elect to go to VCAT within the meaning of clause 2.3(e) of the DMA, although it did lead KIA to believe that it was seriously considering doing so;
(b) KIA failed to procure the issue of the planning permit before the Sunset Date;
(c) Bensons deprived KIA of a substantial chance of obtaining the permit before the Sunset Date by its act of prevention in sending the letter dated 18 May 2016;
(d) Bensons breached the implied duty of co-operation in the DMA by sending the letter dated 18 May 2016;
(e) There is no implied duty of good faith in the DMA;
(f) Bensons is not estopped from relying on the strict wording of clause 2.3(e) of the DMA; and
(g) The loss and damage suffered by KIA is in the total sum of $2,031,505.50, comprising:
(ix) the loss of the third and fourth instalments of its development management fee under the DMA;
(x) some costs in mitigation in relation to further attempts to obtain a permit from the council; and
(xi) some costs in mitigation in relation to attempts to sell the land to V-Leader.
33 In coming to those conclusions, I have found as follows. When Bensons was introduced to the potential development, Bensons was aware that KIA was having difficulty with the council in obtaining a planning permit and that it was likely that to obtain the permit an application would need to be made to VCAT. I am satisfied that when Bensons entered into the DMA, it was aware of KIA’s expectation that if KIA was unsuccessful in obtaining a planning permit from the council, Bensons would take the matter to VCAT at Bensons’ expense. I am satisfied that up to around 10 May 2016, Bensons did not consider that it had sufficient information to launch an appeal. I am satisfied that, for reasons Mr Jreissati was not prepared to disclose, around 18 May 2016 when Mr Jreissati took over conduct of the project, he decided that he no longer wished for Bensons to proceed with the development and resolved to prevent the DMA’s performance.
34 I am satisfied that to that end, Mr Jreissati had the letter of 18 May 2016 sent to KIA advising KIA that it was not entitled to go to VCAT and in any event a permit obtained through VCAT would not satisfy KIA’s obligations under the DMA. I consider that when Mr Jreissati subsequently obtained advice from a different firm of solicitors he was informed that Bensons’ actions may have breached the implied duty of co-operation in the DMA in failing to act to achieve the object of the DMA. From that point, Bensons did not expressly further object to the application by KIA to VCAT, even purporting to ask if Bensons could assist KIA in its application to VCAT. On the other hand, Bensons continued to demand information and give notices of default. The damage, however, was already done as Bensons’ letter of 18 May 2016 led to a lengthy delay in KIA re-applying to VCAT and KIA was not able to meet the time set by the Sunset Date for the issue of the planning permit.
Credit of witnesses
35 Before I turn to a consideration of the evidence that has led me to these findings, I make the following observations as to the credit of various witnesses.
36 Each side made criticisms of the credibility of the witnesses for the other. For example, the trial of this matter had been delayed because Mr Gale had suffered memory loss following two serious medical procedures. Mr Gale agreed that he had refreshed his memory by reading court books and by speaking to Mr Gatsby and Mr Hutchinson-Brooks. Counsel for Bensons submitted that his evidence, while given honestly, was therefore a recreation and a product of collusion. Bensons also relied upon Mr Gatsby being convicted of fraud in the past.
37 On the other hand, counsel for KIA criticised Bensons’ witnesses as being rehearsed, uncorroborated and failing to make appropriate concessions.
38 I make the following observations.
39 I found Mr Jreissati for the defendant to be an unreliable witness, whose verbose explanations often did not explain his actions, when those actions were questioned. I also found evidence of Mr Curtis difficult to accept. As will be addressed in more detail later, I was troubled by the construction or understanding of clause 2.3(e) which both Mr Jreissati and Mr Curtis propounded, that being that clause 2.3(e) only applied to circumstances after the planning permit was issued and Bensons elected to seek a variation of the conditions attached to the permit. The construction does not make sense. I am troubled by the fact that both Mr Jreissati and Mr Curtis put forward this construction of the clause.
40 I am not satisfied that I should accept the evidence of Mr Jreissati unless corroborated. I consider that Mr Jreissati was not frank with the Court. I also generally prefer the evidence of the KIA witnesses to the evidence of Mr Semenov where they conflict.
The application for the planning permit
41 On 29 June 2015, KIA made a formal application for a planning permit with the council, for a three-level (plus basement) redevelopment of the land at 103 Beach Street, Port Melbourne.
42 The council’s initial response was that the application was invalid because of a covenant registered on the certificate of title in favour of Mirvac (Beacon Cove) Pty Ltd (‘Mirvac’) (‘Mirvac Covenant’) which provided, amongst other things, that the covenantor could not, without the consent of Mirvac, demolish any building on the land unless it was replaced by a building built in accordance with plans prepared by Mirvac architects.
43 KIA obtained advice from Jane Sharp of counsel that Mirvac’s permission was not required to apply for the planning permit.[9] Ms Sharp advised that the planning permit could be issued but with a condition attached that the consent of Mirvac under the covenant be obtained. The council reversed its decision and accepted the application. KIA found the council to be very difficult and was frustrated by its delays.[10] KIA and the Mandile parties were concerned that they would have to proceed to VCAT to obtain a permit (at an approximate cost of $400,000). KIA was also concerned that it may have to pay stamp duty of $500,000 on the purchase of the site from the Mandile parties.[11]
[9]Exhibit P22.
[10]Transcript of Proceedings (11 February 2019) 92.
[11] Transcript of Proceedings (11 February 2019) 92.
44 By this stage, KIA had spent nearly $2.5 million getting all the documentation together.[12] After discussions with the Mandile parties, KIA decided to offer the site for sale, with its enhanced equity that KIA had contributed through its work on the plans and in seeking to obtain the planning permit.
[12]Transcript of Proceedings (11 February 2019) 102.
45 Consequent upon KIA’s decision to seek the interest of a developer in the proposed project, KIA posted on realestate.com information about the project. In mid-January Bensons approached KIA through a broker.
Meeting of 1 February 2016
46 On 1 February 2016, a meeting between the parties was held at the site. Mr Jreissati, Mr Curtis and Mr Semenov attended from Bensons. Mr Gale and Mr Gatsby attended from KIA.
47 Relevantly to the issues in this case, the evidence given by the witnesses present at this meeting addressed whether:
(a) Bensons was notified of the delay with council;
(b) there was discussion regarding a likely VCAT application;
(c) there was discussion regarding KIA’s management fee; and
(d) Bensons expressed interest in purchasing the development.
48 During the meeting, Mr Gale showed Mr Jreissati around the site and also showed him various plans and drawings, including a display of the proposed apartments. KIA had constructed a viewing platform so that the view from the first-floor apartments could be appreciated by potential purchasers. At some stage during the meeting, Mr Gale, Mr Gatsby and Mr Jreissati went up to the viewing platform.[13] Mr Semenov and Mr Curtis did not go onto the viewing platform.
[13]Transcript of Proceedings (11 February 2019) 100.
49 According to Mr Gale, he showed Mr Jreissati an executive summary of the project.[14] The summary, dated 1 February 2016, stated that KIA had spent approximately two years and $2.5 million on the project to date. At the bottom of the page appeared the following:
Key – anticipates a 33% return – profit $10.4 m, on land initial purchase $10.12m. or on a current ‘as is’ land value of $13m a 24% return – profit $7.5m.
[14]Exhibit P24 (CB 682).
50 Mr Gale said he explained to Mr Jreissati that the bottom two lines showed what was needed from a purchaser: an initial land purchase price of $10.12 million that would go to the vendors (the Mandile parties), made up of $8.62 million for the land and $1.5 million for the business, and a fee to KIA of $3 million.[15]
[15]Transcript of Proceedings (11 February 2019) 99–100.
51 Mr Gale relevantly gave evidence as follows:
(a) Mr Jreissati pointed out his penthouse from the viewing platform, saying he knew the area very well and considered it to be the best site in Melbourne. He also said that he was ‘very interested’ and wanted to purchase it.[16]
[16]Transcript of Proceedings (11 February 2019) 100.
(b) Mr Gale advised Mr Jreissati that KIA had ‘taken all the risk out of the project, with all the documentation that we have’. Mr Jreissati said he would like his solicitors, Norton Rose, to look at the documents; Mr Gale indicated that there should not be any problem with that, as Norton Rose were also the solicitors for Mirvac.[17]
[17]Transcript of Proceedings (11 February 2019) 101.
(c) Mr Gale told Mr Jreissati about the problems with the council, particularly how KIA had put in the application to the council the year before and that the council had contended it was invalid. The memorandum from Jane Sharp (that said the council could issue the planning permit without Mirvac’s consent) had been provided, but nevertheless that the council were continuing to delay. Mr Gale told Mr Jreissati that while they were hopeful of getting a permit from council, it was likely that they were going to have to go to VCAT and that was the reason that, having spent nearly $2.5 million dollars to that point, KIA needed $3 million because KIA had to pay stamp duty and VCAT costs.[18]
[18]Transcript of Proceedings (11 February 2019) 102.
(d) Mr Jreissati said in response: ‘I just give – I understand the position. I just give $1 million to the lawyers, and they take it to VCAT. You should have gone to VCAT last year.’[19]
[19]Transcript of Proceedings (11 February 2019) 102.
(e) Mr Jreissati asked for 48 hours to look at the documents, and requested that KIA did not sell it to anyone else.
(f) Mr Jreissati said of the drawings of the apartments that ‘This is the best design that I’ve seen of its type…’ and reaffirmed his interest saying: ‘I’m comfortable with $13 million.’
(g) Mr Semenov, said: ‘Yeah, look it’s the policy of, Bensons, to go to VCAT when councils won’t give a permit.‘[20]
[20]Transcript of Proceedings (11 February 2019) 103.
52 I interpolate here to explain the stamp duty issue. KIA was concerned that if it assigned the contracts it had with the Mandile parties to purchase the land and business, KIA may be liable for stamp duty as well as the stamp duty that would be paid by the ultimate purchaser, Bensons. This issue was ultimately resolved by the contracts between KIA and the Mandile parties being cancelled and fresh contracts being entered into between the Mandile parties and Bensons.
53 Mr Gatsby said that VCAT was mentioned in the context of Mr Gale saying that all the risks had been taken out of the project but for the council. Mr Gatsby said that he could vaguely recall Mr Jreissati saying: ‘Well, as I’ve said before, ah, I just throw $1 million to my lawyers…and they get the permit.’[21] Mr Gatsby also confirmed the price was discussed, his evidence being that Bensons was told it was $10 million for the Mandile parties and $2 million for KIA for costs and expenses to date, plus future costs that included what they would pay for VCAT and for stamp duty.[22]
[21]Transcript of Proceedings (14 February 2019) 397.
[22]Transcript of Proceedings (14 February 2019) 397–8.
54 In his evidence, Mr Jreissati:
(a) denied saying that Bensons was very interested (but conceded he was interested).
(b) denied that either Mr Gatsby or Mr Gale said the development was delayed due to delays by council in issuing the permit. Mr Jreissati said: ‘If that happened I would’ve left it and never looked at it again’,[23] explaining that he was not interested in buying anything at that time without a permit, certainly not of that size.[24]
[23]Transcript of Proceedings (25 February 2019) 916.
[24]Transcript of Proceedings (25 February 2019) 916.
(c) denied there was any discussion about going to VCAT. Bensons’ counsel asked Mr Jreissati what he would have done if KIA had said to him: ‘We’re having a lot of trouble with the council. We think we’ll have to go to VCAT.’? Mr Jreissati replied: ‘I would’ve run away very fast.’[25] Mr Scerri asked Mr Jreissati did he say anything to the effect of, ‘I just give $1 million to the lawyers, and they take council to VCAT.’ Mr Jreissati said no and when pressed he said: ‘I’m 100 per cent sure about that. I’d hate to give lawyers a million dollars as a starting position.’[26]
(d) said the entire meeting only went for about half an hour and ending with him saying: ‘Give me the information to my people. They’ll have a look at it. We’ll come back to you very quickly, and say whether we’re interested or not.’
[25]Transcript of Proceedings (25 February 2019) 916.
[26]Transcript of Proceedings (25 February 2019) 917.
55 Mr Semenov was also in attendance at this meeting. Mr Semenov gave evidence that:
(a) Mr Gale said in a firm manner that the price was $13 million, but did not mention that there was to be a $3 million fee to KIA.[27]
[27]Transcript of Proceeding (20 February 2019) 744.
(b) there was mention of VCAT as a way of obtaining a permit. Mr Semenov said that Mr Jreissati said: ‘We – if we have delays in projects, then we’ll get the lawyers involved, give a million bucks and get them to go to VCAT.’[28] Mr Semenov said that Mr Jreissati said this as a general statement, not specifically directed to KIA’s project, but as a way of saying ‘This is the way I’ve dealt with potential developments previously.’[29]
(c) Mr Jreissati said Bensons was interested in buying the project.[30]
[28]Transcript of Proceedings (20 February 2019) 741.
[29]Transcript of Proceedings (20 February 2019) 741.
[30]Transcript of Proceedings (20 February 2019) 741.
56 Mr Semenov also said that Mr Gatsby advised that KIA was expecting the permit to be issued in February at the council meeting and if it was not obtained in February then it would be issued in March of 2016.[31]
[31]Transcript of Proceedings (20 February 2019) 741.
57 Mr Curtis gave evidence as follows:
(a) Mr Gatsby informed Bensons that the application for the planning permit had been lodged with the council the year before and KIA expected the permit in April or May of that year.[32]
[32]Transcript of Proceedings (19 February 2019) 649.
(b) Mr Gatsby asked what Bensons normally did in situations where the council was slow to deal with an application. Mr Jreissati responded that where there was no prospect that council would approve it themselves, that Bensons would normally issue VCAT proceedings.[33]
[33]Transcript of Proceedings (19 February 2019) 650.
(c) There was a discussion about buying the site with a permit in place.
(d) Mr Gale said the asking price was $13 million,[34] but there was no discussion about how much would go to KIA.
[34]Transcript of Proceedings (19 February 2019) 650.
(e) Mr Jreissati said that he was interested in looking at the development further.
(f) There was no mention of delays in getting the development through council.
58 I consider there is inconsistency in Mr Curtis’ evidence that Mr Gatsby asked about Bensons’ practice when a council was slow to deal with an application, but there was no mention of delays with the council in relation to this project. It would seem strange for KIA to ask about Bensons’ policy or practice in such a situation, if that particular situation had not been raised as a potential issue.
59 After further inspecting drawings, a Bensons’ representative signed a confidentiality agreement and was given a folder of relevant documents that they took away. Bensons was also given other information through Dropbox.[35] Mr Gale said that the documents Bensons was given included sworn valuations from CBRE, quantity surveyor reports on the bill of quantities, Yarra Trams’ approval, deeds of agreement, survey plans, structural drawings and engineering drawings, so that Bensons could continue the due diligence with the documents provided.
[35]Transcript of Proceedings (11 February 2019) 104.
60 The evidence about Bensons going to VCAT and throwing money at lawyers was disputed by Mr Jreissati and Mr Curtis and is of some importance to KIA’s case. KIA contends that the statements led it to believe that Bensons would be prepared to go to VCAT to obtain the planning permit and readily spend a large sum in doing so. Specifically, KIA identifies the following representations:
(a) Mr Jreissati, in response to Mr Gale’s comment that it was likely that KIA would have to go to the VCAT replied in order to obtain a planning permit, replied: ‘I just give $1 million to the lawyers, and they take it to the VCAT.’
(b) Mr Jreissati further stated that KIA should have gone to the VCAT last year.
(c) Mr Semenov said that it was the policy of Bensons to go to the VCAT when councils will not give a permit.
(together, the ‘First Representations’).
61 It is evident that at times during the meeting not all of the persons who attended were together, and statements may have been made to some which were not heard by all. I am satisfied, however, on the basis of the evidence of Mr Gale and Mr Semenov, that Mr Jreissati did make the statements identified above.
62 I am satisfied therefore that the evidence establishes that it was the mutual understanding of both KIA and Bensons at this stage that it was likely that KIA may need to go to VCAT to get the planning permit, that Bensons generally agreed with and approved of that plan, and that Bensons was generally prepared to spend significant moneys going to VCAT to obtain a planning permit.
Agreement on price after 1 February meeting
63 Between 1 February 2016 and 5 April 2016 (when the DMA was entered into), KIA and Bensons negotiated the terms of their arrangement.
64 A formal offer was allegedly made on 4 February 2016 by Mr Semenov in a telephone conversation with Mr Gatsby to the effect that the Mandile parties would receive $10.02 million and KIA would receive $3 million plus GST. The terms of this offer, KIA claims, are confirmed in an email of 5 February 2016 to Mr Semenov, in which Mr Gatsby details his understandings of their telephone conversation the previous day.[36] The content of that phone call is disputed by Mr Semenov, but, in any event, I do not need to make any findings with respect to it.
[36]Exhibit P25 (CB 1027).
65 Despite KIA nominating the price of the project as $13 million, on 8 February 2016 Bensons made an offer by email of $11.2 million, which included a development management fee of $1 million plus GST payable to KIA (subject to entry into a development management agreement).[37] As this was not what had been agreed, Mr Gale and Mr Gatsby went to the offices of Bensons to retrieve their documents. Mr Gale claims Mr Semenov told them that he was acting under instructions from Mr Jreissati and that he was disgusted with Bensons’ behaviour and he asked Mr Gatsby if KIA would offer him a job.[38] This is denied by Mr Semenov.[39]
[37]Exhibit P26.
[38]Transcript of Proceedings (12 February 2019) 118.
[39]Transcript of Proceedings (20 February 2019) 763.
66 The next relevant date to KIA’s claim is 22 February 2016. According to KIA, on this date, representations were made in a phone call between Mr Gatsby and Mr Semenov:
(a) Mr Semenov stated that Mr Jreissati instructed him to make another offer.[40]
[40]Transcript of Proceedings (14 February 2019) 401.14-15.
(b) When Mr Gatsby asked Mr Semenov: ‘What’s the offer this time? Is it along the $3 million….what’s it likely to be?’, Mr Semenov replied: ‘It won’t be what you want but it will be at least $2 million and some consideration for other costs.’[41]
(together, the ‘Second Representations’).
[41]Transcript of Proceedings (14 February 2019) 401.15–23.
67 Mr Gatsby said that he told Mr Semenov the offer had to cover their VCAT costs and stamp duty (because of the double stamp duty issue).[42] Mr Semenov allegedly told Mr Gatsby that he would send the new offer to KIA and Bensons would change it afterwards to reflect what Mr Gatsby had said. Mr Semenov denied there was discussion about the double stamp duty or VCAT issues, saying he had no authority to discuss those matters.[43]
[42]Transcript of Proceedings (12 February 2019) 401.
[43]Transcript of Proceedings (20 February 2019) 765, (25 February 2019) 852.
68 As Mr Semenov foreshadowed, on 22 February 2016, Bensons made a further offer of $12.2 million.[44] The sum was made up of $8,620,000 for the land, $1,500,000 for the business and $2 million plus GST for the additional development management fee to KIA. Mr Gale said that he, Mr Gatsby and Mr Hutchinson-Brooks agreed to accept the offer on the basis that Bensons would be responsible for both the costs of going to VCAT and for any stamp duty incurred in transferring the contract for the purchase of the land to Bensons. However, the written offer made by Bensons was conditional on no stamp duty being payable and made no reference to VCAT.
[44]Exhibit P27.
69 On 23 February 2016, Mr Gatsby responded to Mr Semenov’s email, thanking Mr Semenov for the revised offer.[45] The email makes no objection to the price offered by Bensons, nor does it make reference to the alleged conditions about VCAT and stamp duty. On 2 March 2016, Bensons sent KIA a draft agreement relating to the purchase of the land and business and the development management agreement.[46]
[45]Exhibit P28.
[46]Exhibit P54.
Meeting of 15 March 2016
70 A further meeting was held between the parties on site on 15 March 2016. The fact of this meeting is not included in any of KIA’s pleadings, nor does it appear that any statements alleged to have been made at this meeting are relied on by KIA as relevant representations. KIA’s case, however, was opened on the basis that, at this meeting, Bensons agreed to pay for VCAT and for KIA’s stamp duty.[47]
[47]Transcript of Proceedings (11 February 2019) 5.
71 Mr Gale’s evidence of the meeting was that Mr Curtis reiterated that Bensons would be liable to pay the costs of VCAT, and that Mr Semenov made notes to that effect in his diary. Mr Gale was shown the note in Mr Semenov’s diary where it said ‘BPG to bear VCAT costs’.[48] Mr Gale confirmed that Mr Curtis said those words.[49] Mr Gale also said KIA discussed its concerns about having to pay stamp duty as well as Bensons.[50]
[48]Exhibit P29; Transcript of Proceedings (12 February 2019) 128.
[49]Transcript of Proceedings (12 February 2019) 128.
[50]Transcript of Proceedings (12 February 2019) 127.
72 Mr Gatsby also gave evidence about the meeting, but conceded he had a poor memory of it.[51] Mr Gatsby said that at the meeting it was agreed that KIA would be paid $2 million, Bensons would look after VCAT and KIA would not be exposed to stamp duty.[52] He was asked what exactly was said about VCAT and he replied: ‘That they would pay for VCAT. After all, that’s why Bensons came into the joint venture’.[53] Mr Gatsby said that Mr Curtis agreed to this, saying: ‘we accept that proposition’.[54] Mr Gatsby also gave evidence that at this meeting the parties discussed extending the Sunset Date. Mr Gatsby said that Mr Semenov requested a further extension to accommodate the time required to mount an application to VCAT.[55]
[51]Transcript of Proceedings (14 February 2019) 423.
[52]Transcript of Proceedings (14 February 2019) 423–4.
[53]Transcript of Proceedings (14 February 2019) 424.
[54]Transcript of Proceedings (14 February 2019) 424.
[55]Transcript of Proceedings (18 February 2019) 469.
73 Mr Curtis agreed that there was a discussion about VCAT at the meeting on 15 March 2016, but only in the context of describing what would be a satisfactory planning permit in terms of planning permit conditions. Mr Curtis said that Mr Gatsby had asked what Bensons would do if the permit contained conditions unsatisfactory to Bensons.[56] Mr Curtis said that Bensons wanted the right to appeal at its discretion if the permit approved by the council had variations to that applied for.
[56]Transcript of Proceedings (19 February 2019) 654.
74 Mr Curtis explained that Bensons wanted a planning permit with no material differences to that applied for and also a ‘friendly permit’. A friendly permit is one which has the support of the local community as well as the council. This would enable Bensons, if it wanted to make changes, to do so with the support of the council.[57] A term of Bensons’ offer was that if there was a material difference in the saleable area approved by the council, then the permit conditions would not be satisfied. Mr Curtis said that there were also terms about site conditions that were not adverse and that Bensons would then have the right to appeal against these conditions.[58]
[57]Transcript of Proceedings (19 February 2019) 654.
[58]Transcript of Proceedings (19 February 2019) 655.
75 Mr Curtis said that from this discussion evolved the clause in the heads of agreement that permitted Bensons to appeal.[59] Mr Curtis said that there was a discussion about costs and that, in the context of conditions on a permit that had been issued, then the costs would have been at Bensons’ expense.[60]
[59]Transcript of Proceedings (19 February 2019) 656.
[60]Transcript of Proceedings (19 February 2019) 657.
76 I do not accept Mr Curtis’ version of the discussion. I do not accept that, in discussing in a general way who would be liable for costs of a VCAT application, Bensons limited its indication that Bensons would pay to an appeal only against conditions imposed on the permit by the council. I am satisfied that at this stage of negotiations it was the mutual understanding of both Bensons and KIA that an appeal would include an appeal against a failure of the council to decide.
77 On 18 March 2016, Mr Semenov provided Mr Gatsby with proposed sale terms, including a proposed development management agreement.[61] Mr Curtis gave evidence that he drafted the terms and they were reviewed by a Mr Will Grinter of K&L Gates.[62] On 21 March 2016, Mr Gatsby sent Mr Semenov the draft terms of the development management with amendments proposed by Mr Gatsby. Mr Gatsby had added a term that provided ‘Should BPG elect to apply to VCAT all costs to be borne by BPG’.[63] This would become clause 2.3(e) in the DMA.
[61]Exhibit P61.
[62]Transcript of Proceedings (19 February 2019) 658.
[63]Exhibit D4.
78 Mr Curtis met again with Mr Gatsby around 22 March 2016 to go through the proposed heads of agreement. Mr Curtis recalled Mr Gatsby amending the proposed heads of agreement to include the term that if Bensons elected to appeal, the appeal would be at Bensons’ expense, but gave evidence that he understood the term to be in the context of an appeal against conditions imposed on a planning permit issued by the council (not an appeal against the failure of the council to issue a planning permit).[64] Again, I am not satisfied that Mr Curtis stated any such limitation on the proposed term. I am satisfied that Mr Curtis knew, at least, that KIA was proceeding on the assumption that the clause covered an appeal against the failure of the council to issue a permit and he did not seek to correct KIA’s assumption.
[64]Transcript of Proceedings (19 February 2019) 658.
79 On 23 March 2016, Mr Gatsby and Mr Curtis signed the draft heads of agreement.[65] On 1 April 2016, Mr Semenov sent to Mr Gatsby and Mr Curtis draft contracts of sale of land and business and the draft DMA based on the heads of agreement.[66] Clause 2.3(e) in this draft of the DMA was in the same form as finally executed.[67] Mr Curtis said that he read clause 2.3(e) of the DMA (the appeal to VCAT clause) and said that it accorded with his understanding of what had been agreed.[68]
[65]Exhibit P30.
[66]Exhibit D21 (CB 1533).
[67]Exhibit D21.
[68]Transcript of Proceedings (19 February 2019) 661.
Meeting of 5 April 2016
80 The DMA was signed on 5 April 2016 at a meeting at the offices of Indovino’s Lawyers, solicitors for the Mandile parties. Those present from KIA were Mr Gale, Mr Gatsby, Mr Hutchinson-Brooks, Ms Stephanie Nicola and KIA’s solicitor, Mr Michael Benjamin of Michael Benjamin & Associates (‘MBA’). For Bensons, there were Mr Curtis, Mr Foley (a director of Bensons), and Bensons’ solicitor, Mr Will Grinter.[69] Also present were Michelina and Bernard Mandile, the vendors, and Mr Tom Indovino, their solicitor.
[69]Transcript of Proceedings (12 February 2019) 131.
81 It is apparent from the evidence given that there were times when some of these parties had meetings in separate rooms, and, even when the parties were all in the same room, some parties may have been involved in discussions, for example, at one end of the table, and may not have heard certain statements made by others.
82 It is at this meeting that KIA alleges the third set of relevant representations were made by representatives of Bensons, on which KIA relied in executing the DMA.
83 Mr Gale’s evidence was that the meeting went for some two hours. There was a discussion between Mr Hutchinson-Brooks, Mr Foley, Mr Semenov and Mr Curtis about receiving a planning permit and going to VCAT. Mr Gale said that in that discussion ‘they’ (presumably one or other of the Bensons’ people) acknowledged the necessity of going to VCAT. Mr Gale said that Mr Foley said that it was the policy of Bensons to go to VCAT when councils failed to make a decision.[70]
[70]Transcript of Proceedings (12 February 2019) 131–2.
84 Mr Gatsby said that a day or so before the meeting he had asked Mr Semenov to explain the words in brackets which had been added to clause 2.3(e) of the DMA ‘(without being obliged so to do)’. Mr Gatsby said that Mr Semenov had told him (about the inserted words) that ‘Look, it’s just that we want to have a say in the choice of Queen’s Counsel, um, which solicitors would run the VCAT that were running it’. Mr Gatsby said that Mr Semenov clarified that observation by saying that they wanted to have a good say in the choice of legal representatives and other experts who would be involved in VCAT proceedings. Mr Gatsby commented on this evidence, saying: ‘we had all our people, that they did this all the time, and they wanted the control over all these things’.[71]
[71]Transcript of Proceedings (14 February 2019) 420.
85 At the meeting on 5 April 2016, Mr Gatsby asked Mr Semenov to explain to his colleagues about those added words, but gave evidence that he himself could not hear Mr Semenov’s response from the other end of the table. Mr Gale’s evidence was that Mr Gatsby asked Mr Semenov about this clause and was assured by Mr Semenov that ‘we should not worry about it, that it was only – only put in meaning that Bensons would not be obliged to go to VCAT before they were ready.’[72] Mr Gale said that he ‘took that to mean before they were ready’ with ‘their legal team, their barristers and what firms would represent them.’[73]
[72]Transcript of Proceedings (12 February 2019) 132.
[73]Transcript of Proceedings (12 February 2019) 132.
86 Mr Gale said that the words in parenthesis ‘(without being obliged so to do)’ were puzzling to KIA because KIA was under the impression, having accepted $2 million instead of $3 million, that Bensons would be paying for VCAT.
87 Mr Curtis said that at this meeting he asked for personal guarantees from the directors of KIA as he realised that they may settle with KIA earlier and pay all the instalments but there may still be conditions, such as the terms of the permit dealing with Mirvac, that may not have been met, in which case all the moneys may have to be repaid from KIA to Bensons.[74]
[74]Transcript of Proceedings (19 February 2019) 664.
88 Mr Curtis said that he did not hear Mr Semenov say, and he himself did not say, that it was essential to lodge an application with VCAT as the council would simply continue to delay. Mr Curtis said that at this stage he thought the permit was due within April or May.[75]
[75]Transcript of Proceedings (19 February 2019) 665.
89 Mr Curtis further said that he did not hear Mr Semenov say that, in Bensons’ view, VCAT would provide a planning permit as the proposed plans were compliant with the statutory provisions and Bensons had obtained advice from its lawyers, Norton Rose Fulbright, which confirmed this view. Mr Curtis added that Bensons was not anxious to get a VCAT permit as it wanted a ‘friendly’ permit. Also, Mr Curtis said that at this stage, Bensons had switched from Norton Rose Fulbright to K&L Gates because Norton Rose could not act for Bensons because of a conflict with Mirvac.[76]
[76]Transcript of Proceedings (19 February 2019) 666.
90 Mr Curtis said that he did not hear Mr Foley say that it was Bensons’ practice to make an application to VCAT in situations like this where the council had failed to issue a permit.[77] Mr Grinter also said that he did not hear this.[78] Mr Curtis said that this alleged practice was not consistent with his own view about when to go to VCAT. Mr Curtis said that Bensons only went to VCAT if it thought there was no prospect that council would support the application.[79] Mr Curtis said that with a friendly permit it was much easier to work with council officers to make design changes and that it was much better to work with the council or the relevant authority to do so.[80]
[77]Transcript of Proceedings (19 February 2019) 666.
[78]Transcript of Proceedings (25 February 2019) 887.
[79]Transcript of Proceedings (19 February 2019) 666.
[80]Transcript of Proceedings (19 February 2019) 667.
91 Mr Curtis denied hearing Mr Semenov say words to the effect that KIA should not worry about clause 2.3(e) of the DMA as Bensons intends to go to VCAT. Mr Curtis said that it was not consistent with his understanding of the transaction.[81] Mr Grinter did not recall Mr Semenov saying anything of that nature.[82] Mr Grinter did not recall any discussion about clause 2.3(e) of the DMA.[83]
[81]Transcript of Proceedings (19 February 2019) 667.
[82]Transcript of Proceedings (25 February 2019) 887.
[83]Transcript of Proceedings (25 February 2019) 887.
92 Mr Curtis was asked what Bensons wanted from paying the fee of $2.2 million. Mr Curtis said that Bensons was interested in buying a site, particularly a high-end apartment site. He said that Bensons also needed a project relatively quickly in order to have something to market. He said that Bensons had two projects underway due for completion on construction, and that Bensons needed another project in order to generate income, and from a balance sheet point of view, to amortise corporate costs over projects on board.[84] Mr Curtis said that if Bensons did not have new projects it could not amortise corporate costs.
[84]Transcript of Proceedings (19 February 2019) 667.
93 Mr Curtis said that the site was already going to have a permit, or was going to have a quick permit, so Bensons could get on with actually pre-selling the apartments.[85]
[85]Transcript of Proceedings (19 February 2019) 667–8.
94 Mr Grinter said that he did not hear Mr Curtis or Mr Semenov say that in Bensons’ view, it was essential to lodge an application with VCAT.[86] Mr Grinter said that he would have remembered if such a statement was made, as if an appeal to VCAT was contemplated he would have wanted to amend the DMA to give Bensons some control over the conduct of the proceeding, such as the appointment of senior counsel.[87] Mr Grinter admitted that it may have been possible that he did not hear such a conversation but said he would be surprised if that was the case.[88]
[86]Transcript of Proceedings (25 February 2019) 885.
[87]Transcript of Proceedings (25 February 2019) 886.
[88]Transcript of Proceedings (25 February 2019) 892.
95 The specific representations relied on by KIA at this meeting as identified in KIA’s closing submissions are as follows:
(a) Mr Foley’s statement that it was the policy of Bensons to go to VCAT when council fails to make a decision;
(b) Mr Curtis’ acknowledgement of the necessity of going to VCAT; and
(c) When Mr Gatsby asked Mr Semenov about clause 2.3(e), Mr Semenov replying that ‘KIA should not worry, that [clause 2.3(e)] was only put in to ensure that Bensons were not obliged to go to VCAT before it was ready’;
(together, the ‘Third Representations’).
96 I am satisfied that at this meeting the necessity of going to VCAT was acknowledged. In my view it must have been fairly clear to all concerned that after the council had sat on the application for nearly 12 months that it would be necessary to go to VCAT and that was the very reason clause 2.3(e) was added to the DMA.
The DMA
97 Under the DMA, dated 5 April 2016, Bensons appointed KIA as the development manager to perform specified development management services and satisfy certain development management conditions.
98 The DMA included terms, inter alia, that Bensons would pay to KIA a development fee of $2 million (plus GST), payable in four separate instalments, if KIA satisfied the development management conditions (as defined in the DMA) by 31 December 2016. Relevantly, clause 2.4(a) of the DMA provided:
The Development Management Conditions are the following conditions which must be satisfied (in each case to the reasonable satisfaction of Bensons, subject to clause 2.4(b)) on or prior to the Sunset Date:
(i)the issue of a Planning Permit;
(ii)the issue of written consent of Mirvac as contemplated by paragraph (b) of Item 3.
99 KIA was to perform the development management services at its own costs and in accordance with the directions of Bensons. If the development management conditions were not satisfied by the Sunset Date, KIA was to repay to Bensons the first instalment, the second instalment and, if applicable, the third instalment in full within 14 business days.
100 As mentioned, the DMA provided under clause 2.3(e) that if Bensons elected (without being obliged to so do) to appeal any decision of the responsible authority in connection with the planning application or the issue of the planning permit, all costs in doing so were to be borne by Bensons.
101 The DMA and the appointment of KIA as the development manager were to end on the earlier of either the Sunset Date or the completion of all the development management services.
102 Under the DMA, KIA agreed to transfer to Bensons all the intellectual property that KIA had accrued in preparing plans for the development and all associated work. Under the DMA, Bensons was to take over that property and further the development. KIA had no further interest in developing the intellectual property relating to undertaking the development.
103 Further terms of the DMA are referred to in detail below where necessary.
Meeting of 15 April 2016
104 The meeting of 15 April 2016 is the first of three meetings at which KIA alleges that Bensons elected to go to VCAT pursuant to clause 2.3(e) of the DMA. The meeting of 15 April 2016 was held between Mr Gale, Mr Gatsby and Mr Semenov at the site.
105 Mr Gatsby sent an email to Mr Semenov prior to the meeting, indicating that Mr Gatsby wished to discuss council delays in granting the planning permit. Mr Gatsby said in his email that they wanted to obtain as much information as possible to use at VCAT challenging the council’s failure to make a decision, if Mr Semenov thought that was appropriate.[89]
[89]Exhibit P62.
106 Mr Gatsby gave evidence that at the meeting they discussed an email from the council, which included comments provided by the Office of the Victorian Government Architect (‘OVGA’) on the application.[90] They also discussed a 42-page report dated 12 April 2016, which had been prepared by Mr Axford of AXOS Urban Pty Ltd (‘AXOS Urban’), in response to the council’s email.[91] Mr Gatsby said that Mr Semenov observed that the comments that had been made by the planning officer, to which Mr Axford had responded, were ‘just rubbish’.[92] Mr Gatsby said that it took about an hour and a half to go through Mr Axford’s report. Mr Gatsby said: ‘and from that he (Mr Semenov) concluded there was just – it’s – “Look, we’ve got to go to VCAT”‘. Mr Gatsby was asked specifically what were Mr Semenov’s words and he replied: ‘We have to go to VCAT. This is outrageous’.[93]
[90]Exhibit P33 (CB 1853).
[91]Exhibit P34.
[92]Transcript of Proceedings (14 February 2019) 425.
[93]Transcript of Proceedings (14 February 2019) 426.
107 Mr Gatsby said, however, that Mr Semenov also said words to the effect: ‘Look, try one more time. Ring the council officer. If he doesn’t undertake to complete an officer’s report in time for the agenda, which had to be filed with council before 17 May 2016, if you don’t get a commitment – they’ll do that – then we need to – he needs to – I’m going to say, we need to proceed to VCAT.’[94]
[94]Transcript of Proceedings (14 February 2019) 426.
108 To obtain a planning permit from the council, the usual procedure was for a council officer to complete a report on the application to accompany the application. The report had to be completed in time to be included on the agenda prepared for the council meeting dealing with planning applications, which in this case was to be held on 17 May 2016.
109 In my opinion, that evidence, if correct, does not constitute an election by Bensons. In my view, Mr Semenov was merely foreshadowing what he proposed to do in the future. This interpretation is also consistent with the minute of the meeting referred to below.
110 In his evidence, Mr Gatsby repeated the assertion that Bensons had elected to go to VCAT and that the only outstanding element was they could not make up their mind as to which silk to brief.[95]
[95]Transcript of Proceedings (14 February 2019) 441.
111 Under cross-examination, Mr Gatsby said that the election was confirmed in the minutes of the meeting.[96] Mr Gatsby agreed that there was no written confirmation by Bensons that it had elected to go to VCAT and that KIA relied on no other document other than the minute of the meeting prepared by Mr Gatsby.[97] Mr Gatsby said that at the meeting, Mr Semenov said: ‘Well, it seems to me there’s no choice but to go to VCAT.‘ Mr Gatsby conceded that the case he was putting was that on 15 April 2016, Bensons elected to go to VCAT.[98]
[96]Transcript of Proceedings (18 February 2019) 514, 555.
[97]Transcript of Proceedings (18 February 2019) 514, 555.
[98]Transcript of Proceedings (18 February 2016) 520.
112 As indicated, Mr Gatsby prepared minutes of the meeting that he sent to Mr Semenov on 19 April 2016.[99] The minutes noted that the planning permit status and strategies were discussed at length. The minutes record that KIA was arranging to meet the CEO of the council to endeavour to secure a permit. The minutes then note:
11 George recommended two approaches: 1. Last effort to obtain undertaking that report to council will be ready for the 17th May and conditions detailed at coming meeting the following Thursday and 2. Failing 1 consider expediting by an appeal to VCAT on failure to make decision, retaining Bensons preferred barristers including Chris Kanavan [sic]…
[99]Exhibit P63 (CB 1935).
113 KIA alleges in its pleading that:
At that meeting [of 15 April 2016], ….
(i) ….
(ii) George Semenov on behalf of Bensons:
(1)reiterated that, in Bensons’ view, the Council had no argument and that a win at VCAT was certain; and
(2)recommended two approaches:
(a)first, KIA and Bensons make a last effort to obtain an undertaking from the Council Officer that a Council Officer’s Draft Report with “detailed conditions” will be ready for an upcoming Council meeting scheduled for 17 May 2016, at which the Planning Permit Application would be considered; and
(b)secondly, failing the first approach by the following Thursday, to expedite the process by an appeal to VCAT on failure to make a decision, retaining Bensons’ preferred barristers including Chris Canavan QC.
114 Bensons submits that the pleading omitted the qualification recorded in the minute, that Mr Semenov recommended to ‘consider expediting an appeal’ not ‘expediting’ an appeal, as pleaded.
115 Mr Gale also gave evidence of the meeting. Mr Gale said that Mr Semenov said: ‘can we please have one last effort to obtain a permit from the council, and failing that, expedite an appeal to VCAT’. Mr Gale said ‘one last effort’ was a reference to obtaining a draft of the report (on the application for a planning permit) from the council officer so that it would be ready for the upcoming council meeting to be held on 17 May 2016. Mr Gale said that Mr Semenov also said that Bensons wished to retain Chris Canavan QC to run the appeal.[100]
[100]Transcript of Proceedings (12 February 2019) 137.11–25.
116 Under cross-examination, Mr Gale agreed that Mr Gatsby asked Mr Semenov: ‘What do you think we should do if we can’t get a permit from the council?‘, or a question of that nature. He agreed that Mr Semenov suggested another meeting with the CEO. It was put to Mr Gale that Mr Semenov said that ‘If that fails, you should go to VCAT‘. Mr Gale conceded that he may have said that.[101]
[101]Transcript of Proceedings (13 February 2019) 304.
117 Bensons submits that the Court should reject KIA’s allegation that it elected at the 15 April 2016 meeting. Bensons submits that KIA was simply seeking Bensons’ advice and received a ‘recommendation‘.
118 In my opinion, the minutes taken by Mr Gatsby confirm that Bensons only went so far as to recommend that further attempts be made to obtain the permit from the council and advising that an application to VCAT would be considered if the council still had not approved the application. This falls short of an election by Bensons to go to VCAT. Accordingly, I am not satisfied that Bensons elected to go to VCAT at the meeting of 15 April 2016.
Meeting of 26 April 2016
119 This is the second meeting at which KIA alleges Bensons elected to go to VCAT. Prior to the meeting, Mr Axford had received an email of 20 April 2016 from Donna D’Alessandro of the planning department of the council containing a long list of queries about the planning application which was forwarded to Mr Gatsby. The email was also forwarded to Mr Semenov and Mr Curtis on 22 April 2016.[102]
[102]Exhibit P51.
120 KIA alleges:
On or about 26 April 2016, [Mr Gatsby] and [Mr Hutchinson-Brooks] met with [Mr Semenov] to discuss the Planning Permit Application and the anticipated application to VCAT. At the meeting, it was discussed that the appropriate action was, inter alia, to:
(i) make a last attempt to ensure that Council will have “draft conditions” ready for the upcoming Council meeting scheduled for 17 May 2016; and
(ii) if that is not achieved immediately then to fast track an appeal to VCAT for Council’s failure to decide within the required time frame.
121 As alleged by Bensons, on 26 April 2016, Mr Semenov met with Mr Gatsby and Mr Hutchinson-Brooks in the small conference room at Bensons’ offices. Mr Gale did not attend this meeting. Those in attendance went through much the same list of issues that they had discussed on 15 April 2016.
122 Bensons submits that once again the minutes of the meeting do not refer to an ‘election’, ‘agreement‘, or ‘decision’ to go to VCAT, but rather Mr Semenov ‘recommending’ future ‘consideration‘ of an appeal to VCAT.
123 Minutes of the meeting were taken by Mr Gatsby and typed up. Paragraph 6 of the minutes relevantly recorded:
Further to George recommending previously two approaches: it is now amended to:
1Another effort to obtain undertaking from council that report to council will be ready for the 17th May and/or discussions at a proposed meeting to be about conditions for a planning permit.
2Failing 1 consider expediting by an appeal to VCAT on failure to make a decision, retaining Bensons preferred barristers being Chris Townsend ... George advised would be better if possible to achieve 1 “before firing trigger”.[103]
[103]Exhibit P66 (CB 1964).
124 The minutes do not confirm or even suggest that an election had been made. Rather, the minutes convey that failing having the report to council being ready for the council meeting on 17 May 2016, consideration would be given to expediting an appeal. That is, any decision to appeal was being deferred.
125 Under cross-examination, Mr Hutchinson-Brooks agreed that at the meeting of 26 April 2016, Mr Gatsby said that the council’s email of 20 April 2016 (the email sent by Donna D’Alessandro to Mr Axford) made it clear that KIA was not going to get anywhere with the council. Mr Hutchinson-Brooks agreed that Mr Semenov asked how had KIA gotten on with the CEO of the council. Mr Hutchinson-Brooks agreed that he told the meeting he had spoken to Tracey Slatter, the CEO of the council, who informed Mr Hutchinson-Brooks that she would not interfere in the processes of the planning department but had instructed the planning department to expedite the issue of the permit.
126 Mr Hutchinson-Brooks agreed that Mr Gatsby asked Mr Semenov what he thought ‘we should do.’ Mr Hutchinson-Brooks said that Mr Semenov replied that ‘You should phone the officer handling the file and find out if they could put an officer’s report onto the agenda for the 17 May meeting’, and if the officer could not do that, then there was no option left but to go to VCAT.[104] Mr Hutchinson-Brooks said that at this meeting there was a strong sense of co-operation and that both Bensons and KIA were working as a team. Mr Hutchinson-Brooks’ evidence is consistent with the minute prepared by Mr Gatsby.
[104]Transcript of Proceedings (14 February 2019) 386.
127 Accordingly, I am not satisfied that Bensons elected to go to VCAT by agreeing to do so at the 26 April 2016 meeting.
Meeting of 5 May 2016
128 This is the third meeting at which KIA alleges Bensons elected to go to VCAT. On 5 May 2016, Mr Gatsby, Mr Gale, Mr Axford and Mr Curtis attended a meeting at Bensons’ offices.
129 KIA’s pleaded case about the 5 May 2016 meeting is as follows:
On 5 May 2016, KIA informed Bensons, and Bensons agreed, that the option of obtaining a Planning permit from the Council had failed and that it was appropriate to expedite an appeal to VCAT on the basis of Council’s failure to make a decision.
Particulars
(a)….
(b)Stephen Axford tabled and summarised a report prepared by Axos Urban dated 2 May 2016. …
(c)….
(d)Bruno Gatsby and Barry Gale gave Richard Curtis a memorandum of advice, prepared by Jane Sharp, Barrister…
(e)Richard Curtis said words to the effect that:
(i)he agreed that the option of obtaining a Planning Permit from Council had failed;
(ii)an appeal to VCAT should be expedited, retaining Bensons’ preferred barrister, being Chris Townsend QC;
(iii)Norton Rose or Arnold Bloch Leibler might be appropriate solicitors and that it was not likely that Bensons would retain K&L Gates; and
(iv)he would consider the choice of senior counsel.[105]
[105]Plaintiff’s Fourth Further Amended Statement of Claim, 15 February 2019 [7(k)].
130 The report tabled by AXOS Urban dated 2 May 2016 dealt with options open to KIA in respect of the failure of the council to issue a planning permit and stated one option was to appeal against the council’s failure to determine the application for a planning permit.
131 Mr Axford said in evidence that his report was tabled and Mr Gatsby asked Mr Axford to address the meeting to explain why Mr Axford thought ‘we should go to VCAT.’ Mr Axford said that his recollection was that Mr Curtis accepted that it would be difficult to get a permit from council in a timely manner and so now was probably the appropriate time to go to VCAT.[106] He said that the conversation moved on to who would be the appropriate counsel and which lawyers to use.[107] Mr Axford said that he suggested a barrister and Mr Curtis suggested another two names.[108]
[106]Transcript of Proceedings (13 February 2019) 327.
[107]Transcript of Proceedings (13 February 2019) 327–8.
[108]Transcript of Proceedings (13 February 2019) 328.
132 Under cross-examination, Mr Axford said that he could not recall Mr Curtis saying that before Bensons could contribute to any funding (of a VCAT appeal), Bensons would need to take its own legal advice on the merits of a VCAT application.[109] He conceded that Mr Curtis did say that Bensons normally used Norton Rose or Arnold Bloch Leibler (‘ABL’). Mr Axford recalled Mr Curtis saying that Bensons usually used the barrister Chris Townsend.
[109]Transcript of Proceedings (13 February 2019) 335.
133 It was put to Mr Axford in cross-examination that Mr Curtis said that he would get back to Mr Gatsby with a formal response about VCAT proceedings after Mr Gatsby informed Bensons how KIA was going to win the VCAT proceeding. Mr Axford replied: ‘That’s not how I recall it, no.’[110]
[110]Transcript of Proceedings (13 February 2019) 336.
134 In re-examination, Mr Axford was asked:
Counsel:You said in your evidence that you considered that the parties had agreed to go to VCAT; is that correct?
Mr Axford:The impression I got from the meeting, is that the, um, um – there was agreement that was the correct path to go down.
Counsel:Yes?
Mr Axford:That now was the time to go to VCAT, because it was quite likely that we were not going to get a decision in any timely way.
…
Counsel:Yes. And was there mention of whom might pay for those proceedings?
Mr Axford:Ah, that was certainly raised by – by um, [KIA] Infrastructure …
But the response was indeterminate.[111]
[111]Transcript of Proceedings (13 February 2019) 336–7.
135 KIA submitted that Mr Axford was a most impressive witness and gave his evidence in a straightforward and unaffected manner. KIA submits that his evidence ought to be accepted.
136 Mr Curtis gave evidence that the meeting came about as Mr Gatsby wanted Mr Curtis to meet with him and Mr Axford. Mr Curtis said that at that stage, in April, Bensons had had some discussions with a town planner, Vaughan Connor of Contour, as Bensons was interested in amending the permit to improve the development, once the permit was obtained.[112]
[112]Transcript of Proceedings (19 February 2019) 668.
137 Mr Curtis was given a copy of Mr Axford’s report at the meeting, but he said that he did not review it at the meeting.[113] Mr Curtis was also given a copy of Jane Sharp’s advice about the Mirvac Covenant.
[113]Transcript of Proceedings (19 February 2019) 670.
138 Mr Curtis said that at the meeting, Mr Gatsby said that the CEO of the council was not prepared to override the planning department and expedite the application going to the council on 17 May 2016. Mr Gatsby then said that KIA wanted to initiate VCAT proceedings.[114] Mr Curtis said that he asked Mr Gatsby what had changed. Mr Curtis said that Mr Gatsby replied that they were tired of waiting for council and they wanted to initiate VCAT proceedings in order to get the council into a mediation within a short period.[115]
[114] Transcript of Proceedings (19 February 2019) 669.
[115]Transcript of Proceedings (19 February 2019) 669.
139 Mr Curtis said that he had not previously been told by Mr Gatsby that there was a problem getting the permit. Mr Curtis said that he had been told that the April submission to council did not occur and that it was meant to go to the May meeting of councillors.[116]
[116]Transcript of Proceedings (19 February 2019) 669.
140 Mr Curtis said that Mr Gatsby said that they wanted to initiate VCAT proceedings, and they wanted Bensons to contribute to the cost of those proceedings.[117]
[117]Transcript of Proceedings (19 February 2019) 670.
141 Mr Curtis said that he again asked Mr Gatsby what had happened that appeared to have changed the council’s mind. Mr Curtis said that he did not get a response to that question.
142 Mr Curtis said that he told Mr Gatsby that before Bensons could respond to the request to contribute to the cost of the proceedings, Bensons would need to know the basis of the application, what were the adjoining owner issues, what were the council’s issues, and how the Mirvac Covenant was being dealt with.[118] Mr Curtis said that he told Mr Gatsby that subject to receiving that advice, Bensons would then take its own independent legal advice as to the merits of launching in VCAT.[119] Mr Curtis said that he asked Mr Gatsby on a number of occasions how they were going to win but that Mr Gatsby did not respond.[120]
[118]Transcript of Proceedings (19 February 2019) 670.
[119]Transcript of Proceedings (19 February 2019) 670.
[120]Transcript of Proceedings (19 February 2019) 671.
143 Mr Curtis said that he wanted to know that because he thought that in the first place it was wrong to institute any sort of court proceedings unless you had a good prospect of winning. Secondly, he said that he wanted to know why KIA did not believe that they would not get a permit from the council after having previously told Bensons that they were going to get the council’s consent to a permit.[121]
[121]Transcript of Proceedings (19 February 2019) 671.
144 Mr Curtis said that he told Mr Gatsby that, subject to receiving the information he had asked of Mr Gatsby, that Bensons would get its own independent legal advice. Mr Curtis said that he was asked who Bensons normally used as solicitors for planning matters. He said he told KIA that Bensons used Norton Rose Fulbright, or ABL and normally for senior counsel Bensons used Chris Townsend. Mr Curtis said that Norton Rose Fulbright could not act, as they had already been excluded because of the conflict with Mirvac.[122]
255 Bensons says KIA failed to tender expert evidence demonstrating how long it would have taken VCAT to deal with KIA’s first application, or what the usual duration of a VCAT proceeding was through its various procedural steps. Further, KIA led no evidence as to the dates of council meetings in 2016, such meetings being necessary for the issue of the permit.
256 KIA, in turn, submits that, in the absence of evidence regarding when VCAT might have heard the application, it is entitled to rely on the presumption against the wrongdoer, referring to the decision in Tesrol Joinery Pty Ltd v CEFLA Scri.[199]
[199][2005] NSWSC 528 [8]–[12].
257 The relevance of that decision, however, seems to be to the issue of quantifying damages in a problematic case, than to determining whether there was a sufficient relationship between non-compliance and a failure to complete.
258 The decisions of this Court to which I have already referred, however, indicate that the relevant question in relation to the prevention principle is whether the conduct of the party alleged to be preventing performance deprived the opposite party of a ‘substantial chance’ of meeting the condition.[200]
[200]Cahill (n 192) [252]; Hera Project (n 190) [142]; Simcesvski v Dixon [2017] VSC 197 [64]; Joseph Street Pty Ltd v Tan (2012) 38 VR 241. See also SMK Cabinets v Hili Electrics Pty Ltd [1984] VR 391.
259 For example, in Cahill, Kennedy J identified two acts of Kiversun which breached the duty of co-operation and concluded that ‘[the] acts both individually and/or cumulatively deprived Mr Cahill of a substantial chance of meeting the condition that he return the executed final documentation within the relevant five business days’.[201]
[201]Cahill (n 192) [252].
260 In Hera Project, Riordan J considered whether the vendors’ failure to use their best endeavours to obtain registration of a plan of subdivision and obtain consents from relevant authorities had deprived the purchasers of a substantial chance of the plan of subdivision being registered and settlement occurring. His Honour concluded that the vendors’ conduct was ‘consistent with an owner who, while purporting to comply with his obligations, was determined to “facilitate the earliest termination of the Contract”’ and that it had deprived the purchaser of a substantial chance of meeting a condition of the contract.[202]
[202]Hera Project (n 190) [121].
261 In Cahill and Hera, Kennedy J and Riordan J respectively, referred to conduct of the party found to be preventing performance of the contract as part of a strategy to bring about non-compliance with the condition for purposes extraneous to the contract itself.[203] Kennedy J noted in Cahill that regardless of intent, conduct which had the requisite effect was sufficient.[204]
[203]Cahill (n 192) [256]–[257]; Hera Project (n 190) [121].
[204]Cahill (n 192) [258].
262 I consider that Bensons’ letter of 18 May 2016 was objectively likely to bring about the withdrawal of any current permit application (or prevent the filing of any foreshadowed application) which it in fact did. In particular, the inclusion of an allegation that KIA would be in breach of the DMA was objectively likely to encourage or induce KIA to withdraw or withhold from any application to VCAT. The letter of 18 May 2016 seeks to prevent KIA from proceeding with what it had been told it could do in the email of 10 May 2016, that is, go to VCAT at its own cost.
263 I am satisfied that Bensons’ actions in sending the letter of 18 May 2016 were part of a strategy calculated by Bensons and Mr Jreissati to bring about the non-compliance of KIA with the permit condition and allow Bensons to exit from the DMA without itself being in breach. As discussed earlier, the strategy is evidenced by the contradictory correspondence of 10 May 2016 and 18 May 2016, the backtracking of Bensons in the subsequent letter dated 23 August 2016 following further legal advice, and the ongoing failure by Bensons to meet with KIA to resolve the issues concerning the obtaining of the permit. Bensons’ conduct during that period falls short of what would be expected of a contracting partner who wished to achieve the object of the contract and was consistent with a party who, while purporting to comply with its obligations, sought to bring to an end the DMA. I am satisfied that the letter of 18 May 2016 was intended to and did deprive KIA of a substantial chance to procure the issue of the permit by the Sunset Date.
264 The authorities referred to above also indicate that the consequence of an act of prevention is that the relevant term transforms from one requiring performance at a specific time to one requiring performance within a reasonable time. KIA in fact obtained the issue of the permit on 6 February 2016, approximately five weeks after the Sunset Date (which time included Christmas and the New Year). Given Bensons’ act of prevention resulted in a delay of approximately seven weeks between KIA’s applications to VCAT, I consider that KIA obtained the issue of the permit within a reasonable time.
265 In case I am wrong in the test to be applied, I should also state that I am satisfied on the balance of probabilities that a sufficient causal relationship exists between Bensons’ act of prevention and KIA’s failure to complete.
266 Bensons, however, submits that even if the permit had been obtained by the Sunset Date, there remains the issue of clause 2.3(a) of the DMA, which required settlement of the sale contracts which Bensons had entered into with the Mandile parties. KIA’s entitlement to payment of the Development Management Fee was subject to both settlement of those contracts as well as satisfaction of the Development Management Conditions.
267 Specifically, Bensons contends that a condition requiring the removal of encumbrances from the title to the land at 103 Beach Street by 30 December 2016 (‘prior liens condition’) was not satisfied, and therefore, whether or not the permit was obtained, Bensons was entitled to terminate the DMA and to the return of its instalments.
268 KIA did not respond to Bensons’ pleaded non-satisfaction of this condition. It was submitted only on KIA’s behalf that the prior liens ‘would have been removed, as is the normal case, at settlement time’, and the prior liens condition would have been satisfied.[205]
[205]In relation to the Mandile company contracts, Mr Mandile gave evidence that they would have paid out the mortgage and caveats on the land and settled the sale: Transcript of Proceedings (11 February 2019) 70.11–23. Mr Grinter, Bensons’ former solicitor, accepted that he had never asked Mr Indovino whether or not the Mandile parties would be able to settle: Transcript of Proceedings (25 February 2019) 899.18–27.
269 Bensons points to the evidence of Mr Mandile that the purchase price from Bensons was needed to be able to remove the encumbrances; his resources were not sufficient.[206]
[206]Transcript of Proceedings (11 February 2019) 77.
270 The relevant clause is a standard clause that settlement is subject to the land being free of encumbrances. This would have been achieved in the normal way by part of the purchase price being paid to the mortgagee on settlement and the purchaser taking its title free from the encumbrance.
271 On the basis that Bensons wished to acquire the property as it had contracted to do, I am satisfied that the prior liens condition would have been satisfied. Bensons’ defence on this ground has no merit.
272 I am satisfied on the balance of probabilities that the conduct of Bensons deprived KIA from obtaining the permit by the Sunset Date and otherwise satisfying the conditions of its entitlement to the fee.
273 Mr Jreissati gave evidence that he had not lost interest in the project and that, if KIA had obtained the permit by the end of December, Bensons would have ‘absolutely completed the deal’. As discussed above, I do not accept this evidence. On the contrary, I am satisfied that Mr Jreissati, and thus Bensons, intended to and successfully frustrated KIA in performing the DMA and receiving the fee.
Alleged duties of good faith and co-operation
274 In addition to relying on the prevention principle, KIA alleges that Bensons was under the following duties:
(a) to do all such things as are necessary on its part to enable KIA to have the benefit of the DMA; and/or
(b) not to do anything which would make it materially difficult for KIA to satisfy the Development Management Conditions in accordance with the DMA (‘duty of co-operation’);
(c) to perform its obligations and to exercise its rights, powers and discretions under the DMA in good faith (‘duty of good faith’).[207]
[207]Plaintiff’s Fourth Further Amended Statement of Claim, 15 February 2019 [6(g)–(h)].
275 KIA pleads that the duties of co-operation and of good faith are implied both by law and to give business efficacy to the DMA.
276 KIA further submits that each of the duty of good faith and the duty of co-operation are ‘implied into the DMA as either universal terms that are implied into all contracts, or alternatively as terms that are implied into contracts of the type of the DMA’.[208] No attempt, however, was made in written or oral submissions by KIA to establish the ‘business efficacy’ argument.
[208]Plaintiff’s Outline of Closing Submissions, 5 March 2019 [21].
277 The conduct of Bensons on which KIA relies as breaching either the duty of good faith or of co-operation can be summarised as follows:
(a) the email of 10 May 2016 refusing to proceed to VCAT or to fund VCAT proceedings;
(b) the letter of 18 May 2016, instructing KIA not to commence any proceeding in VCAT and informing KIA that any proceeding commenced by KIA without consent would be a breach of the DMA;
(c) the refusal to meet with KIA between 18 May 2016 and 5 July 2016; and
(d) the failure to exercise its discretion reasonably in electing not to appeal to VCAT.[209]
[209]Plaintiff’s Fourth Further Amended Statement of Claim, 15 February 2019 [10]–[15].
Did Bensons owe KIA a duty of co-operation under the DMA?
278 For the following reasons, I have concluded that there was an implied duty of co-operation in the DMA and that Bensons breached this duty by sending the letter of 18 May 2016, but did not breach the duty by failing to proceed to (or fund) VCAT or by failing to meet with KIA.
279 An implied duty of co-operation in the performance of a contract is not controversial.[210] The duty requires a party ‘to do all such things as are necessary on his part to enable the other party to have the benefit of the contract’.[211] What is required by the duty, however, is constrained by the need to formulate the content of the implied duty by reference to express obligations under the contract.[212] This is because there cannot be a duty to co-operate in bringing about something which a contract does not require to happen.[213]
[210]See, eg, Bell Group NV (in liq) v Insurance Commission of Western Australia [2017] WASCA 229 [92] (‘Bell Group’).
[211]Griffith CJ in Butt v M’Donald (1896) 7 QLJ 68, 70–71 and confirmed in the High Court in Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 at 607; 26 ALR 567 at 577 (per Mason J, Gibbs, Stephen and Aickin JJ concurring).
[212]See, eg, Marmax Investments Pty Ltd v RPR Maintenance Pty Ltd (2015) 327 ALR 45 [130]–[138] (Middleton, Foster and Gleeson JJ) (‘Marmax’) and the authorities cited therein; Bell Group (n 210) [109]–[110], [118].
[213]Australis Media Holdings Pty Ltd v Telstra Corporation Ltd (1998) 43 NSWLR 104, 124D.
280 In James E McCabe Ltd v Scottish Courage Ltd,[214] Cooke J said:
A duty to cooperate in, or not to prevent, fulfilment of performance of a contract only has content by virtue of the express terms of the contract and the law can only enforce a duty of cooperation to the extent that it is necessary to make the contract workable. The court cannot, by implication of such a duty, exact a higher degree of cooperation than that which could be defined by reference to the necessities of the contract. The duty of cooperation or prevention/inhibition of performance is required to be determined, not by what might appear reasonable, but by the obligations imposed upon each party by the agreement itself.
[214][2006] EWHC 538 (‘James E McCabe v Scottish Courage’), quoted in Marmax (n 212) [133].
281 In Marmax Investments Pty Ltd v RPR Maintenance Pty Ltd,[215] the Full Court of the Federal Court considered the interpretation of a franchise agreement. The Full Court upheld the primary judge’s conclusion that the agreement granted an exclusive franchise to the franchisee, and further held that that franchisor was accordingly subject to certain prohibitions, including from licensing or authorising another franchisee to operate in that territory.[216]
[215]Marmax (n 212).
[216]Ibid [108]–[112].
282 On appeal, however, the trial judge’s conclusion that the franchisor’s obligations extended beyond refraining from positive conduct and extending to ‘taking reasonable and available steps which were open to it to ensure that [the] territory remained exclusive’,[217] exceeded the requirement of necessity.[218]
[217]Ibid [119].
[218]Ibid [139].
The Full Court stated:
To what extent, it might be asked, is cooperation required to make workable the relevant prohibitions? In our view, the content of the obligation to do all things necessary to give the other party the benefit of the contract required Spanline to refrain from taking positive steps that would infringe upon or cause a third party to infringe upon the exclusive franchise granted to RPR. To require Spanline to do more, such as to take positive steps to investigate possible incursions by Marmax upon the rights of RPR, would exceed the requirement of necessity. It could not be said that the absence of a requirement to investigate such conduct would render the RPR Franchise agreement nugatory, worthless or seriously undermined.[219]
[219]Ibid [139] (emphasis added).
284 The recent decision of Riordan J in Simcevski v Dixon[220] provides a further example in this Court of the necessity of identifying relevant contractual obligations in respect of the duty of co-operation.
[220][2017] VSC 197.
285 It has also been suggested that the notion of ‘engineering a default’ can also been seen as a breach of the duty of co-operation.[221]
[221]J W Carter, ‘Good Faith in Contract: Why Australian Law is Incoherent’ (Speech, Bar Association of Queensland 2014 Annual Conference, 8 March 2014) 30, 49, citing Council of the City of Sydney v Goldspar Australia Pty Ltd [2006] FCA 472 (Gyles J) (‘Council of Sydney v Goldspar’) and Burger King Corp v Hungry Jack’s Pty Ltd (2001) 69 NSWLR 558 (‘Hungry Jack’s).
286 In my view, KIA’s claims that Bensons breached the duty of co-operation by refusing to fund VCAT proceedings, failing to elect to go to VCAT and failing to meet with KIA cannot be sustained. KIA has not identified any express terms of the DMA which would allow such a conclusion to be drawn. In fact, pursuant to the express terms of the DMA, Bensons was explicitly not required to go to VCAT, and while clause 2.2(b) of the DMA provided that KIA must keep Bensons fully and regularly informed as to the status and progress of performance of the Development Management Services, this clause is for the sole and express benefit of Bensons. Imposing an implied duty to meet with KIA and/or to go to VCAT would be to ‘exact a higher degree of cooperation than that which could be defined by reference to the necessities of the contract’.[222]
[222]James E McCabe v Scottish Courage (n 214).
287 The letter of 18 May 2016 is altogether different. Pursuant to clause 2.1 of the DMA, Bensons appointed KIA as Development Manager to perform the Development Management Services. KIA was obliged under the DMA to perform the Development Management Services (clause 2.2, Schedule 1), including obtaining the planning permit. KIA had contracted for the opportunity to obtain the planning permit and be paid the Development Management Fee if successful. Contrary to the construction of clause 2.3(e) of the DMA contended for by Messrs Curtis and Jreissati, I consider that a permit issued by VCAT would satisfy the requirements of the DMA. Bensons was not required to take positive steps to assist KIA to obtain the permit (leaving to one side consideration of the estoppel argument advanced by KIA), but in my view, the duty of co-operation required that it refrained from taking positive steps that would infringe upon or prevent KIA from performing its obligations under the DMA. This is a level of co-operation which I consider necessary to make the contract workable.
288 As mentioned, I have found that, for a reason not disclosed to the Court, Bensons decided it no longer wished to proceed with the DMA and set about to bring the DMA to an end. Accordingly, the letter by Bensons which stated that KIA would be in breach of the DMA by doing what it was obliged to do (obtain the permit) is, in my opinion, properly characterised as a breach of the duty of co-operation.
Did Bensons owe KIA a duty of good faith under the DMA?
289 As mentioned earlier, KIA pleads that Bensons was under an implied duty to perform its obligations and to exercise its rights, powers and discretions under the DMA in good faith.
290 For the reasons which follow, I have concluded that KIA has failed to establish that the DMA contains an implied duty of good faith.
291 There is a conflict of opinion between Victoria and New South Wales as to whether or not a duty of good faith should be implied by law into commercial contracts. The acceptance of such an implied duty in respect of both performing obligations and exercising rights in New South Wales appears to follow the decisions of Renard Constructions (ME) Pty Ltd v Minister for Public Works (‘Renard’)[223] and Burger King Corp v Hungry Jack’s Pty Ltd (‘Hungry Jack’s’).[224] In Renard, Priestly JA, following an extended discussion of good faith, concluded that ‘reasonableness’ was an implied term of a termination clause in a standard form building contract. In Hungry Jack’s, terms of co-operation, good faith, and reasonableness were implied into a complex franchising transaction between sophisticated parties.
[223](1992) 26 NSWLR 234 (‘Renard’).
[224]Hungry Jack’s (n 221). See also United Group Rail Services Limited v Rail Corporation New South Wales [2009] NSWCA 177; Hughes Brothers Pty Ltd v Trustees of the RomanCatholic Church for the Archdiocese of Sydney (1993) 31 NSWLR 91; Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349; Vodafone Pacific Ltd v Mobile Innovations Ltd[2004] NSWCA 15.
292 In Victoria, however, a more conservative approach has been adopted. In Esso Australia Resources Pty Ltd v Southern Pacific Petroleum NL (Receivers and Managers appointed) (Administrators appointed) (‘Esso’), Buchanan AJA held:[225]
I am reluctant to conclude that commercial contracts are a class of contracts carrying an implied term of good faith as a legal incident, so that an obligation of good faith applies indiscriminately to all the rights and power conferred by a commercial contract. It may, however, be appropriate in a particular case to import such an obligation to protect a vulnerable party from exploitive conduct which subverts the original purpose for which the contract was made. Implication in this fashion is perhaps ad hoc implication meeting the tests laid down in BP Refinery (Westernport) Pty Ltd v Shire of Hastings, rather than implication as a matter of law creating a legal incident of contracts of a certain type.[226]
[225][2005] VSCA 228 (‘Esso’).
[226]Ibid [25] (Warren CJ and Osborn AJA agreeing) (citations omitted).
293 Subsequently, in Specialist Diagnostic Services Pty Ltd v Healthscope Ltd (‘Specialist Diagnostic v Healthscope’), Buchanan, Mandie and Osborn JJA concluded:[227]
We do not accept that an obligation of good faith should be implied indiscriminately into all commercial contracts.
In the case of a detailed written lease entered into between commercial entities of equivalent bargaining power, such a condition will ordinarily arise only if it meets the tests laid down in BP Refinery (Westernport) Pty Ltd v President, Councillors and Ratepayers of the Shire of Hastings (‘BP Refinery’).[228]
[227](2012) 41 VR 1 (‘Specialist Diagnostic v Healthscope’).
[228]Ibid [86]–[87] (citations omitted).
294 The question of whether a standard of good faith should be applied generally to contracts has not yet been determined by the High Court.[229] Until this conflict is resolved by the High Court, I can see no good reason to depart from the approach adopted by the Victorian authorities.[230]
[229]Commonwealth Bank of Australia v Barker (2014) 253 CLR 169 [107] (Kiefel J).
[230]See, eg, DPN Solutions Pty Ltd v Tridant Pty Ltd [2014] VSC 511: ‘In this State, an obligation of good faith is not implied as a legal incident of all contracts’; Cahill (n 192) [210] (Kennedy J): ‘the preponderance of authorities in Victoria suggests that there is no duty of good faith implied by law’; Bakers Investment Group (Aust) Pty Ltd v Caason Investments Pty Ltd [2014] VSC 598 [411] (Elliott J): ‘In this jurisdiction, there has been a reluctance to imply a term of good faith as a legal incident of commercial contracts’, citing Esso (n 225) [25] (Buchanan JA, with whom Warren CJ and Osborn AJA agreed); see also [2]–[4] (Warren CJ). See also Androvitsaneas v Members First Broker Network Pty Ltd [2013] VSCA 212, [101]–[110] (Redlich and Priest JJA and Macaulay AJA); Specialist Diagnostic v Healthscope (n 227) [86]–[87] (Buchanan, Mandie and Osborn JJA); Bytan Pty Ltd v BB Australia Pty Ltd [2012] VSCA 233, [45] and fn 30 (Warren CJ, with whom Osborn JA agreed); Tote Tasmania Pty Ltd v Garrott (2008) 17 Tas R 320, 326 [16] (Tennent J and Buchanan and Mandie AJJ). But see: Far Horizons Pty Ltd v McDonalds Australia Ltd [2000] VSC 310 where Byrne J considered he was bound to imply in a franchise agreement a term of good faith and fair dealing.
295 Accordingly, no duty of good faith can be implied into the DMA unless it satisfies the well-known test in BP Refinery,[231] approved by the High Court in Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd,[232] that a propounded term:
[231]BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 (‘BP Refinery’).
[232](1979) 144 CLR 596.
(a) must be reasonable and equitable;
(b) must be necessary to give business efficacy to the contract so that no term will be implied if the contract is effective without it;
(c) must be so obvious that it ‘goes without saying’;
(d) must be capable of clear expression; and
(e) must not contradict any express term of the contract.
296 KIA did not, in either written or oral submissions, attempt to demonstrate how the pleaded term for which it contends could satisfy the above test. In my view, it is obvious that it could not. A term qualifying Bensons’ express right to elect, by reference to ‘an amorphous standard of good faith’, is not so obvious that ‘it goes without saying’, is not ‘necessary to give business efficacy to the contract’ and is not ‘capable of clear expression’.[233]
[233]See, eg, David A Harris v AMP Financial Planning [2019] VSC 24 [52] (Digby J).
297 Bensons submits that it is implicit in KIA’s argument that the implied term of good faith in fact ‘compelled’ or ‘required’ Bensons to appeal and to bear the costs of doing so. Any alleged term that Bensons had an obligation to exercise its discretion in favour of going to VCAT would also fall foul of the test in BP Refinery, as such a term directly contradicts the express terms of the DMA.[234]
[234]Compare Specialist Diagnostic v Healthscope (n 227) [86]–[87].
298 In any event, I consider that it is not strictly necessary to determine whether a term requiring the exercise of good faith is to be implied into the DMA, for even if such an obligation was implied, in my opinion, it had not been breached.
299 KIA submits that Bensons did not properly exercise its discretion pursuant to clause 2.3(e) of the DMA because Bensons relied on issues with the Mirvac Covenant and a failure by KIA to provide information to Bensons as the reason for its failure to elect to go to VCAT. KIA submits these were not genuine reasons.
300 I am not satisfied that these grounds were not genuine. Further, Bensons also stated that it had not satisfied itself of the likelihood of success of an appeal to VCAT. I accept that by 10 May 2016, Bensons had not fully satisfied itself on the merits of the issues raised by the council that had impeded the issue of the permit, or how those issues were to be met and that, accordingly, Bensons was not in a position to form a view on the likelihood of success if an appeal was pursued. I am not satisfied that Bensons’ decision not to pursue an appeal at that time, as conveyed on 10 May 2016, could be said to have been made in bad faith.
301 Mr Curtis went to China soon after 10 May 2016 and Mr Jreissati took over the administration of the DMA. As already discussed, for reasons Mr Jreissati did not disclose, he then decided to prevent the contract being performed. This I have already found to be a breach of the non-controversial duty of co-operation.
Is Bensons estopped from relying on the strict wording of clause 2.3(e) of the DMA?
302 KIA’s final argument in support of its claim for VCAT costs from Bensons is that Bensons is estopped from relying on the strict wording of clause 2.3(e) and denying liability to pay the costs KIA incurred in going to VCAT because of certain statements made by Bensons’ representatives. For the reasons which follow, I have concluded that KIA has failed to establish that any such estoppel arises.
303 The doctrine of estoppel prevents an unjust departure by one person from an assumption adopted by another person, if that assumption was the basis of some act or omission by that other person, and if departure from that assumption would cause detriment to that other person.[235] Whether it would be unjust for a party to depart from the assumption depends on the role played by that person in the other party adopting the assumption.[236]
[235]Thompson v Palmer (1933) 49 CLR 507, 546-7(Dixon J).
[236]Ibid. See also IOOF Building Society Pty Ltd v Foxeden Pty Ltd (2009) 23 VR 536 [119]–[121] (Maxwell P, Ashley JA and Hansen AJA).
304 KIA pleads both a conventional estoppel and an equitable estoppel. I will deal with each in turn.
305 A conventional estoppel arises when both parties adopt a mutual assumption as the basis of their relationship. If established, both parties are prevented from departing from that assumption.[237]
[237]See, eg, Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226 (Gibbs CJ, Mason, Wilson, Brennan and Dawson JJ).
306 KIA submits that the parties adopted an assumption as to the terms of their legal relationship that Bensons would make an application to VCAT in respect of a planning permit and Bensons would pay for the costs of that application. This mutual assumption, KIA says, is evidenced by the pre-contractual First, Second and Third Representations, together with, in substance, the statements identified by KIA as establishing an election by Bensons to appeal to VCAT at the meetings of 15 April 2016, 26 April 2016 and 5 May 2016.
307 Pre-contractual conduct and representations, however, cannot be relied upon to establish a conventional estoppel, as these are ‘treated as superseded by the subsequent written contract’.[238]
[238]Retirement Services Australia (RSA) Pty Ltd v 3134 Victoria Street Doncaster Pty Ltd (2012) 37 VR 486 (Warren CJ, Harper and Robson JJA) [137]–[139] quoting Johnson Matthey Ltd v AC Rochester Overseas Corp (1990) 23 NSWLR 190, 195 (McLelland J).
308 The remaining post-contractual statements and conduct on which KIA relies in support of its conventional estoppel claim are, in substance, those on which it relied to allege an election by Bensons pursuant to clause 2.3(e) of the DMA. The difficulty KIA faces in this regard is that though I made findings to the effect that Bensons made those representations and led KIA to believe Bensons was seriously considering electing to appeal to VCAT, that conduct or those representations did not constitute an election by Bensons to appeal to VCAT. In this analysis, I do not accept that that same conduct or those same representations can then constitute an assumption on the part of Bensons that it would, in fact, appeal. While I am satisfied that KIA assumed Bensons would appeal, and Bensons led KIA to believe it was seriously considering that appeal, the evidence as to post-contractual conduct does not establish that each party subjectively assumed that Bensons would appeal.
309 This is sufficient to dispose of KIA’s conventional estoppel claim.
310 KIA claims alternatively that pre-contractual representations gave rise to an equitable estoppel.
311 The elements which a plaintiff is required to prove to establish an estoppel in equity have been set out in various ways, but in particular, the formulation by Brennan J in Waltons Stores (Interstate) Ltd v Maher[239] has been widely applied:[240]
[I]t is necessary for the plaintiff to prove that (1) the plaintiff assumed that a particular legal relationship then existed between the plaintiff and the defendant or expected that a particular legal relationship would exist between them and, in the latter case, that the defendant would not be free to withdraw from the expected legal relationship; (2) the defendant has induced the plaintiff to adopt that assumption or expectation; (3) the plaintiff acts or abstains from acting in reliance on the assumption or expectation; (4) the defendant knew or intended him to do so; (5) the plaintiff’s action or inaction will occasion detriment if the assumption or expectation is not fulfilled; and (6) the defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise.[241]
[239](1988) 164 CLR 387 (‘Waltons Stores’).
[240]See J D Heydon, M J Leeming and P G Turner, Meagher, Gummow & Lehane’s Equity: Doctrines & Remedies (LexisNexis Butterworths, 5th ed, 2014), 540 [14]–[260]; Moala v Free Wesleyan Church of Tonga (Ruling No 4) [2017] VSC 635 [53] (Ginnane J); Accurate Financial Consultants Pty Ltd v Koko Black Pty Ltd [2007] VSC 40 [108] (Hargrave J). But see Bullhead Pty Ltd v Brickmakers Place Pty Ltd [2017] VSC 206 [184] where Sifris J considered Brennan J’s ‘elements a useful starting point, although not universally accepted, but sufficient for present purposes’. This aspect was not disturbed on appeal in [2018] VSCA 316 (Kyrou, McLeish and Hargrave JJA). See also CC Growth Pty Ltd v Amiga Growth No. 2 Pty Ltd [2019] VSC 340 [81] (Riordan J).
[241]Waltons Stores (n 239) 428–9.
312 KIA contends that it had negotiated with Bensons in the belief that the DMA would provide that Bensons would undertake any appeal to VCAT to obtain the planning permit or bear the cost of such an appeal.
313 KIA was then presented with a draft DMA that provided ‘if Bensons elected (without being obliged to do so) to appeal any decision of the Responsible Authority in connection with the Planning Application or the issue of the Planning Permit, all costs in doing so are to be borne by Bensons’.
314 KIA contends that Bensons is estopped from relying on the strict wording of clause 2.3(e), or denying liability to pay for the costs of the VCAT application, because of alleged statements by Bensons’ representatives.
315 For convenience, I will set out again the specific evidence given in respect of the representations which are said to support that assumption or expectation (which are already referred to earlier in this judgment as the First, Second and Third Representations):
(a) the evidence of Mr Gale in relation to the 1 February 2016 meeting:
(xii) Mr Jreissati, in response to Mr Gale’s comment that it was likely that KIA would have to go to the VCAT in order to obtain a planning permit, replied: ‘I just give $1 million to the lawyers, and they take it to the VCAT’;[242]
[242]Transcript of Proceedings (11 February 2019) 101.15–16.
(xiii) Mr Jreissati further stated that KIA should have gone to the VCAT last year;[243]
[243]Transcript of Proceedings (11 February 2019) 101.16-–19.
(xiv) Mr Semenov said that it was the policy of Bensons to go to the VCAT when councils will not give a permit;[244]
[244]Transcript of Proceedings (11 February 2019) 103.9–11.
(the First Representations).
(b) the evidence of Mr Gatsby in relation to the 22 February 2016 telephone call with Mr Semenov:
(i) Mr Semenov stated that Mr Jreissati instructed him to make another offer;[245]
[245]Transcript of Proceedings (14 February 2019) 401.14–15.
(ii) when Mr Gatsby asked Mr Semenov: ‘What’s the offer this time? Is it along the $3 million … what’s it likely to be?’, Mr Semenov replied: ‘It won’t be what you want but it will be at least $2 million and some consideration for other costs’;[246]
[246]Transcript of Proceedings (14 February 2019) 401.15–23.
(the Second Representations).
(c) the evidence of Messrs Gale and Hutchinson-Brooks in relation to the 5 April 2016 meeting:
(i) Mr Foley stated that it was the policy of Bensons to go to the VCAT when councils fail to make a decision;[247]
[247]Transcript of Proceedings (12 February 2019) 131.29–132.2; Transcript of Proceedings (14 February 2019) 356.11–13.
(ii) Mr Curtis acknowledged the necessity of going to the VCAT;[248]
(iii) Mr Gatsby asked Mr Semenov about clause 2.3(e) and Mr Semenov replied: ‘KIA should not worry, that was only put in to ensure that Bensons were not obliged to go to the VCAT before it was ready’;[249]
(the Third Representations).
[248]Transcript of Proceedings (12 February 2019) 131.28–30; Transcript of Proceedings (14 February 2019) 355.12–14.
[249]Transcript of Proceedings (12 February 2019) 132. 23–30.
316 KIA alleges that the representations led KIA to assume that Bensons would pay for VCAT and that Bensons would not rely on the strict wording of clause 2.3(e) of the DMA. KIA says that acting on those assumptions it entered into the DMA. KIA says that if Bensons was able to resile from those representations KIA would suffer detriment, namely the cost of going to VCAT.
317 In my view, the only statement which could found a relevant assumption is the alleged statement by Mr Semenov that ‘KIA should not worry [about clause 2.3(e)], that was only put in to ensure that Bensons were not obliged to go to the VCAT before it was ready‘.
318 Assuming that statement was made, it implied a representation by Bensons that, despite what the DMA said, it would go to VCAT to appeal any decision of the council in connection with the planning application or the issue of the planning permit when it was ready to do so, and the costs of doing so would be borne by Bensons.
319 Thus, Bensons would be estopped from denying it was obliged to go to VCAT when it was ready to do so to appeal any decision of the council in connection with the permit.
320 In examination-in-chief, Mr Semenov was asked whether he said: ‘KIA should not worry about clause 2.3(e) of the DMA because Bensons intended to go to VCAT.’ Mr Semenov denied saying that, explaining he was not even sure what clause 2.3(e) would have been, because the draft DMA had only been presented in that meeting and he did not have a copy of it.[250]
[250]Transcript of Proceedings (20 February 2019) 785.
321 Under cross-examination, it was put to Mr Semenov that he said to Mr Gatsby: ‘Don’t worry. That was only put in to mean that Bensons would not be obliged to go to VCAT before they were ready.’ Mr Semenov said that he did not believe there was such a conversation, again saying that he did not have a copy of the agreement prior to that meeting and he was not issued with a copy at the meeting. Mr Semenov said that if Mr Gatsby had asked him about clause 2.3(e) he would have asked what the wording was of that clause as he did not have a copy of the agreement.[251] Mr Semenov, however, did have a copy of the draft DMA in his possession on 1 April 2016 (at which time he emailed the draft DMA to Mr Curtis and Mr Gatsby), and in that draft, clause 2.3(e) was in the same form as in the executed DMA.
[251]Transcript of Proceedings (25 February 2019) 853.
322 Notwithstanding the above, I am not satisfied on the balance of probabilities that the representation was in fact made. The alleged representation does not feature in any correspondence by KIA or its solicitors to Bensons following Bensons’ communications of 10 and 18 May 2016. If such a representation had been made, one would expect that it would be brought up to counter Bensons’ assertions, prior to its appearance in KIA’s reply and defence to the counterclaim dated 27 March 2017. Instead, for example, in his response to the email of 10 May 2016, Mr Gatsby stated: ‘we had hoped you would work with us and just fund SILK’.[252] Further, when KIA’s solicitors responded substantively to Bensons’ 18 May 2016 letter on 16 June 2016, despite mention being made of meetings on 26 April 2016 and 5 May 2016, no mention is made of the alleged representation made in relation to clause 2.3(e) upon the signing of the DMA. In fact, the letter states that KIA is to obtain the permit at its own cost, and that clause 2.3(e) is ‘currently inoperative’ as no decision had been made by the responsible authority in connection with the permit.[253] Later letters do refer in vague terms to discussions between the parties about the VCAT appeal, but do not identify the specific alleged representation.[254] In my view, the failure of KIA and its solicitors to refer contemporaneously to the alleged representation lends support to a finding that the representation was not in fact made.
[252]Exhibit P36.
[253]Exhibit D1.
[254]See, eg, Exhibit D41; Exhibit D45.
323 In any event, even if the representation was made, I consider that Bensons did not seek to adopt a position in performance of the agreement that was contrary to that specific representation. Nor did KIA allege that it did.
324 Mr Curtis wrote to Mr Gatsby on 10 May 2016. That email does not suggest that Bensons would not be commencing VCAT proceedings at any stage. Rather, the email identifies issues that Bensons was concerned about that needed to be resolved prior to Bensons forming a clear position or strategy. The email suggested that Bensons would need at least a further two weeks, at which time it may still need to obtain senior counsel’s advice.
325 The email referred to the issue of the Mirvac Covenant, and stated that Bensons had briefed new planning solicitors. Mr Curtis said: ‘our desired outcome is to get clear advice as to if and how VCAT proceedings could be successfully run’. I take this to be referring to being run by Bensons.
326 Thus, even if Mr Semenov made the alleged representation on behalf of Bensons, the email of 10 May 2016 indicates that, at that stage, Bensons was not ready to commence an appeal. Thus the email does not constitute any repudiation of the position that Bensons was alleged to have taken with respect to the construction of clause 2.3(e).
327 Notwithstanding that Bensons, up to that date, had not sought to resile from the position implied by the alleged representation that it would appeal when it was ready, KIA then proceeded to lodge its own application to VCAT on 18 May 2016. On 19 May 2016 it received Mr Jreissati’s letter of 18 May 2016, which asserted that KIA was not entitled to go to VCAT.
328 In the letter of 18 May 2016, Bensons makes quite clear that, on its construction of the DMA, KIA could not go to VCAT without Bensons’ consent as KIA was obliged to obtain the permit from the council, and obtaining it from VCAT would not satisfy the agreement. On the other hand, Bensons also asks for information about the council’s objections and about KIA’s communications with Mirvac, together with details as to KIA’s proposed VCAT strategy and any advice it had received as to the merits of such an application. This was all information relevant to any decision whether to appeal to VCAT.
329 Assuming that the statement by Bensons that it was not obliged to elect is to be construed in the light of its request for further information of the type that would enable Bensons to be ready to appeal, then that letter also does not take a position contrary to the alleged representation.
330 When Mr Gatsby forwarded the letter of 18 May 2016 to Mr Semenov on 19 May 2016, he claimed that ‘everything purported to be requested you have already been given and it’s up to you whether you do or not [appeal to VCAT]’.[255] Notwithstanding, the evidence reveals that after 19 May 2016, KIA was still seeking this relevant information itself. On Monday, 23 May 2016, for example, in response to an email from Mr Gatsby, Jane Sharp of counsel stated that she would not have completed a full review of the matter by Wednesday, and noted ‘that a part of a review of the merits of the application will…require the involvement of a senior member of the bar’.[256]
[255]Exhibit P70.
[256]Exhibit D10.
331 On 8 June 2016, Bensons’ solicitors issued a Notice of Default to KIA in respect of KIA’s failure to provide the information requested by Bensons on 18 May 2016. It does not appear that by 16 June 2016, when KIA’s solicitors responded to Bensons’ letters of 18 May 2016 and 8 June 2016, that KIA had provided any further information to Bensons. In fact, the letter from MBA dated 16 June 2016 denied that KIA was obliged to provide the requested information that would have been necessary for Bensons to ready itself to launching an appeal to VCAT, pursuant to clause 2.2(a) of the DMA.
332 KIA then lodged its second application on 5 July 2016.
333 KIA did not plead that Bensons had all the information it needed to be ready to appeal to VCAT, and in breach of its representation failed to do so. KIA’s witnesses made various claims to the effect that KIA had provided Bensons with all the relevant information. In light of the evidence discussed above, however, I am not satisfied that that is the case.
334 KIA asserts in its submissions that if Bensons was able to resile from the representations KIA would suffer detriment, namely, the cost of going to VCAT. I conclude, however, that KIA did not rely on the alleged representation in its performance of the DMA. I find that nothing that KIA did or did not do was based on any reliance on the alleged representation.
335 KIA went to VCAT when it did because of the tight time constraints it had agreed to in the contract. It first went to VCAT on 18 May 2016 (before receiving Bensons’ letter of 18 May 2016), at which stage it had a letter from Bensons of 10 May 2016 reasonably saying Bensons needed two weeks at least to gather relevant information as to the prospects of an appeal and to obtain advice relevant to appealing. Thus before it was arguable that Bensons was obliged under its alleged representation to appeal, KIA had already appealed and decided it would seek to recover the costs from Bensons.
336 As already discussed, Bensons’ letter of 18 May 2016 constituted conduct in breach of the DMA, and the damages which flow from that breach are discussed below. The damages do not include the costs of KIA appealing to VCAT. Even if the representation alleged was made, Bensons did not take a position contrary to that representation, nor did KIA seek to prove that it did. Thus it is not necessary to consider if damages could have been claimed if the representation had not been observed.
What loss did KIA suffer as a result of Bensons’ breach?
337 KIA claims that, as a result of Bensons’ breach of the DMA, it suffered:
(a) the loss of the third and fourth instalments under the DMA, totalling $1,760,000 (inclusive of GST);
(b) the loss of deposits under the contracts with the Mandile parties, totalling $100,000 (inclusive of GST);
(c) costs incurred in its first and second VCAT applications, totalling $668,003.92 (inclusive of GST);
(d) costs incurred in mitigation of loss between 18 May 2016 and 5 July 2016, totalling $52,250.00 (inclusive of GST);
(e) costs incurred in mitigation of loss between January 2017 and February 2018, totalling $382,044.36 (inclusive of GST).[257]
[257]Plaintiff’s Fourth Further Amended Statement of Claim, 15 February 2019, Schedules A and B.
338 I will deal with each in turn.
339 First, in respect of the third and fourth instalments, Bensons submits that KIA has failed to establish that, but for Bensons’ letter of 18 May 2016 (which I have found to be an act in prevention and a breach of the duty of co-operation), the permit would have been granted by the Sunset Date. As mentioned earlier, Bensons submits that evidence is not before the court as to how long it would have taken VCAT to deal with the application and when the council was available to meet. I accept that such evidence would have been useful, however, I need only be satisfied on the balance of probabilities that such an outcome would have occurred. I am so satisfied. As already mentioned, the time which elapsed between KIA’s VCAT applications was approximately seven weeks. The permit was in fact issued approximately five weeks after the Sunset Date, which included the Christmas and New Year period. The subsequent applications were in substantially the same form as the first. I consider that KIA has established that it was entitled to the third and fourth instalments, either on the basis that it obtained the issue of the permit within a reasonable time following Bensons’ act of prevention, or on the basis that it would have obtained the issue of the permit by the Sunset Date but for Bensons’ breach. KIA has established it suffered loss in the sum of $1,760,000.
340 Second, pursuant to clause 2(b) of the deeds of cancellation entered into between KIA and the Mandile parties (which took place to avoid the double stamp duty issue), if the Bensons’ sale contracts with the Mandile parties were terminated, the Mandile parties could retain deposits already paid by KIA pursuant to their original contracts.
341 A plaintiff is entitled to recover such damages as may reasonably be supposed to have been in the contemplation of both parties concerned at the time they made the contract, as the probable result of a breach of that contract.[258] KIA submits that Bensons’ knowledge of the relevant circumstances can be inferred from the following:
(a) the presence of Messrs Semenov, Curtis and Foley at the settlement meeting on 5 April 2016, where the deeds of cancellation between KIA and the Mandile parties were signed and new contracts entered into between Bensons and the Mandile parties;
(b) the contracts entered into on 5 April 2016 were entered into as a suite of contracts by which Bensons would take KIA’s place as purchaser of the land and business;
(c) it can be inferred that Messrs Semenov, Curtis and Foley read the suite of documents, including the deeds of cancellation.
[258]Hadley v Baxendale (1854) 9 Ex 341.
342 Bensons contends that KIA’s claim for loss of the deposits must fail due to remoteness. There was no evidence that on 5 April 2016 when the DMA was entered into that Bensons ever received or saw the cancellation deeds, let alone had knowledge of the specific clause 2(b). In this regard, Bensons points to the evidence of Mr Grinter to the effect that Mr Grinter was concerned to ensure that Bensons did not have anything to do with the arrangements or transactions between KIA and the Mandile parties, including any arrangements to cancel their existing agreements. This was to avoid any associated stamp duty risks. Mr Grinter gave evidence that he declined to accept a copy of the deeds of cancellation offered to him by KIA’s solicitor, and subsequently left the meeting with Messrs Foley and Curtis, reminding them not to review any documentation between KIA and the Mandile parties and not to take a copy of any of the cancellation contracts.[259]
[259]Transcript of Proceedings (25 February 2019) 883–4.
343 In my view, KIA has failed to establish that, contrary to the evidence of Mr Grinter, representatives of Bensons had within their reasonable contemplation the content and effect of deeds entered into between KIA and the Mandile parties.
344 Third, KIA claims its loss includes the costs of steps it took in mitigation after receiving the 18 May 2016 letter. This included withdrawing the VCAT application, obtaining legal advice about the assertions in the 18 May 2016 letter and about its VCAT application, making further attempts to obtain a planning permit from the council and attending an OVGA hearing.[260]
[260]Transcript of Proceedings (18 February 2019) 505.1–9.
345 Bensons submits that these costs claimed by KIA are properly described as ‘internal costs’ and are not recoverable. In support of this statement, Bensons refers to the decision in PND Civil Group Pty Ltd v Bastow Civil Constructions Pty Ltd (‘PND v Bastow’).[261]
[261][2017] NSWCA 159 (‘PND v Bastow’).
346 In PND v Bastow, PND breached a construction sub-contract it had with Bastow, the head contractor. Bastow’s employees oversaw rectification works. Bastow claimed as damages $43,699 for the time its employees were engaged in rectification work. The New South Wales Court of Appeal confirmed that the trial judge was correct in disallowing the entirety of this claim, because there was no evidence that Bastow incurred additional expenses to what it was obliged to pay its employees under existing contracts of employment. It would have been different if Bastow had had to pay overtime, or to hire additional employees to complete other available work, or led evidence that other valuable business opportunities were lost.[262] Bensons contends this approach is apposite.
[262]Ibid [65]–[72].
347 In PND v Bastow, all costs claimed were for employees. McDougall J (with whom McColl and Gleeson JJA agreed) referred to the decision of the Queensland Court of Appeal in Orlit Pty Ltd v JF&P Consulting Engineers Pty Ltd.[263] In that case, a developer had incurred expenses for the time spent by executives who were not employed by the developer. That expense was incurred through book entries whereby the developer was debited and the actual employer credited with the cost of their time. Their Honours upheld the claim for management time, stating:
Each of the relevant executives … gave evidence of the time spent and steps taken by him in respect of or associated with rectification work. It was this time which formed the basis of the calculations upon which the damages were assessed… It is irrelevant that [the developer] did not prove that any other activities of theirs which would have profited [the developer] were curtailed by the need to spend time in relation to the rectification work. It is sufficient and reasonable to infer that they would otherwise have been engaged in [the developer’s] business.[264]
[263][1993] QCA 277 (‘Orlit v JF&P Consulting Engineers’).
[264]PND v Bastow (n 261) [67] (McDougall J) quoting Orlit v JF&P Consulting Engineers (n 263).
348 In this matter, evidence was given that KIA paid each of Messrs Gale, Gatsby and Hutchinson-Brooks on invoices issued by their respective service companies, that is, Messrs Gale, Gatsby and Hutchinson-Brooks were director contractors, not employees. Mr Gatsby gave evidence as to the work that the director contractors did which formed the basis of the calculations for the damages which KIA claims.
349 In light of the above, I consider that KIA is entitled to recover the costs it paid the director contractors (save for any GST component),[265] but not the costs it paid its employees, as KIA led no evidence to show that those employees did anything other than that which they were employed to do. Accordingly, KIA is entitled to recover $43,000 of those costs (being the non-GST component of the director contractors’ costs).[266]
[265]Where a plaintiff paid an expense which included a GST component, the plaintiff’s damages based on that expense will not include the GST component if the evidence establishes that the plaintiff has claimed the GST component as an input credit or by way of refund or could do so: Gagner Pty Ltd v Cantouri Corporation Pty Ltd (2009) 262 ALR 691 (NSWCA) [149]–[154]; Fulton Hogan Construction Pty Ltd v Grenadier Manufacturing Pty Ltd (in liq) [2012] VSC 358 [468]; Millington v Waste Wise Environmental Pty Ltd (2015) 295 FLR 301; Penson v Titan National Pty Ltd (No 4) [2015] NSWCA 350 [25].
[266]Exhibit P94.
350 Fourth, KIA claims its costs of going to VCAT. KIA has failed to establish that Bensons was obliged, either pursuant to the DMA or by reason of estoppel, to appeal to VCAT or to fund the costs of an appeal. KIA was always entitled to go to VCAT at its own cost to obtain the permit. Bensons’ breach was that on 18 May 2016 it prevented KIA from doing so, and as a result, prevented KIA from complying with the Sunset Date and earning its fee. KIA cannot claim, therefore, that in going to VCAT to obtain the permit, as it was entitled to do under the DMA, that it has suffered loss for which Bensons is responsible.
351 Fifth, in respect of the period after Bensons gave notice that the DMA was at an end due to the failure of KIA to satisfy the planning permit condition, KIA seeks to recover, as costs in mitigation, both its internal and external costs incurred in respect of finding and entering into a sale contract with a new purchaser.
352 KIA pleads that between January 2017 and June 2017 it sought to mitigate its loss by continuing to work on the development, to work with the Mandile parties to sell or develop the land with the permit, and to market the land with the permit for sale. As a result, by way of contract dated 13 June 2017, the land was resold to V-Leader for $11,200,000. Of this sum, KIA received $2.232 million.
353 Mr Gale gave general evidence about what KIA did in 2017 to achieve the resale of the land under the V-Leader contract on 13 June 2017.[267]
[267]Transcript of Proceedings (12 February 2019) 179.26 – 180.9.
354 KIA further claims that it is entitled to internal and external costs between the date of the V-Leader contract (13 June 2017) and the date of settlement (1 February 2018). In this regard, KIA alleges that it received the $2.232 million pursuant to an oral agreement with the Mandile parties made in early June 2017 between Messrs Gatsby and Gale for KIA and Mr Indovino for the Mandile parties (‘Split Agreement’). On 13 June 2017, Mr Indovino confirmed in writing the agreement between the Mandile parties and KIA concerning the sale of the Land as follows:
I confirm that it has been agreed to sell the property (103 Beach Street, Port Melbourne) to V-Leader for $11,200,000 and that the sale proceeds are to be distributed as follows in full settlement of the parties claims:
Mandile/Bluewater Sands $ 8,800,000
Key $ 2,232,000
Estate Agents fees $ 168,000
$11,200,000
355 KIA’s pleaded allegations about the Split Agreement were as follows:
31. KIA further sought to mitigate its loss by:
(a)in around early June 2017, agreeing with the Land Owner to sell the Land with the Permit (Split Agreement), on the following terms:
(i)the parties would accept the offer from V-Leader of $11,200,000 even though it was lower than the target of $13,500,000;
(ii)the sum of $168,000 representing the estate agent’s commission would be deducted from the sale proceeds;
(iii)the Land Owner would receive the sum of $8,800,000;
(iv)KIA would receive the sum of $2,232,000;
(v)the sums paid by KIA ($3,714.03) and the Land Owner ($13,167.92) in respect of Cushman & Wakefield’s marketing costs would lie where they fell; and
(vi)KIA would bear all other costs of marketing and selling the Land with the Permit, the costs of continuing to work on the Development and the costs of providing a detailed handover of the Development and assistance as required to V-Leader leading up to settlement.
Particulars
The Split Agreement was oral. The terms of the Split Agreement were discussed between Bruno Gatsby and Barry Gale on behalf of KIA and Tom Indovino on behalf of the Land Owner between February 2017 and early June 2017. The Split Agreement was agreed in conversations in early June 2017 between Bruno Gatsby, Barry Gale and Tom Indovino, the substance of which was to the effect alleged. The Split Agreement is partly evidenced in writing in an email from Tom Indovino to Bruno Gatsby and others dated 13 June 2017, a copy of which is in the possession of the plaintiff’s solicitor and may be inspected by appointment.[268]
[268]Plaintiff’s Fourth Further Amended Statement of Claim, 15 February 2019 [31] (emphasis added).
356 KIA, however, led no evidence about its alleged obligation to bear ‘the costs of providing a detailed handover of the development and assistance as required to V-Leader leading up to settlement’. The V-Leader contract included no such requirement.
357 Bensons, in submissions, accepted in principle that if Bensons was in breach of the DMA, KIA was entitled to recover as damages expenses it can prove that it incurred between 1 January 2017 and 13 June 2017 in relation to the resale of the land.[269] Bensons submits, however, that once the V-Leader contract was executed on 13 June 2017, it was not necessary for KIA to do any further work of any nature to mitigate KIA’s losses. Put shortly, Bensons submits that any expenses incurred by KIA after 13 June 2017 were incurred unreasonably and should not be recovered.[270] Further, Bensons submits the court should find there was no Split Agreement, only the agreement recorded in Mr Indovino’s email dated 13 June 2017.
[269]Defendant’s Closing Submissions, 5 March 2019 [161].
[270]See, eg, Tuncel v Renown Plate Co Pty Ltd [1976] VR 501, 503–4; Powercor Australia Ltd v Thomas (2012) VR 220 [52]–[53].
358 KIA did not explain (other than by reference to the alleged Split Agreement) why it incurred significant costs in assisting V-Leader up to settlement when it was apparently not obliged to. The evidence given in respect of the alleged Split Agreement was less than satisfactory. Accordingly, I consider that KIA has failed to establish that any of the costs it incurred after 13 June 2017 were reasonably incurred in mitigation.
359 I consider, however, that KIA is entitled to recover expenses it incurred between 1 January 2017 and 13 June 2017 in relation to the re-sale of the land, those costs being reasonably incurred in mitigation following Bensons’ breach. As it did in respect of costs in the period 18 May 2016 to 5 July 2016, Bensons contends that KIA is not entitled, in the period 1 January 2017 to 13 June 2017, to employee costs and to GST on the amount it paid its director contractors. I accept that position.
360 Accordingly, KIA is entitled to recover the non-GST component of its director contractors’ costs – that sum being $214,437.50.[271]
[271]Calculated as follows from Exhibit P95: Mr Gatsby — 554.5 hours at $250/hour = $138,625; Mr Gale — 249.25 hours at $250/hour = $62,312.50; Mr Hutchinson-Brooks — 54 hours at $250/hour = $13,500.
361 I consider that KIA is also entitled to its external marketing costs in the sum of $14,068, being the claimed amount of $20,386.36, subject to some adjustments.[272]
[272]GST in the sum of $1,853 is not recoverable — see footnote 265 above. Invoices totalling $4,465 which are dated 2016 and post-13 June 2017 have been excluded.
Conclusion
362 I have therefore found as follows.
363 Bensons has not established its counterclaim for repayment of instalments by KIA.
364 KIA has not established its claim in respect of its VCAT costs, whether by reason of breach of contract or estoppel.
365 KIA has established its loss and damage as follows:
(a) $1,760,000, being damages equal to the sum of the third and fourth instalment;
(b) $43,000, being the non-GST component of the director contractors’ costs in the period 18 May 2016 to 5 July 2016;
(c) $214,437.50, being the non-GST component of the director contractors’ costs in the period 1 January 2017 to 13 June 2017; and
(d) $14,068, being the external marketing costs of the re-sale of the land
totalling $2,031,505.50.
366 KIA, however, has received the sum of $2.232 million in mitigation as a result of the V-Leader contract.
367 A plaintiff who has proved a breach of contract by the defendant but has failed to establish loss is entitled to nominal damages only, which are vindicatory, not compensatory.[273]
[273]New South Wales v Stevens (2013) 82 NSWLR 106. See also Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd (1938) CLR 286; Baume v Commonwealth (1906) 4 CLR 97; Chappel v Hart (1998) 195 CLR 232; NCON Australia Ltd v Spotlight Pty Ltd (No 5) [2012] VSC 604 [354]; Motium Pty Ltd v Arrow Electronics Australia Pty Ltd (2009) 68 SR (WA) 277.
368 Accordingly, KIA has established an entitlement only to nominal damages. I order that on the claim there be judgment for KIA, with nominal damages, which I fix at $100. Bensons’ counterclaim is dismissed.
369 I will hear the parties as to costs.
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