Loustas v Sier

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMON LAW DIVISION

PROFESSIONAL LIABILITY LIST

S CI 2011 04822

ARTHUR LOUSTAS	Plaintiff
v
PETER JOHN SIER & ORS (According to the attached schedule)	Defendants

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JUDGE:	MACAULAY J
WHERE HELD:	Melbourne
DATE OF HEARING:	13-17, 21 & 27 November 2017
DATE OF JUDGMENT:	31 January 2018
CASE MAY BE CITED AS:	Loustas v Sier & ors
MEDIUM NEUTRAL CITATION:	[2018] VSC 13

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CONTRACT – Construction – Written agreement – Language susceptible of more than one meaning – Second and third mortgagee purchased land at public auction from first mortgagee in possession – Purchasers entered agreement with previous proprietor to continue development of the land – Profit share arrangement – Whether previous proprietor was a joint venturer or merely a development manager – Whether second mortgagee breached agreement by accepting repayment of mortgage loan from receiver after auction – Electricity Generation Corporation (t/a Verve Energy) v Woodside Energy Ltd (2014) 251 CLR 640 applied.

CONTRACT – Termination – Inability to obtain construction finance to complete development – Whether a contractual obligation is incapable of being performed – Shevill v Builders Licencing Board (1982) 149 CLR 620 applied – Frustration – Common assumption that construction finance could be obtained – Codelfa Constructions Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 applied – Breach – Purchasers entered a second agreement with a new syndicate of investors to complete development – Whether first agreement was breached.

EQUITY - Fiduciary duties – Solicitor-client relationship – Second mortgagee had acted for previous proprietor for many years as solicitor – Whether the retainer was terminated prior to auction when solicitor purchased client’s land – Whether the solicitor should have advised his client to receive independent legal advice – Whether the solicitor had a conflict of interest in drafting the agreement entered into with the client – Whether any loss or damage was suffered – Whether the solicitor entering into the second agreement involved a breach of fiduciary duties owed to his former client.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr G Parncutt	Kiatos & Co
For the First Defendant	In person
For the Second Defendant	Ms K Anderson	Obst Legal

TABLE OF CONTENTS

Introduction and summary............................................................................................................... 1

Background......................................................................................................................................... 5

Witnesses and credit................................................................................................................... 21

Did Peter Sier or Vincent Sier breach the alleged oral agreement?........................................ 22

Did Peter Sier or Vincent Sier breach the AMS agreement?.................................................... 28

Relevant legal principles........................................................................................................... 29
The AMS agreement................................................................................................................... 30
1^st pleaded breach: Peter Sier’s appropriation of sale proceeds.......................................... 33
Loustas’ alleged equity in the project...................................................................................... 39
Was the AMS agreement discharged?..................................................................................... 42
2^nd alleged breach: entering into the 405 High Street agreement......................................... 47
Summary...................................................................................................................................... 49

Did Peter Sier or Vincent Sier breach any fiduciary duty owed to Arthur Loustas?.......... 49

Did Vincent Sier contravene the Fair Trading Act by making false representations?........ 56

Did Vincent Sier breach his retainer as solicitor for Arthur Loustas?.................................... 58

Did the project make a profit?....................................................................................................... 58

Is Arthur Loustas liable as guarantor of JAD’s mortgages?...................................................... 63

Conclusion......................................................................................................................................... 64

HIS HONOUR:

Introduction and summary

In December 2008 Peter Sier and his cousin Vincent Sier (the defendants) purchased land at 405 High Street, Northcote (the land) at public auction from the receivers of J.A.D. Systems Pty Ltd (JAD), a company owned and controlled by Arthur Loustas (the plaintiff). Both Siers had previously lent money to JAD secured by mortgages that ranked next after a registered first mortgage held by the Bank of Western Australia Ltd (BankWest). The receivers had been appointed by BankWest after JAD defaulted on loans made by the bank. Liquidators were appointed over JAD in early 2009: neither the liquidator nor JAD are parties to the proceeding.

The question arising in this action is whether the Siers are bound to share with Loustas the profits (if any) derived from a commercial development which they undertook on the land after they purchased it. Loustas claims that in the events that happened, he (personally) retained an equitable interest in the land which has not been recognised in the distributions made from the sale of units developed on the land.

Loustas puts his claims against the Siers in several ways. One way is to allege that they breached agreements made with him (one oral, one in writing) whereby they were, in effect, to reinvest their secured debts as capital into the ongoing development of the land. They were to do that, so Loustas claims, by postponing the repayment of their secured debts (without interest) until the development was completed and the sale proceeds realised. In addition, according to Loustas, the Siers (as registered proprietors of the land) were to hold a 38% interest in the land on trust for him and to pay him that same percentage of the profits made on the development.

Instead, in alleged breach of the agreements, Peter Sier recovered most of his secured debt ($604,235.67) from the distribution of purchase monies paid on settlement of the December 2008 sale. Later, in July 2012, the two Siers entered a joint venture agreement to develop the land (the 405 High Street agreement) with 405 High Street Pty Ltd, a company representing a new syndicate of investors, thereby excluding Loustas from sharing in the profits.[1]
[1]405 High Street Pty Ltd was joined as the third defendant to the proceeding but that part of the proceeding was settled before trial.

Arising from essentially the same conduct as already described, the second way Loustas puts his claim is to rely upon alleged breaches of fiduciary duties he claims that both Siers owed to him as his joint venturers. Further, because Vincent Sier was a solicitor who at various times acted for JAD and Loustas, Loustas alleges that Vincent Sier’s conduct breached fiduciary duties owed to him as his solicitor.

Against Vincent Sier alone, a third way of putting the claim is to allege breach of the terms of retainer as solicitor—that is, by failing to protect Loustas’ interests as his client and thereby failing to exercise due care and diligence. The final way the claim is put, again only against Vincent Sier, is to allege conduct contrary to s 9 of the Fair Trading Act.[2] That is, Loustas alleges that Vincent Sier falsely represented to him that he would hold a percentage interest in the land on his behalf and would postpone repayment of the secured loans until completion of the development on the land, in reliance upon which Loustas suffered loss and damage.
[2]Fair Trading Act1999 (Vic), (‘the FTA’).

The Siers deny the oral agreement alleged by Loustas and deny that the written agreement has the effect and meaning he attributes to it. Both Siers deny the existence or breach of any fiduciary duties owed to Loustas, and Vincent Sier denies both the claims based upon his retainer as Loustas’ solicitor and those brought under s 9 of the FTA. Further, and in any event, the Siers say there was no profit made from the development on the land so that, regardless of any breach Loustas may establish, there is nothing in which he could share.

Finally, each of the Siers brings a counterclaim against Loustas for the balance of monies owing under the mortgages given to them by JAD, the repayment of which was personally guaranteed by Loustas.

Arising from the pleadings and the way in which the case was put at trial, the questions for determination are as follows:

(a) Did Peter Sier or Vincent Sier breach the oral agreement Loustas alleges (the alleged oral agreement) by:

(i) appropriating $604,235.67 of sale proceeds in April 2009 toward repayment of the mortgage loan from Peter Sier to JAD; or

(ii) entering the 405 High Street agreement in July 2012;[3] and
[3]Sixth Amended Statement of Claim (6ASOC), [15](a).

(iii) if so, what loss or damage did Loustas suffer as a result?[4]
[4]Ibid, [16].

(b) Did Peter Sier or Vincent Sier breach the written agreement (the AMS agreement) by:

(i) appropriating $604,235.67 of sale proceeds in April 2009 toward repayment of the mortgage loan from Peter Sier to JAD; or

(ii) entering the 405 High Street agreement in July 2012;[5] and
[5]Ibid, [15](b).

(iii) if so, what loss or damage did Loustas suffer as a result?[6]
[6]Ibid, [16].

(c) Did Peter Sier or Vincent Sier breach any fiduciary duty owed to Loustas by:

(i) entering the 405 High Street agreement in July 2012;[7] or
[7]Ibid, [21].

(ii) Vincent Sier, as Loustas’ solicitor, having prepared the AMS agreement; and

(iii) if so, what loss or damage did Loustas suffer as a result?

(d) Did Vincent Sier make false representations to Loustas contrary to s 9 of the FTA, and if so, what loss or damage did Loustas suffer as a result?[8]
[8]Ibid, [32].

(e) Did Vincent Sier breach his retainer as solicitor for Loustas by:

(i) entering the 405 High Street agreement in July 2012 and thereby failing to exercise reasonable care and diligence to protect the interests of Loustas;[9] and
[9]Ibid, [40].

(ii) if so, what loss or damage did Loustas suffer as a result?[10]
[10]Ibid, [41].

(f) As guarantor of JAD’s mortgages to each of the Siers, is Loustas liable to pay any and if so what sum to:

(i) Peter Sier;[11] or

(ii) Vincent Sier?[12]

[11]1^st Defendant’s Counterclaim.

[12]2^nd Defendant’s Counterclaim.

In my view each of the questions should be answered as follows:

(a) The alleged oral agreement was not established;

(b) The Siers breached the AMS agreement by entering the 405 High Street agreement without Loustas’ consent. That breach caused no loss and Loustas is entitled to nominal damages only;

(c) The Siers did not owe Loustas any fiduciary duties arising from their business arrangement for the development of the land. Vincent Sier breached a fiduciary duty owed to Loustas as his client in connection with the preparation of the AMS agreement, but Loustas did not suffer any loss caused by that breach (nor did Vincent Sier make any gain);

(d) Loustas suffered no loss as a consequence of any false representations made by Vincent Sier;

(e) Vincent Sier was not retained as Loustas’ solicitor at the time of entering the 405 High Street agreement and in doing so did not breach any duty owed as Loustas’ solicitor; and

(f) Loustas is liable under his guarantee of JAD’s loans from Peter Sier and Vincent Sier in the sums of $217,652 and $101,734 respectively.

Background

Together with George Georantzakos, in September 1997 Loustas registered the company, JAD. In July 1998 Loustas and Georantzakos purchased the land for $1.4 million. The land remained in their names until it was transferred to JAD on 1 July 2005. Loustas, and later JAD, operated a reception centre business on the land from 1998 through to about 2007.

Over the course of time, Loustas and JAD applied for and obtained various planning permits in respect of the land. In August 2002 a planning permit was approved by the Victorian Civil and Administrative Tribunal (VCAT) for the construction of four shops, 48 dwellings and a carpark.[13] The City of Darebin issued a planning permit on 16 August 2006 (D/924/2005) permitting alterations and additions to the existing building and a reduction of car parking associated with the use of the land for shops, offices, a restaurant and four dwellings.[14] The City of Darebin issued a further planning permit on 10 October 2006 (D/4/2006). I infer it allowed for a multi-level development featuring a restaurant, offices, a child care centre and some residential units.[15]
[13]Exhibit A, 128-150.
[14]Ibid, 241-248.
[15]Ibid, 249-304. The difficulty with interpreting the planning permit tendered in evidence is that, although bearing the ‘date issued’ as 10 October 2006, it is a composite document incorporating all amendments through until December 2015 (see paragraph 1 on ‘Page – 1 of 55’). The original, base development is not described.

On 17 August 2006 Landmark White valued the land ‘as is’, with the benefit of planning permit D/924/2005 for the development of a childcare centre, offices and shops, at $3.35 million. It estimated a gross realisation ‘as if complete’ on an individual sale basis (exclusive of GST) of $7.325 million.[16]
[16]Ibid, 467-514.

On 12 August 2007 Landmark White further valued the land. This time, the valuation was based on planning permit D/4/2006. It assumed the construction of a mixed use five-floor development with retail shops, a reception centre, an upper level commercial office for a construction cost of just over $2 million. Landmark White valued the property ‘as is’, with the benefit of the permit, at $3.767 million. On a ‘as if complete’ basis, the value was put at $8.165 million.[17]
[17]Ibid, 612-662.

Adams Maguire Sier (AMS), the firm of solicitors of which Vincent Sier was a partner, acted for both JAD and Loustas (personally) from at least 2004. A list of the files for which the firm acted for Loustas and JAD appears as a schedule to the witness statement of Vincent Sier tendered in evidence.[18] According to that schedule AMS acted for Arthur Loustas in seven matters between 2001 and 2008 and for JAD in 28 matters between 2004 and 2009.
[18]Exhibit H.

Vincent Sier was principally involved in assisting Loustas and JAD with obtaining finance to assist JAD carry out the property development on the land. It was not only Vincent Sier who acted for Loustas or JAD. John Adams of AMS also acted from time to time for them. For example, Mr Adams acted in relation to the lease for part of the land for a proposed childcare centre[19] and also assisted with recommendations of other developers or equity partners for Loustas and JAD.
[19]Exhibit A, 549.

Vincent Sier assisted with the following finance for JAD, at the request of Loustas:

(a) a mortgage loan for Dorothy Ibbetson (Vincent Sier’s mother-in-law) of $80,000 for 12 months commencing 1 August 2005;[20]
[20]Ibid, 311.

(b) further advances by Ms Ibbetson together with Baringo Pty Ltd (Baringo), of which Mr Adams was a director, so that by August 2006 the total amount advanced was $230,000;[21]
[21]Ibid, 518.

(c) a loan of $600,000 from Peter Sier on 1 December 2007, due for repayment 31 December 2008 (used in part to pay out the Ibbetson and Baringo loans), secured by an unregistered second mortgage and by a personal guarantee from Loustas;[22]

(d) a variation to the Peter Sier loan advancing a further $50,000 by agreement dated 29 February 2008,[23] secured by variation of the mortgage;[24] and

(e) a loan of $70,000 from Vincent Sier himself, secured by unregistered third mortgage dated 1 April 2008[25] and by a personal guarantee from Loustas, and then further funds bringing the total to $86,630 by 1 May 2008, secured by a mortgage dated 1 June 2008.[26]

[22]Ibid, 677.

[23]Ibid, 753.

[24]Ibid, 747.

[25]Ibid, 765.

[26]Ibid, 763.

The principal commercial lender to JAD at the time of the auction of the land in December 2008 was BankWest. BankWest’s first mortgage was registered on the land on 31 March 2006. It had been made to refinance a prior loan. The earlier loan had been applied to the initial purchase of the property and the costs of consultants to prepare building plans and obtain the various planning permits.

In addition to the primary BankWest loan, Loustas had been seeking project finance for the purpose of commencing and undertaking the development which was envisaged in the planning permit he had obtained, that is, for a childcare centre, retail shops and apartments. Loustas believed that he had secured construction finance from BankWest for $3.188 million in about February 2007 although he never drew down upon it. BankWest ultimately ‘cancelled’ the construction loan facility in 2008, probably after JAD fell into arrears on its primary loan.

Meanwhile, JAD had entered a building contract with Andeco Construction Group Pty Ltd (Andeco) which began demolition works on the site in preparation for the construction of the proposed development. By October 2006, BankWest’s loan facility to JAD had a credit limit of $2.414 million and it was fully drawn. JAD defaulted in its interest repayments on the facility on 30 April 2008 ($23,344), 30 May 2008 ($21,186), 30 June 2008 ($22,096) and 31 July 2008 ($21,621). Through its solicitors, Middletons, on 19 August 2008 BankWest issued JAD a notice of demand calling up the loan. At that time the loan arrears were $2,708,660.84.[27]
[27]Ibid, 810-813.

So, throughout 2008, despite Loustas and JAD borrowing more and more money, JAD was in default on its commercial facility with BankWest, had commenced demolition works on the land and owed money to its builder, and had ‘lost’ the construction finance it had arranged with BankWest. Accordingly, Loustas and JAD were in some trouble and were urgently seeking further finance or a development partner.

It was in that context that the conversations with Vincent Sier took place on which Loustas bases his allegations about a ‘first joint venture agreement’ made orally between himself, Vincent Sier and Peter Sier (that is, the alleged oral agreement). Depending upon the source of the account, those conversations occurred either in February or March 2008 (according to Loustas’ affidavit made 20 June 2014)[28] or, according to the evidence Loustas gave in examination in chief, in about September 2008 (conforming to his pleaded case). In substance, Loustas alleges that Vincent Sier agreed (for himself and Peter) that they would buy the land for themselves and for Loustas personally in recognition of the ‘equity’ Loustas had in the land by virtue of the value of the planning permit which he had obtained on behalf of JAD. Vincent Sier denies that arrangement. I will return to the details of those allegations when I address the first issue.
[28]Exhibit C.

Following the service of BankWest’s notice of demand, on 3 October 2008 BankWest appointed Ross Blakeley and Quentin Olde as receivers and managers of the land pursuant to the debenture charge it held over JAD.[29] The receivers set about preparing for the auction of the land, advertised for 4 December 2008.[30] On behalf of Loustas and JAD, Vincent Sier negotiated with BankWest in an attempt to persuade the bank that JAD had prospects of obtaining finance through a possible joint venture arrangement with another party, Ken Allan.[31]
[29]Exhibit A, 820-823.
[30]Ibid, 854.
[31]Ibid, 2714-2717. See emails dated 21 – 23 October 2008.

Between September 2008 and the auction of the land on 4 December 2008 Loustas approached various persons, banks and institutions for finance or equity investment in the project on the land. Vincent Sier and Mr Adams assisted him in some of these approaches, but others he made himself. Loustas claims that Vincent Sier told him that his uncle Adrian Sier (Peter’s father) was prepared to ‘tip in’ $1 million, and that Peter’s father in fact confirmed that he would so when he later visited the site from the country. Both Peter and Vincent Sier vehemently deny any such offer or visit.

In early November 2008, on Loustas’ behalf, Vincent Sier obtained advice from a barrister, Stephen Marantelli, about whether the planning permit was ‘owned’ by Loustas. If so, Loustas thought he may be able to disrupt the proposed sale by refusing to ‘allow’ the permit to be used in relation to the land and thus undermine its value.[32] Mr Marantelli’s advice was that the permit ran with the land. In response to a further question, Mr Marantelli also advised that Loustas had no caveatable interest in the land by reason only of having obtained the permit, spent money on the land or lent money to JAD.
[32]Ibid, 831-832.

Notwithstanding that advice Loustas lodged a caveat over the land on 14 November 2008 claiming an interest as chargee dating from 16 December 2005. He claimed that his interest arose from a written agreement bearing that date whereby JAD agreed to pay him a ‘success fee’ of $450,000 for obtaining a town planning permit, payment of which was to be secured by a charge over the land.[33] Vincent Sier was asked by Loustas to lodge the caveat but refused, being suspicious of the authenticity of the agreement which had not materialised until after Loustas had received the Marantelli advice.
[33]Ibid, 388-389.

When Vincent Sier saw that Loustas had finally exhausted all avenues to obtain further financing or a joint venture partner to avoid the auction of the land, he says that he and Peter Sier decided to bid for the land themselves, up to a certain price, in order to recover at least Peter Sier’s loan to JAD. (Loustas claims that this decision was made considerably earlier as foreshadowed above.) Having regard to the then outstanding debt to BankWest, Vincent Sier calculated that unless the land was sold for $3.9 million or more there would be insufficient funds to pay out Peter who, as second mortgagee, was entitled to any surplus left over after BankWest had been repaid. So the Siers agreed they would bid at the auction up to $3.9 million.

At the auction on 4 December 2008 Vincent and Peter Sier were the successful bidders for the land at the figure of $3,925,000 (plus GST).[34] On its face, it is curious that they bid to that level. The penultimate bid (by another bidder) was $3,900,000, the very sum which Vincent and Peter had agreed they would need the property to sell for in order to recover at least Peter’s loan. Vincent Sier said in evidence that they made a mistake ‘in the heat of the moment’ and bid an extra $25,000 with the hope that they might push the sale price even further and thus recover more. But, as things transpired, there were no further bidders and they were left with the land. Loustas challenges that evidence, saying it was always their intention to purchase the land in accordance with the alleged oral agreement. Settlement of the sale was to take place on 4 March 2009.
[34]Ibid, 855-998.

Immediately following the auction, Vincent Sier, Peter Sier and Loustas met together at Vincent Sier’s office. There was substantial agreement between them in their evidence as to what took place at that meeting. In essence, the three men agreed upon an arrangement that later became embodied in the AMS agreement on 27 January 2009. They agreed that Loustas would be paid $10,000 a month to manage the construction project (for up to 10 months) and that, upon completion, the three were to share the profit in the following proportions: 47% to Peter Sier, 38% to Loustas and 15% to Vincent Sier.

But Loustas claims that these percentage arrangements had been worked out well in advance of 4 December 2008 as the ‘equity share’ each was to have in the land and the project to develop it. That arrangement, he claims, was made in the discussions leading up to the alleged oral agreement and was merely confirmed on 4 December. Peter and Vincent Sier say 4 December 2008 was the first time any profit sharing arrangement was discussed, and no agreement was made that involved Loustas obtaining an equity interest in the land itself or entering into any partnership or joint venture with them to develop the land.

On 27 January 2009 Vincent Sier, Peter Sier and Loustas met together at Vincent Sier’s office and signed the AMS agreement. Their meeting and the preparation of the written agreement was preceded by a phone call from Loustas to Vincent Sier on Friday 23 January 2009. Loustas informed Vincent Sier that he had a problem with the bank and needed to be able to show he had an income to meet his home loan repayments. Loustas asked Vincent Sier to prepare an agreement that demonstrated his entitlement to the monthly payments which they had orally agreed upon on 4 December 2008.[35]
[35]Ibid, 1008.

On 27 February 2009, Egan National Valuers prepared a written valuation of the land.[36] The valuation did not appear to refer to any planning permit although it was noted that the ‘present and proposed use of the land being a mixed use development conforms to the provisions of the Planning Scheme’. Because the Siers were borrowing part of the purchase price for the land from Westpac Banking Corporation (Westpac) the valuation was obtained for that bank for first mortgage security purposes. At that time the valuers described the existing site as follows:

Currently erected on the site is a redundant, partially demolished mixed use development building, which was previously used as a reception centre, as office space, and as retail accommodation. At the date of inspection, it was basically a ‘shell’ with a significant amount of demolition having taken place internally.
Upon completion, the property will comprise a three level mixed use building comprising of three retail shops, a restaurant and café, office area, a childcare centre reception to the ground floor, a childcare centre to the first floor, and a four bedroom four bathroom penthouse apartment to the second floor. Basement level car parking will be provided, with access via the rear laneway.[37]

Their valuation on an ‘as is’ basis was $3,860,000.

[36]Ibid, 550-603.

[37]Ibid, 564.

Before the purchase was settled various legal issues arose concerning the distribution to be made of the surplus proceeds of sale after BankWest was paid out its first mortgage. It seems that there were claims to the surplus funds in competition with Peter Sier and Vincent Sier, including by the builder Andeco. At that time Andeco claimed that JAD owed it approximately $166,738 and a related company, Julinad Pty Ltd (Julinad), claimed to be owed $200,000. Both had lodged caveats on the title. Vincent Sier obtained an opinion from barrister Peter Little dated 4 February 2009.[38] Mr Little concluded that Peter Sier and Vincent Sier, as second and third mortgagees respectively, had clear proprietary interests in the land and ought to be paid the surplus monies ahead of anyone else in accordance with sub-s 77(3)(c) of the Transfer of Land Act.[39]
[38]Ibid, 2722-2733.
[39]Transfer of Land Act 1958 (Vic) (‘the TLA’).

Liquidators were appointed to JAD on 4 March 2009. Although the contract of sale was scheduled to be settled on 4 March 2009, settlement was delayed and was ultimately concluded on 30 April 2009.

In the meantime, the receivers of JAD (and, subsequently, the liquidators) continued to negotiate with the Siers and others about the distribution of the surplus funds. Vincent Sier obtained a further opinion from Mr Little dated 3 March 2009.[40] Mr Little set out in his written opinion the state of negotiations between the Siers and the receivers which continued to concern the claims made against JAD by Julinad and Andeco. Loustas attended the conference at which instructions were given to Mr Little. Vincent Sier says he invited Loustas to attend so that he could give an account (on the Siers’ behalf) about the history of loans to JAD. Loustas claims that his presence at the conference was to receive legal advice that also concerned him. At paragraph 25 of Mr Little’s memorandum of advice dated 3 March 2009 he wrote:

Mr Arthur Loustas should be encouraged to obtain independent legal advice, especially by the time the liquidator is appointed. There are obvious difficulties at this stage representing Mr Arthur Loustas and being significantly involved in the financing and purchasing of the property.[41]

[40]Ibid, 2734-2741.

[41]Ibid, 2741.

Loustas relies upon this, plus his evidence of what Mr Little said at the conference, as confirmation that Vincent Sier was continuing to act as his solicitor at that stage. Vincent Sier denies he was still acting for Loustas, claiming he had told Loustas at or before the 4 December 2008 auction that he could no longer act for him given that he was then intending to buy the land to recover his and Peter’s loans. Vincent Sier claims that he informed Mr Little at the conference that he no longer acted for Loustas and that Mr Little was being cautious and merely stated what was already accepted. Vincent Sier says that at that time Loustas had another solicitor available to him who was in fact providing legal services to him.

Ultimately, the liquidators’ resolved their concerns about the priority of potential claims on the surplus sale proceeds by agreeing to accept $50,000 from the Siers upon allowing the balance of surplus money to be distributed to Peter Sier under the second mortgage.

On 30 April 2009 the proceeds of settlement were distributed as follows:[42]
[42]Exhibits T, W, X and Y.

To BankWest $3,271,422.78

To BankWest (but endorsed to Peter Sier) $604,235.67

To City of Darebin (rates) $114,036.75

To Yarra Valley Water (rates) $8,405.33

To State Revenue Office $8,602.57

Total $4,600,703.10

That final sum was arrived at as follows:

Purchase price $3,925,000

Add adjustments and penalty interest $74,275.55

GST $399,927.56

Total $4,399,203.11

Less deposit $392,500

Due at settlement $4,600,703.10

Importantly, it can be seen that the sum of $604,235.67 was paid to Peter Sier. This represented most but not all of the outstanding balance due on the second mortgage. Vincent Sier received no payments in respect of the third mortgage. Although Peter Sier received $604,235 from distribution of the sale proceeds, an analysis of the source of funds paid at settlement shows that $624,967.43 came directly from the AMS trust account for Peter Sier.[43] In other words, Peter Sier received $604,235 from the proceeds of sale but spent (at least) $624,967.43 to get it.
[43]Exhibit U.

Other than the $50,000 settlement sum paid by the Siers to the liquidators of JAD, no other money was available for distribution to JAD’s remaining creditors. The liquidators wrote a report to JAD’s creditors dated 15 September 2009.[44] In it they set out the distributions that were made upon the sale of JAD’s only real asset, the land, and the various unsecured creditors’ claims. There were 11 unsecured creditors claiming amounts totalling $1,187,406. One was the Australian Tax Office for $219,309. Andeco and a related entity (which I infer to be Julinad) claimed $366,738. Loustas himself claimed to be a creditor in the amount of $450,000, the same sum that he claimed to be his ‘success fee’ under the December 2005 agreement in respect of which he lodged the caveat in November 2008. The liquidator reported on the settlement he reached with Peter Sier for accepting the sum of $50,000 as compromise for the liquidator’s liabilities to other creditors.[45] In conclusion, the liquidator wrote that unless undisclosed assets or avoidable transactions were discovered it was unlikely any further recoveries would be made for the benefit of JAD’s creditors.[46]
[44]Exhibit A, 1199-1204.
[45]Ibid, 1203.
[46]Ibid, 1204.

This observation has significance because of an argument (discussed below) Loustas raises in connection with his so-called ‘capital’ interest in the land and/or joint venture, and the way in which he calculates his losses flowing from the various breaches he pleads.

As contemplated by the AMS agreement made 27 January 2009, Vincent and Peter Sier paid Loustas $10,000 a month for his role as development manager. In fact, instead of only being paid that sum for 10 months as the agreement contemplated, the Siers continued paying him that sum throughout the whole of 2009, 2010 and until June 2011.

By April 2011, not only had the project not been completed, it had not been started. No project finance had been obtained. Leading up to that time, the Siers and Loustas attempted to obtain finance to develop the property in accordance with plans prepared by Petridis Architects. They were the plans upon which the planning permit which Loustas had obtained in 2006 was based. As time passed, and no progress was being made on the development, Vincent Sier became more involved. In October 2010 the Siers engaged builder Adam Wood of Adam Wood Group Pty Ltd and in March 2011 they engaged Rob Cleary of Cleary Consulting, a finance broker, to assist in obtaining finance. Further, in April 2011 Vincent Sier sought the advice of Gary Squire, another builder, to assist in overseeing the project. By that time Vincent Sier felt that Loustas was out of his depth and unable to get the project underway.

All the major banks had rejected the Siers’ applications for finance to develop the project. It appeared that potential financiers thought the development was undercapitalised and did not like the proposed childcare centre with residential apartments above it. Vincent Sier received advice from Mr Wood that the feedback received was that the project could not proceed as drawn. Mr Wood recommended a new architect to improve the development and make it more attractive to lenders. Further advice received was that the project would need to go back to town planning.

A critical meeting took place on 14 April 2011. The meeting was attended by the new architect, Coral De Bono of Coeve Design. Also attending the meeting were Loustas, Vincent Sier, Mr Squire, Mr Cleary, Mr Wood and Mr Wood’s business partner, Michelangelo Cafasso. Vincent Sier made a detailed handwritten note of the meeting.[47] He made a further handwritten note of a conversation he had with Loustas on the way home after the meeting.[48]
[47]Ibid, 1530-1535.
[48]Ibid, 1536-1537.

In his evidence in chief (by witness statement), Vincent Sier described the meeting on 14 April and its aftermath as follows:

70.… Ms De Bono had been provided with the plans for the development prior to the meeting. Adam and Rob discussed the difficulties they had encountered attempting to finance the development. We discussed increasing the number of levels of the proposed development and getting rid of the childcare centre. I recall Ms De Bono said there were a lot of problems with the original plans but she would be able to come up with an alternative design to make the development more attractive to a lender. It was agreed she would deal with Gary Squire going forward. Loustas said very little during the meeting.
71.The result of the meeting was in effect that the original proposal to develop the property was abandoned and a completely new plan had to be adopted. Whilst driving home together from the meeting, Loustas said words to the effect “there is no role for me, is there?” and I replied that there wasn’t. It was clear that he was unable to complete the development as agreed. I told Loustas I would appoint Gary Squire to undertake the new development. Loustas said he couldn’t continue anyway because of his health. Loustas then said words to the effect that he had to look after his family and wanted money. I told him that we had already paid him over $200,000 for a development he had been unable to complete and would not pay him anymore. Loustas responded that he was getting “shafted”. I said words to the effect that I didn’t want that, and if the new project was ultimately successful I would see if there was something I could do for him, subject to Peter agreeing.
…
73.On 18 April 2011 I received an email from Ms De Bono which stated that she was “…still in shock that someone could redesign such a complicated building without having a detailed survey done as I am now convinced (as is the surveyor) that what is approved from a planning perspective, is unbuildable as the levels are all over the place” [CB1541].
74.In May 2011 revised plans were prepared for a new development which was pursued with the new architects, builders and a new project manager (it would still be years before construction got under way).[49]

[49]Exhibit H, [70], [71], [73] and [74].

In his evidence in chief Loustas did not mention the meeting. He only said:

In or about mid-April 2011 Vincent Sier appointed a project manager once my health began to deteriorate. He suggested that the project manager had proper building skills as a registered builder and better equipped than I was to be in charge of a building project. I said to him: ‘you want me out of this, don’t you?’. He said: ‘how much do you want?’. I said: ‘over $1.2 million.’ He said: ‘I haven’t got that sort of money at the moment. I’ll give you $600 or $700 grand later on.’ I said to him: ‘you can forget about it.’[50]

[50]Exhibit B, [55].

The Siers stopped paying Loustas in June 2011.

Certain key questions arise at this point. Did these events result in the termination of the AMS agreement? In part, the answer to that question turns upon what Vincent Sier and Loustas said to one another. But also of significance is whether the ‘project’ or the ‘development’ that was the subject matter of the AMS agreement was effectively abandoned, with a new and different project thereafter being undertaken. The Siers argue that, one way or another, the AMS agreement was terminated and Loustas’ entitlements thereunder came to an end.

On 7 July 2011 John Kotsifas, a solicitor with J Kotsifas & Associates, wrote to Vincent Sier. In that letter, written on behalf of Loustas, he alleged that Vincent Sier had entered into a ‘joint venture/partnership agreement’ with Loustas to purchase the land with the intention to ‘continue his vision of the development of his property’. The letter went on to say that he had been instructed that Vincent Sier had ‘excluded [Loustas] from his duties as required under the joint venture agreement’ and that the stage may have been reached where it was untenable for Loustas to continue to work for the benefit of the joint venture. An offer was made to resolve the matter by the Siers paying Loustas out, otherwise Loustas would pursue court action.[51]
[51]Exhibit A, 1599-1600.

On 27 July 2011 Loustas lodged a caveat over the property claiming an interest pursuant to an implied or constructive trust. The Siers responded with an application to the Registrar of Titles under s 89A of the TLA to remove the caveat, and on 12 September 2011 Loustas commenced this proceeding.

In September 2011 an amended planning permit was approved by the City of Darebin, based upon new designs prepared by Ms De Bono.[52] On 2 November 2011 Charter Keck Cramer valued the land for the National Australia Bank based upon planning approval by permit D/4/2006 as amended on 15 September 2011. Charter Keck Cramer described the project as redesigned as follows:

Planning approval has issued to redevelop the site to comprise a five level building, although retain the existing façade and part of the structure. The proposal provides for the ground level to comprise a restaurant and three retail units with frontage to High Street, two internal offices, together with 38 apartments offering two bedroom accommodation.

The valuation assessed the project gross realisation ‘as if complete’ (inclusive of GST) in the sum of $24,500,000. The then site value was valued at $2,680,000 on one basis or $3,600,000 on an alternative basis.

[52]Ibid, 1604. See planning permit D/4/2006/E.

In February 2012 the parties attended court for the application for the removal of Loustas’ caveat. The parties agreed the caveat would be removed on the basis that Peter and Vincent Sier undertook to the court not to encumber or deal with the land without the prior written consent of Loustas.[53]
[53]Ibid, 49-50. See Order of Kaye J made 20 February 2012.

On 1 July 2012 Peter and Vincent Sier entered the 405 High Street agreement with 405 High Street Pty Ltd in its capacity as trustee for The 405 High Street unit trust.[54] By the terms of that agreement the joint venturers agreed to undertake the ‘Project’ which was defined as

‘the acquisition and holding and development of the Property [ie the land] as commercial residential and retail premises or such other use as the Trustee determines in the licensing, leasing, sale and other disposal of the Property or any interest therein in accordance with this agreement’.[55]

[54]Ibid, 1984-1998.

[55]Ibid, 1988. See clause 2.1.

The 405 High Street investors were required to fund the joint venture in the sum of $2,575,000, to be used to pay out the Siers’ existing Westpac loan, for which the investors were entitled to receive the transfer of the titles to eight residential units within the development on its completion.[56] In addition, they were to receive 49.52% of net project revenue, as defined, with the Siers receiving the balance. As mentioned above, no allowance was made for any project profit for Loustas, he was not a party to the 405 High Street agreement and he was not to play any role in the development.
[56]Ibid. See clause 2.3.

Further key questions arise here. The terms of the AMS agreement expressly contemplated the possibility that the Siers may not obtain purchase finance and may need to involve another equity partner. In that case the agreement provided that ‘the parties to this Agreement and its terms may need to be varied to reflect the changed circumstance’.[57] Other than so providing, the agreement did not stipulate what variations might be made. So, if the AMS agreement remained in force, that provision may have been engaged: the question is, with what effect?
[57]Ibid, 2161. See clause 4.

Additionally, Loustas maintains (and the Siers deny) that he and the Siers had made a first joint venture agreement in late 2008 (that is, the alleged oral agreement discussed above). He also claims that the AMS agreement was the written embodiment of the alleged oral agreement.[58] Hence, he claims that the 405 High Street agreement was a second joint venture agreement which usurped the first joint venture agreement (and, by definition, the AMS agreement) made with him, and was a breach of them both.
[58]At trial, the Court questioned counsel for Loustas whether the ‘first joint venture agreement’ and the ‘AMS agreement’ were the same agreement or two distinct agreements. The answer was not clear.

As is evident, the terms of the 405 High Street agreement involved the disposition of an interest in the land. Vincent Sier claims he obtained the consent of Loustas to deal with the land, as he had undertaken to this Court to do when obtaining the order from Kaye J on 20 February 2012. That claim is challenged. Certainly, no evidence was produced of any written consent from Loustas (prior or subsequent). Indeed, Vincent Sier only claims to have received verbal consent from Loustas, which Loustas denies.

Ultimately the development on the land was completed and the units were sold. A full accounting of the profit or loss made on the sale of the units is the subject of very extensive expert reports submitted by the parties and was the subject of examination and cross-examination at trial. Loustas tendered reports from forensic accountants Munday Wilkinson (MW) and called Sanchia Veale, a chartered accountant and one of the report’s authors, to give evidence and be cross-examined. The Siers tendered reports from accounting firm MBA Advisors (MBA), and called Paul Higginbotham—the author of the MBA reports and a chartered accountant—to give evidence and be cross-examined. Further, pursuant to this Court’s orders, a combined expert report dated 9 December 2016 was prepared and tendered.

I will come to the accounting evidence in due course but on one view, there is very little in dispute between the experts. That is, it is agreed that the project made a loss.

However, if one was to attribute to Loustas a capital interest in the property, as MW maintained he was entitled to, the accounting results in a notional profit to Loustas of $502,204 (based upon his 38% profit entitlement). That is the sum he now claims[59] as damages flowing from the breach of the alleged oral agreement and the AMS agreement, and from all other causes of actions other than the claim for breach of fiduciary duty against Vincent Sier in his capacity as solicitor.
[59]His final particularisation of his loss was given among a series of amendments made to his statement of claim permitted during trial – resulting in the 6ASOC.

In respect of the claims for breach of fiduciary duty Loustas relies upon MW’s opinion that he should be entitled to further compensation for excessive interest paid on borrowings for construction, and for sales at alleged under-value to related parties. His claim based upon breach of fiduciary duty under those causes of action increases to $1,252,204.

Witnesses and credit

Although much of the testimony of witnesses was reduced to prepared witness statements (in accordance with trial directions), I insisted that evidence in chief concerning the principal matters in conflict be given viva voce. Hearing and observing the witnesses give an oral account of various alleged conversations and events enabled me to form clear impressions of their reliability and veracity.

Overall I was not impressed with the evidence of Arthur Loustas. As is shown below, at times he gave evidence that was contradictory and, when the contradictions were identified, he often attempted to brush them aside without really addressing or explaining the contradiction. Mostly he resorted to indignant repetition of the central, general themes of his version without attempting to grapple with detail. Frequently I sensed that he would say whatever assisted his case regardless of any basis in fact. Generally, I was not prepared to accept his uncorroborated account on any matter of significance and controversy.

Although, generally, I was somewhat more impressed with the truthfulness and accuracy of Vincent Sier in giving his evidence, I still had my reservations about his reliability as a witness. He benefited from having made some contemporaneous file notes, and some email correspondence tended to support his account where it differed from that of Loustas. But I think, at times, he was prepared to be definitive about an account that supported his case even if his memory was uncertain, and he was caught out on at least one occasion. Where he did not have a file note to support his account, I considered that his account needed to be tested and subjected to careful scrutiny before it could be accepted. As will become clear, I had real concerns about the way he approached his duty to avoid the possibility of any conflict between his role as solicitor and his personal interest. At best he was sloppy.

Peter Sier came across as something of a dupe. He was by occupation a farmer who, evidently, had some cash to invest but was not particularly sophisticated commercially. Perhaps he was persuaded by his lawyer-cousin, Vincent, that he could reap quite handsome returns through AMS’s mortgage-lending practice to its clients. But as things turned a little sour, he placed too much trust in Vincent Sier and did not stand up to him when he had reservations about Loustas’ continuing involvement in the project. The whole episode speaks unflatteringly of Vincent Sier’s preparedness to expose his cousin to risk and of Peter Sier’s lack of commercial sophistication. However, I found Peter Sier to be a generally honest witness who appeared to be relatively guileless, doing his best to state things as he recalled them.

Did Peter Sier or Vincent Sier breach the alleged oral agreement?

By his pleading, Loustas alleges that:[60]

In or about September 2008, [Loustas] and [Peter and Vincent Sier] agreed to form a joint venture partnership whereby each party’s interest in the joint venture would be calculated by [Peter Sier] based on his assessment of each party’s contribution to [the land], namely:
a)The contribution of [Peter Sier] calculated by reference to the amount of the second mortgage of $600,000 or thereabouts…;
b)The contribution of [Vincent Sier] calculated by reference to the amount of the third mortgage of $70,000 or thereabouts… and
c)The contribution of [Loustas] calculated by reference to a planning permit to develop the [land].

[60]6ASOC, [5].

Particulars given of the alleged oral agreement referred to two meetings at the AMS office in about September 2008 between Loustas and Vincent Sier. Peter Sier was said to be present at the second. In an affidavit sworn by Loustas in the proceeding on 20 June 2014, Loustas appeared to place the critical conversation around February 2008 after it became evident that BankWest would not proceed with the construction finance loan. Because of other events that occurred between February and September 2008, the difference in the timing of the alleged conversation or conversations is not unimportant.

Further, the pleading that each party’s interest in the joint venture would be calculated by Peter Sier is curious; in both his affidavit and his evidence at trial Loustas said that it was to be Mr Adams of AMS who would calculate the percentages. It was Mr Adams, he said, who arrived at the calculation of 47% for Peter Sier, 38% for Loustas and 15% for Vincent Sier. However, Loustas said he did not speak directly to Mr Adams about calculating the percentage shares but said that is what Vincent Sier had told him. Mr Adams denied doing so or ever being asked to do so, and both Siers denied the suggestion. Both said the percentages were discussed and agreed on 4 December 2008, the day of the auction.

I find that the alleged oral agreement was never made, whether in or around September 2008 or earlier in the year. That is, there was no joint venture agreed between Loustas, Vincent Sier or Peter Sier before the auction (or after). I reach that conclusion for a number of reasons.

First, as indicated, I would not readily accept the uncorroborated version of events given by Loustas. The onus rests upon him to establish the agreement. There is no contemporaneous, objective evidence supporting his version of events: no file notes; no emails; and no corroborating third party evidence.

Secondly, I am satisfied that Loustas had no conversation with Peter Sier at which any joint venture agreement was discussed. Peter Sier denies having any such conversation or indeed any conversation with Loustas prior to the auction. And, in the end, despite the particulars given in his pleadings, Loustas himself agreed he had no conversation with Peter Sier about a joint venture. He retreated to arguing that the conversation about the joint venture arrangement was with Vincent Sier who he thought could speak for Peter Sier.

But, no evidence was given of Peter Sier giving Vincent Sier any authority to enter a joint venture agreement on his behalf with Loustas. Nor would I find that Vincent Sier had any ostensible authority to bind Peter Sier to such an arrangement. In argument, it was (correctly, in my opinion) conceded by Loustas that Vincent Sier had no authority to enter any agreement for Peter Sier.

The fall-back position (advanced in final address) is that Peter Sier ratified the agreement made on his behalf by Vincent Sier at the later meeting on 4 December 2008. That assertion lacks any evidentiary basis; and it was never put to Peter Sier. It was not even put to him that he knew about Vincent Sier having agreed to a joint venture. Loustas next argues that Peter Sier ratified the alleged, previously made joint venture by not repudiating it (despite not knowing of it). This argument is not only desperate, it is hopeless. So, without the agreement of Peter Sier, the claim that there was a three-way joint venture must fail.

Thirdly, in any event, I am not satisfied there was any conversation between Loustas and Vincent Sier before the auction on the subject of a joint venture or partnership or of Loustas retaining equity in the land if Peter Sier and Vincent Sier bought it. Loustas’ fundamental claim is that Vincent Sier agreed that he and Peter would ‘convert their mortgages to equity’ in the project. Whether or not such a statement was ever made, at whatever stage in the chronology of events, I am not satisfied that its agreed corollary is that Loustas himself was to have any interest or equity in the land (or the project to develop it) if the Siers were to buy it. As well as the lack of any corroborating evidence of such a conversation or arrangement, Loustas’ evidence on this issue over time has been inconsistent. I have already mentioned, for example, the inconsistency of his account about the timing of the alleged oral agreement.

Fourthly, added to his own inconsistencies, other evidence contradicted Loustas’ account. I accept Mr Adams’ evidence that he did not calculate percentage shares for the joint venturers as Loustas claimed. Moreover, on Loustas’ own account, after he had entered the alleged binding joint venture agreement with the Siers, with agreed allocations of percentage interests, he was still trying to enter a joint venture with Mr Allan, or to get investors from the Greek community, or to get independent financing for his venture from banks. That conduct is wholly inconsistent with Loustas having already entered a binding joint venture with the Siers. His attempt to explain away that contradiction was unconvincing.

When pressed on his account and its inconsistencies, I got the distinct impression that in giving his evidence, Loustas would say whatever he thought would assist his case whether it had a basis in fact or not. When faced with a contradiction, he would just wave it away with a flourish as being unimportant.

Finally, the notion that Vincent and Peter Sier would accept that Loustas retained some interest in the land itself, and thus agree to hold an interest in it on his behalf (as Loustas argues), seems inherently implausible. There is no contemporaneous evidence to suggest that either of the Siers believed that Loustas had any ‘equity’ interest in the land. That is hardly surprising. BankWest was selling the land because JAD had defaulted on its loans. At that stage, it was not expected that the price yielded at the forthcoming auction would cover the entirety of the secured debt (being the Siers’ own second and third mortgages).

Loustas’ theory that he had some equity in the land is based upon his involvement in obtaining the planning permit and the value that permit added to the land. But the advice of Mr Marantelli was that the planning permit ran with the land, so the idea that Loustas had some personal ‘equity’ in the land by reason of having spent money and effort in obtaining the permit was put to rest. In any event, any ‘value’ inherent in the land because it was sold with the permit would be reflected in the sale price. So if that price did not yield more than the secured debts, there could hardly be any residual equity for Loustas by reason of the value of the permit to the land.

Instead, I prefer the version of events given by Vincent Sier. His account was in part corroborated by contemporaneous file notes and email correspondence. It was supported by the evidence of Peter Sier and Mr Adams, and it was more plausible. I accept Vincent Sier’s evidence that he attempted to assist Loustas avoid the BankWest mortgagee sale until close to the date of auction. He did not, himself, contemplate any ‘joint venture’ with Loustas although he assisted Loustas in his attempt to negotiate one with Mr Allan.

I find that when it became obvious a few days before the auction that time had run out for Loustas, Vincent made plans with Peter Sier to buy the land if the auction did not achieve a sale price of $3.9 million in order to return most of Peter Sier’s loan. That is, the land was to be purchased by Vincent and Peter Sier for themselves only and for no-one else. The land was a half-demolished building site. After buying the land, he and Peter expected that they would need to develop it after which they hoped to sell it and make some profit.

Although I generally prefer his account to that of Loustas, not all of Vincent Sier’s evidence or conduct was satisfactory or admirable. I suspect he originally got Peter Sier into JAD’s project as a financier to help out his client-friend, Loustas, without too much regard for the security of his cousin’s money. He seemed to be extraordinarily willing to advance personal money to Loustas, even concealing it from his wife.[61] Perhaps there was truth in what he said in evidence at one point when explaining why he went on giving Loustas money even when the project was woefully behind schedule: “I’m a soft touch and that’s a well-known fact”.[62] His generosity to Loustas conflicted with his care for his cousin’s interests.
[61]Exhibit A, 762. See email dated 18 March 2008.
[62]T 428.5.

Although I am satisfied that the Siers only intended buying the land for themselves, it seems quite possible, if not likely, that, shortly before the auction, Vincent Sier (without consultation with Peter Sier) floated with Loustas the idea of him having a project management role given his knowledge of the site and (apparent) experience as a developer, something which neither Sier possessed. He may have even said to Loustas he was open to the idea of Loustas being able to share in the profit from the project,[63] but, if he did, I am not convinced it went beyond that at that point in time. In particular, it did not involve Loustas being a joint developer or having any interest in the land itself.
[63]T 415.1-6.

So I think it came as a genuine shock to Peter Sier on 4 December 2008 when Loustas appeared at the post-auction meeting with himself and Vincent, and Vincent seemed ready to accept Loustas having a project management role in and profit-share from the development.

It is also at least possible, in my view, that sometime before the auction Vincent Sier mentioned to Loustas the prospect of getting money from Peter’s father, Adrian—but I am not persuaded, as Loustas would have it, that Adrian Sier attended a meeting in Northcote to discuss lending money and to view the site.

Under cross-examination about his uncle’s alleged agreement to contribute money to the project in late 2008, Vincent Sier’s asserted that at ‘no point in time’ had it ever been contemplated that his uncle’s assets or farm would be used as security to obtain funds for the project. He was then shown an email from himself to Peter Sier dated 3 February 2011 (more than two years later ) saying:

If Ade and Marie are prepared to encumber a part of the farm for the remaining $700,000 or thereabout then we are over the line and can get started with construction.

In response, he said that it was only a proposal that never went to Adrian because Peter ‘scotched it’ immediately.

Although this episode did not persuade me to accept Loustas’ evidence that Adrian Sier had offered to put $1 million into the project in late 2008, for whatever relevance that allegation may have had, it at least contributed to my conclusion that I should be wary of accepting all of Vincent Sier’s evidence. It also reinforced my sense that Vincent Sier was prepared to encourage others to take a risk to rescue his own financial situation.

But, despite some unsatisfactory aspects of Vincent Sier’s evidence and conduct, on the whole, and for the reasons I have given, I am not persuaded that he agreed to enter any joint venture with Loustas or to hold any interest in the land on behalf of Loustas as Loustas claims. Still less do I accept that Peter Sier agreed to any such arrangement.

Having concluded there was no oral joint venture agreement of the kind Loustas alleged, there is no need to deal with the defence of absence of writing (s 126 Instruments Act 1958 etc) or the elaborate argument advanced by Loustas seeking to get around it. There is also no occasion to consider the question of breach or damages of that agreement.

I reject the claim brought on that cause of action.

Did Peter Sier or Vincent Sier breach the AMS agreement?

On about 27 January 2009, Loustas, Vincent Sier and Peter Sier signed the AMS agreement at Vincent Sier’s office. Vincent Sier and Peter Sier say the three of them read it through; Loustas claims only to have read the names and percentages appearing on the second page (cl 3(iv)) and then signing because, as he would have it, ‘I trusted my solicitor’. For what it matters, I would not accept Loustas’ evidence on that point.[64]
[64]His denial of having read the AMS agreement made no sense. He may have denied it out of some fear that by admitting he read it he would be fixed with knowledge of something that was not convenient, or because it reinforced his contention that he was treating Vincent Sier as his personal solicitor to aid his other claims against Vincent Sier for breach of retainer or fiduciary duty. In fact, nothing particularly turns on whether he read it or not.

I find that the agreement was put in writing chiefly because Loustas wanted something to show his bank to demonstrate he had a sure flow of income.

But the AMS agreement otherwise purports to set out the elements of the agreement the three men arrived at orally at their meeting immediately following the auction on 4 December 2008. The essential aspects of that meeting have already been described.[65] However, as worded, the AMS agreement raises a number of questions as to its proper construction.
[65]See [29]-[30] above.

Relevant legal principles

A commercial agreement is to be construed objectively having regard to its context and evident commercial purpose. In relatively recent times the High Court has re-stated the principles for interpreting commercial contracts in the following terms:

…The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding “of the genesis of the transaction, the background, the context [and] the market in which the parties are operating”. As Arden LJ observed in Re Golden Key Ltd (in rec), unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption “that the parties … intended to produce a commercial result”. A commercial contract is to be construed so as to avoid it “making commercial nonsense or working commercial inconvenience”.[66]

[66]Electricity Generation Corporation (t/a Verve Energy) v Woodside Energy Ltd (2014) 251 CLR 640, [35].

In respect of a written contract, the permissible use of evidence external to the language of the contract itself to aid the interpretation of its meaning is limited. The use of such evidence is confined to circumstances in which the language used in the contract is ambiguous or susceptible of more than one meaning.[67]
[67]See, eg, Codelfa Constructions Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337, 352, (‘Codelfa’); Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104, [46] – [52]; Apple and Pear Australia Ltd v Pink Lady LLC [2016] VSCA 280, [92] (Tate JA), [231] (Ferguson and McLeish JJA).

One body of potential external evidence is evidence of the parties’ pre-contract negotiations. Assuming the existence of some ambiguity in the language of the written contract, recourse may be made to such negotiations to assist in interpreting the meaning of what is written, but only to the extent that they have a tendency to establish objective background facts and the subject matter of the contract. But, in so far as those negotiations consist of statements of the parties which are reflective of their actual intentions or expectations, evidence of them may not be used.[68]
[68]Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596, 606; Codelfa, above n 67, 352; Bahr v Nicolay (No 2) (1988) 164 CLR 604, 617.

Further, it is generally accepted that it is not permissible to use evidence of anything that the parties to a contract did or said after the contract was made to assist in the interpretation of the meaning of its terms.[69]
[69]Agricultural & Rural v Gardiner (2008) 238 CLR 570, 582.

The AMS agreement

Simply titled ‘Agreement’, the terms of the AMS agreement are set out in full:

THIS AGREEMENT is made the 27^th day of January 2009
BETWEEN
PETER JOHN SIER and VINCENT JOHN SIER both of 176 Upper Heidelberg Road, Ivanhoe, in the State of Victoria
(‘Sier’)

AND
ARTHUR LOUSTAS of 4 Kiwi Court, Mill Park, in the State of Victoria
(‘Loustas’)
WHEREAS
A.Loustas is the sole director of J.A.D. Systems Pty Ltd (In Receivership) (‘the Company’) and has on behalf of the Company spent time, effort and resources in obtaining a planning permit for the Company to develop its land at 405 High Street, Northcote.
B.The Company has defaulted on its obligations with its mortgagee, the Bank of Western Australia which has appointed a receiver and on 4^th December 2008 sold the Company property at 405 High Street, Northcote to Sier.
C.Sier hold second and third mortgages on the Company’s property at 405 High Street, Northcote and after settlement of the property intends to continue with the development started by Loustas with Loustas’ assistance.

NOW THIS AGREEMENT WITNESSES
1.Subject to Sier obtaining finance to complete the purchase of 405 High Street, Northcote, Loustas agrees to continue to devote his full time and effort to completing the development and undertakes to manage the development project with Sier.
2.In return for Loustas accepting the role as development manager for Sier commencing as from the settlement date of 405 High Street, Northcote, Loustas shall be paid the sum of $10,000.00 per month for a period not exceeding 10 months but shall be responsible to ensure completion of the project if it runs beyond this time.
3.On completion of construction the parties agree that the property developed will be sold and the funds accounted for in the following order of priority:
(i)        Bank loan to be repaid in full;
(ii)Sier to be repaid capital contributed including principal and interest due on their loans up to the date of settlement/acquisition of 405 High Street, Northcote whereupon no further interest shall run.
(iii)Payment of all development costs of whatever nature including Loustas’ project management fee.
(iv)The balance of profit shall then be divided between the parties to this agreement in the following proportions:
a. Peter John Sier       47%
b. Vincent John Sier   15%
c. Arthur Loustas      38%

4.The parties acknowledge that in the event of Sier not being able to finance the purchase which then requires the introduction of a third equity partner, the parties to this Agreement and its terms may have to be varied to reflect the changed circumstances.
5.Each party, has the right to convert any of their entitlement in clause 3(iv) above into a part or whole purchase price of any nominated unit in the development at current market price or as agreed between the parties.

EXECUTED AS AN AGREEMENT
[the signatures of the parties and their witnesses followed].

Some important features of the AMS agreement may be summarised as follows:

· the parties recognised that Loustas had spent time, effort and resources obtaining the planning permit (recital A);

· the Siers purchased the land and intended to continue the development started by Loustas, with his assistance (recitals B and C);

· the Siers were to obtain finance to complete the purchase (clause 1);

· subject to the obtaining of that finance, Loustas was to devote his full time and effort to complete the project and to manage it (clause 1);

· for doing so the Siers would pay Loustas $10,000 per month for 10 months but if not completed in that time Loustas was nevertheless required to ensure its completion (clause 2);

· after completion, the proceeds of the sale of the development would be accounted for, first, to repayment of the bank loan; secondly, to repayment of the Siers’ capital including principal and interest on their loans; thirdly, to payment of the development costs including Loustas’ management fee; and, finally, to dividing the resulting balance between the Siers and Loustas in stated percentages (which could be taken in kind as units in the development) (clauses 3 and 5); and

· if the Siers could not finance the purchase and had to introduce a ‘third equity partner’, variations may have to be made to the agreement and its terms, including the parties to it (clause 4).

Notably, the agreement only refers to the Siers as purchasers of the property and no mention is made of them holding any interest in the land on trust for Loustas.

Loustas pleads that the Siers breached the AMS agreement in two ways, namely by:

(a) appropriating $604,235.67 of sale proceeds in April 2009 toward repayment of the mortgage loan from Peter Sier to JAD;[70] and

(b) entering the 405 High Street agreement to develop the land in return for 49.52% share of the profits.[71]

[70]6ASOC, [15](a).

[71]Ibid, [15](b).

Implicitly, Loustas must also be taken to claim that the Siers simply failed to perform the agreement in that they have not paid him the profit he is due under clause 3 (iv).

If breached in any of these ways, Loustas claims his damages are to be calculated by reference to the 38% profit share to which he would be entitled under the AMS agreement had it not been breached in the ways he alleges.

The Siers put forward a series of arguments in answer to Loustas’ contentions: first, various specific responses to each individual allegation of breach; secondly, that the AMS agreement was terminated in April 2011 and ceased to be operative thereafter; and, thirdly, even if the AMS agreement was breached and remains binding, there was no profit in which Loustas could share.

1^st pleaded breach: Peter Sier’s appropriation of sale proceeds

The argument that the Siers breached the AMS agreement by permitting Peter Sier to receive and appropriate $604,235.67 toward the reduction of his mortgage rests on the meaning of clause 3 (ii) set out above.

On Loustas’ view, clause 3 (ii) had the effect that the Siers were to postpone recovery of any part of their mortgage loans at settlement of the acquisition of the land in 2009 until the final accounting of the sale proceeds following completion of construction of all the units proposed to be developed on the land. At that point, the Siers would recover their mortgage loans (and any other ‘capital contributed’) but without any interest charged between settlement of the acquisition of the land in 2009 and the realisation of the sale proceeds of the development.

On the Siers’ view, only the unrecovered portion of their mortgage loans existing at the time of AMS agreement, after distribution of the settlement money on completion of the sale, qualified as ‘capital contributed’ by the Siers. To that might be added any other personal funds contributed as ‘capital’ thereafter. No interest was to run on either of those components between ‘settlement/acquisition’ and the final realisation of the sale proceeds of the development.

I accept that the language of the contract is susceptible of more than one meaning. Which construction I prefer may determine whether or not clause 3 (ii) was breached in April 2009 when Peter Sier received the cheque for $604,235.67 at settlement.

The language of the clause itself is not particularly illuminating and the AMS agreement does not define what is meant by ‘capital contributed’ other than in clause 3(ii) itself. It states what was included within the meaning, namely ‘principal and interest due on their loans’. Recital C acknowledges the existence of the two mortgages so that the phrase ‘their loans’ in clause 3(ii) should, as a matter of internal logic, probably be taken to be a reference to those mortgage loans rather than some undefined, potential future loans.

Loustas (or, at least his expert witness Ms Veale) emphasised the words ‘principal and interest due on their loans up to the date of settlement/acquisition’ as pointing to an intention that payment of the whole of the mortgage loan existing at the date of the AMS agreement was to be deferred. He argued that the principal due ‘up to the date of settlement’ is, as a matter of logic, a reference due to the sum due immediately before settlement; not immediately after settlement.

For their part, the Siers emphasised the provisions of the law—specifically s 77 of the TLA—which obliged the receiver to pay the proceeds of sale to the mortgagees sequentially according to their respective priorities. Such payment by definition must have the effect of reducing the mortgage liabilities. So, they argued, the clause should not be construed as meaning that the Siers could not be repaid any part of their mortgage loans at settlement.

Applying the construction principles above, in order to conclude what a reasonable business person would understand clause 3(ii) to mean, I need to consider the genesis of the contract, its commercial purpose and the surrounding facts known to all parties in addition to the words themselves.

From the background facts I have already described, I would characterise the relevant genesis of the AMS agreement in the following way:

·JAD, the former owner of the land, had over the course of time obtained a planning permit for the redevelopment of the land and had commenced the preliminary stage of the development;
·in doing so, JAD accumulated debt which it was unable to service (including debt to the Siers) and its primary secured creditor (BankWest) sold the land;
·the Siers, as mortgagees ranking after the bank, feared they would not recover the whole of their loans from the proceeds of sale so they bought the land with a view to continuing JAD’s development and recouping their loans from the commercial realisation of that development;
·neither Sier was an experienced property developer but Loustas was, and, as JAD’s director, he had unique knowledge of the town planning and building requirements for the proposed development; and
·accordingly, the Siers agreed with Loustas to retain him as manager of the development and, further, to share part of the profit with him.

From the same body of background facts, I consider that the essential commercial purpose of the agreement was to record the terms on which the Siers were to engage Loustas as their development manager. Additionally, it was to provide Loustas with a share of any profit the development reaped and to define how that profit was to be identified as between them. For reasons given below,[72] I reject any suggestion that the commercial purpose included providing for an equity interest that Loustas was to have in the land or the project.
[72]See [131]-[143] below.

As for the surrounding facts known to all parties, the reasonable business person should be taken to have known that:

·the proceeds of sale of the land was not sufficient to cover all the secured debt owed by JAD (including debt owed to the Siers);
·JAD had creditors apart from the bank and the Siers, which included its builder, Andeco;
·Loustas himself had no resources from which he could make any monetary investment in the project; and
·legal advice had been received that the planning permit which JAD (through Loustas) had obtained ran with the land.

There is no evidence that the parties themselves specifically adverted to the operation of s 77 of the TLA. But I think that the reasonable business person should be attributed with the knowledge that upon receipt of the proceeds of sale the receivers of JAD were legally obliged by that section to pay the proceeds first to the mortgagees, in order of their ranking, before any surplus was paid to JAD.

Having regard to those matters, on the proper construction of clause 3(ii) Peter Sier was not required to decline or refuse to accept repayment of $604,235.67 from the proceeds of settlement of the sale of the land. I reach that conclusion for the following reasons.

First, in my opinion, clause 3 does not purport to address the actual timing of the particular payments to which it refers. It is essentially concerned with the sequence of the accounting allocation of costs at the end of the project for the purpose of determining the net balance to be shared as ‘profit’. As is made clear by the opening words of the clause, it is concerned with the order of priority in which the funds are ‘accounted for’ on ‘completion of construction’ when ‘the property developed will be sold’.

For example, despite the fact that the Loustas’ management fee was to be paid month by month during the specified 10 month period, clause 3(iii) prescribes the order in which those payments were to be accounted for in the final reckoning of all costs before profit is taken. Clause 3(iii) is not to be construed as implying that Loustas could only be paid his management fee at completion of the project.

Similarly, clause 3(iii) states that ‘payment’ of all construction costs was to be taken into account next after the Siers’ capital contributions. But, again, that does not mean that the payments to builders and other contractors were only to be made at the end of the whole project, after sales of the units were completed.

In like manner, clause 3(ii) does not address ‘when’ the Siers might receive repayment of their mortgage loans from JAD; it only addresses the sequence in which their invested capital is to be deducted from project income in order to arrive at ‘profit’ for sharing as between the Siers and Loustas. I do not consider that, in context, the use of the words ‘to be repaid’ in clause 3(i) and (ii) is materially different from ‘payment of’ as appearing in clause 3(iii).

It follows that the Siers’ ‘capital’ to be accounted for at the end of the project could be the whole of their original mortgage loans, or only part of them, or none of them, depending on whether and to what extent those loans had already been ‘taken out’ by repayment from JAD. But, whatever component remained invested as capital in the project, the interest due on it up to and after the date of settlement of the acquisition of the land was not to run against the project. In other words, it was not to be deducted as a cost in the profit calculation as between the parties to the AMS agreement.

So I reject the second basis of alleged termination.

2^nd alleged breach: entering into the 405 High Street agreement

There is no doubt that by entering into the 405 High Street agreement on 1 July 2012 the Siers made an agreement with a new equity partner to develop the land. In return for its contribution to funding, 405 High Street Pty Ltd was to receive eight units in the development as well as 49.52% of the profit. Its contractual entitlement to a transfer of the eight units in the sub-division of the land amounted to a disposition to it of an equitable interest in the land itself. The agreed distribution of profits excluded any distribution to Loustas. None of those propositions were disputed.

Loustas contends that by entering the 405 High Street agreement, the Siers disposed of property in which he had an equity interest—an argument I need not address given the conclusions I have already reached about Loustas having any equity in the land—and excluded him from any share in the profits in breach of his entitlement under the AMS agreement.

Focusing just on Loustas’ entitlement to profit-share, assuming (as I have found) that the AMS agreement remained on foot after April 2011, the fact that the Siers later agreed to share the same profit with others does not destroy their obligation to pay him the profit-share the AMS agreement stipulates. The Siers have simply put themselves into the position that, if there is profit in the project (however calculated under the different agreements), they remain obliged under each agreement to distribute the profit share to which each beneficiary of the various promises is entitled.

But the Siers raise several defences to Loustas’ claim that he remains entitled to his share of profit under the AMS agreement despite the Siers having entered the 405 High Street agreement. First they claim that the AMS agreement was terminated (an argument I have already dismissed).

Secondly, and somewhat faintly, they argue that in the circumstances that occurred, the terms of the AMS agreement permitted them to make the 405 High Street agreement, thus the AMS agreement was not breached. Thirdly, they say that in any event Loustas consented to the Siers entering into the 405 High Street agreement.

I reject the remaining two defences.

Clause 4 of the AMS agreement contemplates the possible need to vary the agreement, even to change the parties, if a further equity partner needs to be introduced. However, the clause only contemplates that possible necessity if finance for the purchase was not obtained. But it was. The finance problem in July 2012 was construction finance. So, whatever clause 4 meant, it was not engaged. It is not correct to say that the 405 High Street agreement was entered in conformity with that provision. No other provision of the AMS agreement was relied upon.

As for consent, evidence was given by Vincent Sier that he had obtained Loustas’ consent for him to enter into the 405 High Street agreement. In reality that evidence may only have been offered as a means of explaining why the Siers had disposed of an interest in the land despite their undertakings to this Court in February 2012 not to do so without Loustas’ prior written consent.[88] Vincent Sier only claimed to have obtained the oral consent of Loustas ‘in principle’ (through his then solicitor and barrister) to sell half the land to 405 High Street Pty Ltd.[89] He claimed to have written to Loustas’ solicitor the following day seeking written confirmation of the consent but never got it and went ahead anyway. Regrettably, I simply do not believe Vincent Sier’s evidence about any verbal consent. He was just pressing to get his way regardless of Loustas and regardless of his and Peter’s undertakings to this Court.
[88]See [54] above.
[89]T 434.

It follows that, despite having entered into the 405 High Street agreement, the Siers remained bound by the AMS agreement to provide Loustas with a 38% share in any profit in the project as envisaged in their agreement and calculated in accordance with its terms. Alternatively, by entering the 405 High Street agreement the Siers breached the AMS agreement and Loustas’ loss caused by that breach was his entitlement to the 38% profit share as just described. Each amounts to the same thing.

I will turn to the calculation of the profit share in due course.

Summary

Under this cause of action, I find as follows:

(a) The Siers did not breach the AMS agreement by either receiving or permitting Peter Sier to receive $604,235.67 in proceeds from the sale of the land;

(b) Loustas had no ‘equity’ or ‘capital’ interest in the land or project after the land was sold to the Siers or pursuant to the AMS agreement;

(c) The AMS agreement was not terminated or otherwise discharged in April 2011 (or subsequently); and

(d) Despite entering the 405 High Street agreement, the Siers remain obliged to provide Loustas with his share of the profit as stipulated by the AMS agreement or to pay him damages in lieu thereof.

Did Peter Sier or Vincent Sier breach any fiduciary duty owed to Arthur Loustas?

Against the two Siers the fiduciary duty is alleged to arise from being joint venturers with Loustas; against Vincent Sier alone it is said to arise from a solicitor-client relationship.

Despite his pleadings, Loustas did not ultimately advance any argument that the Siers owed or breached a fiduciary duty arising from the parties being joint venturers. He relied upon a written closing submission and, through his counsel, made oral closing submissions. Although those final written and oral submissions expressly addressed a breach of fiduciary duty claim based upon Vincent Sier allegedly remaining Loustas’ solicitor at relevant times, no argument was advanced of any fiduciary duty owed by the Siers as joint venturers with Loustas. The omission is conspicuous because early in the trial both sides accepted the list of issues set out above at [9] and each addressed written arguments specifically under headings appropriate to those issues.

In those circumstances it is difficult to comprehend how the argument is put, if it is relied upon at all, other than what is set out in the pleadings. There, Loustas alleges the existence of fiduciary duties owed to him arising from the facts that under the terms of the AMS agreement:

·he and the Siers ‘were joint participants in a commercial enterprise with a view to profit’;
·profits were to be shared;
·joint property of the commercial enterprise was to be held on trust; and
·the planning and control of the commercial enterprise was a matter of joint decision.[90]

[90]6ASOC, [17]-[18].

Of those allegations, only the second is clearly correct.

Otherwise, based upon my construction of the AMS agreement above, the enterprise belonged to the Siers, they alone held an interest in the land and Loustas was engaged by them as project manager. The Siers held no property on Loustas’ behalf. They were not obliged by the agreement only to make decisions jointly with him. I do not consider they were in any relevant sense participants in a ‘joint commercial enterprise’. The Siers did not undertake to exercise any discretion or power on behalf of or for the benefit of Loustas.

True it is that the AMS agreement provided that the Siers were to share profit with Loustas. But I am not convinced that fact in isolation is sufficient to give rise to fiduciary obligations by the Siers toward Loustas on an analysis of the kind described by Mason J (as he then was) in Hospital Products Ltd v United States Surgical Corp.[91] The profit share was predominantly a reward-incentive for Loustas to complete the Siers’ development.
[91](1984) 156 CLR 41, 96 – 97, (‘Hospital Products’).

In short, I do not think that the nature of the obligations between the Siers and Loustas as formulated under the AMS agreement discloses relevant criteria for the existence of a fiduciary relationship between them. If anything, the obligations of Loustas as agent for the Siers may have constituted him their fiduciary but not the reverse.

For those reasons any claim that was intended to be pressed for breach of fiduciary duty on that first basis fails.

The second basis, which was pressed, is that Vincent Sier owed and then breached fiduciary duties by virtue of being Loustas’ solicitor at ‘all material times’.[92] There is no doubt that acting as a solicitor for a client constitutes one of the classic relationships in which fiduciary obligations arise.[93] Vincent Sier did not dispute that he had been Loustas’ solicitor up until the auction on 4 December 2008. But he insisted that he verbally terminated the retainer on or shortly before that date by saying to Loustas that because he and Peter Sier intended to buy the land he could no longer act him as his solicitor. He alleges that Loustas acknowledged that was so and stated that it was ‘fine’ and that he had already spoken to another solicitor, John Kotsifas.[94] There was nothing in writing to that effect.
[92]6ASOC, [19].
[93]Maguire v Makaronis (1997) 188 CLR 449, 463, (‘Maguire’).
[94]T386.12-25; T409.9-20.

Vincent Sier also claims that the following March, when in conference with Mr Little, he had explained to Mr Little, when the issue arose, that he no longer acted for Loustas and that Loustas had already spoken to Mr Kotsifas. In other words, he says he clearly explained to Mr Little (in Loustas’ presence) that he had ceased acting for Loustas who had already consulted an independent lawyer.[95] If that is correct, it is a little curious that Mr Little then reiterated in his written advice the next day that Loustas should be encouraged to get independent legal advice and that there were ‘obvious difficulties at this stage in representing [Loustas]’.[96]
[95]T410.15 – T411.23.
[96]See [35] above.

Loustas denies those conversations and statements. He claims that he considered Vincent Sier to be his solicitor at that time. For example, he claims to have relied upon Vincent Sier as his solicitor when attending to sign the AMS agreement, and also when attending Mr Little in conference to receive advice for himself as well as for the Siers. For reasons previously explained, I have little confidence in accepting Loustas’ view on this question without some more objective confirmation.

At best the picture is murky. It is difficult to know which version to accept.[97] If nothing else, Vincent Sier left himself wide open for this allegation to be made. He did not act wisely or professionally. If his version is correct, he failed to clearly record or mark the termination of his retainer by a long-standing client while, at the same time, buying his client’s land and continuing to engage in legal and business relations with that same client. Such practice is remarkably sloppy. But equally, it is bordering on the inconceivable that a solicitor of long experience would not recognise the obvious conflict of interest that was emerging from their professional and business arrangements.
[97]See Griffiths v Evans [1953] 1 WLR 1424, 1428 (Denning LJ), concerning the approach to be taken to the existence of a retainer when the solicitor and client have different views.

Whatever may have been the case between the auction on 4 December 2008 and the conference with Mr Little on about 2 March 2009, I think it clear that thereafter both Loustas and Vincent Sier recognised that Sier could no longer act for Loustas. There is no evidence beyond that point of Loustas relying upon Vincent Sier, or of Vincent Sier providing Loustas with any professional services. In particular, by July 2011, Loustas certainly had Mr Kotsifas acting for him. Further, before the Siers entered the 405 High Street agreement in July 2012, Vincent Sier tried to get Loustas’ consent through a meeting at which each party was separately represented by solicitor and counsel.

Loustas pleads that Vincent Sier was under a conflict of interest and duty when he bought the land at auction and in acting for Loustas ‘in matters concerning’ the land when also acting for himself on the purchase.[98] In submissions, Loustas appears to focus on the conflict that existed at the time of entering the AMS agreement in January 2009 and on Vincent Sier’s failure to advise him to obtain independent legal advice. He also alleged that a breach of fiduciary duty occurred by Vincent Sier ‘diverting profit from an agreement entered into with a client’, in breach of the AMS agreement.[99] I take this to be a reference to Vincent Sier’s entry into the 405 High Street agreement in July 2012.
[98]6ASOC, [20].
[99]See Plaintiff’s Closing Submissions, [5.3]-[5.4], (‘Loustas Closing Submission’). Loustas also claimed that he should have been given similar advice, and that Vincent Sier was also in a conflict, at the time of the ‘first joint venture agreement’. As I have rejected the existence of any such agreement, I need not address that argument.

I can deal briefly with any argument that may still be pressed that Vincent Sier was liable to account for any benefit he obtained, or to pay Loustas compensation for loss that he suffered, as a result of Vincent Sier purchasing the land. By 4 December 2008, Loustas had no prospect of retaining the land or buying it for himself. Realistically, he had no capacity to buy the land nor, for reasons I have explained, did he have any residual interest in the land to pursue or protect. So, in pursuing the purchase of the land to try to recover the money he (and Peter Sier) lent to JAD, Vincent Sier was then pursuing a private interest which did not clash or conflict with any interest of his client (or former client). Nor did doing so conflict with any duty he then owed to Loustas. In so far as Vincent Sier once had a duty to assist his client, Loustas, to save the land from sale by the receivers, that duty had expired by 4 December 2008 with the evaporation of any practical means that Loustas could do so. If I am wrong, then as explained below there was nothing ultimately gained by Vincent Sier from buying the land nor any loss suffered by Loustas.

I turn then to the claim that Vincent Sier acted as Loustas’ solicitor when he executed the AMS agreement. Other than alleging the existence of a conflict of interest and the failure to advise to get independent legal advice, Loustas provides no clue as to how any breach of fiduciary duty is said to give rise to a particular loss on his part. He does not, for instance, claim that had he been given independent advice he would have secured more favourable contractual terms or somehow achieved a better entitlement than the 38% profit share provided under the AMS agreement. Further, assuming that it was a breach of fiduciary duty (and not merely a breach of the AMS agreement) for Vincent Sier to enter the 405 High Street agreement, Loustas does not identify how that breach led to any loss (other than a right to claim compensation on a more favourable basis than could be recovered in contract).[100]
[100]See [63] above.

Given the uncertainty surrounding the question of whether Vincent Sier had explicitly told Loustas at or before the auction on 4 December 2008 that he could no longer act for him, I am not prepared to act on the basis that he did—at least not until later, around March 2009. When Loustas asked Vincent Sier to put something in writing to evidence his income entitlement and Vincent Sier prepared the AMS agreement, I will assume that in doing so Vincent Sier was acting for Loustas as well has himself and Peter Sier.

Of course, Loustas was not ignorant of Vincent Sier’s personal interest in the subject matter of the agreement. But that is not to deny that a ‘real and sensible possibility of conflict’ existed.[101] Nor did Loustas’ knowledge relieve Vincent Sier of his obligation to account for any gain he made by acting in pursuit of gain while in a situation of possible conflict of duty and personal interest. In these circumstances Vincent Sier’s fiduciary obligation was to advise Loustas to obtain independent legal advice, which he failed to do. In that respect he breached his fiduciary duty.
[101]See Beach Petroleum NT v Kennedy (1999) 48 NSWLR 1, [425], (‘Beach Petroleum’).

Loustas does not seek to have the AMS agreement set aside. He maintains that, properly construed, it stands for different and more favourable terms than those that I have already found above. Identifying a breach of fiduciary duty, alone, does not mean that a court must construe an agreement as if it contained terms the parties had not agreed upon. As I have found, there was no previously agreed (oral) joint venture agreement, nor was there any agreement that Loustas should have an equitable or capital interest in the land or the project. So, even if Loustas had retained independent legal advice to assist him in the negotiation and drafting of the AMS agreement, there is no reason to believe he would have secured more favourable terms than he did secure. Neither does Loustas allege that he would have done so.

It is for Loustas to show some ‘adequate and sufficient connection’ between the breach of fiduciary duty and the compensation he claims.[102] The compensation he seeks is a profit-share in the project, calculated on the foundation that he has equity in the land or the project. As will be seen below, it is only on the footing that he has such equity that the expert opinion he adduced revealed the existence of any profit share in his favour. Without recognition of his so-called equity, his own expert witness agreed with the Siers’ expert witness: there simply was no profit. That conclusion answers each of the ways Loustas could claim entitlement to a remedy: Vincent Sier made no profit for which to account to Loustas, and Loustas suffered no loss for which he could obtain compensation.
[102]Ibid, [429].

Because the AMS agreement as executed did not provide Loustas an equity entitlement, and no reason exists for believing he would have got such an entitlement if independently advised, there is no causal connection between the breach of fiduciary duty and any claimed loss. Loustas cannot succeed in his claim for equitable compensation based upon the breach he has established.

The other conduct said to be in breach of fiduciary duty was Vincent Sier’s entry into the 405 High Street agreement in July 2012. By then the solicitor-client relationship between Vincent Sier and Loustas had ended. Loustas had commenced the action against the Siers, was represented by independent lawyers and the Siers had undertaken to this Court not to dispose of the land without Loustas’ prior consent. A fiduciary duty generally does not survive the ending of the fiduciary relationship.[103] So, it could hardly be said that any conduct of Vincent Sier at that stage was in conflict with any extant fiduciary (or contractual) duty arising from a solicitor-client relationship to act in the best interest of Loustas. No breach of fiduciary duty is established based on that conduct.
[103]J D Heydon, M J Leeming and P G Turner, Meagher, Gummow and Lehane’s Equity Doctrine and Remedies (LexisNexis Butterworths, 5^th ed, 2014), [5-020].

Having regard to the above conclusions, Loustas’ claim for compensation for breach of fiduciary duty owed by the two Siers as his alleged joint venturers or by Vincent Sier as his solicitor must fail.

Did Vincent Sier contravene the Fair Trading Act by making false representations?

Putting aside the correct statutory form in which the cause of action for damages arising from misleading or deceptive conduct is now embodied,[104] Loustas alleges that Vincent Sier induced him to enter the AMS agreement by making false statements. Those alleged false statements were that the Siers would:

(a) hold a 38% interest in the land on trust for Loustas; and

(b) convert their two mortgages into a percentage interest in the land and postpone repayment of them until completion of the project, from the proceeds of the project.[105]

[104]Sier Closing Submission, [30]-[32]. Vincent Sier argues the enactment on 19 October 2010 of the Fair Trading Amendment (Australian Consumer Law) Act 2010 (Vic) had the effect of substituting s 9 of the FTA with the comparable Australian Consumer Law provision from 1 January 2011. The regime that would apply ultimately turns on the date which Loustas’ cause of action (if any) accrued, however for reasons I will explain, it is not necessary for me to resolve that question.

[105]6ASOC, [28].

I reject this claim upon a number of bases. First, I have dismissed the contention that the Siers agreed to or made the statement set out in paragraph (a) above.

Secondly, if Vincent Sier said anything along the lines set out in paragraph (b) at some point in time, and it was relied upon by Loustas in signing the AMS agreement, such reliance did not produce any loss or damage. It is important to recognise that the representations, if relied upon, do not usually take effect as if they were contractually enforceable promises. Rather, damages follow when the reliance upon the representation causes a certain position to be taken to produce a loss.[106]
[106]Colin Lockhart, The Law of Misleading or Deceptive Conduct (LexisNexis Butterworths, 4^th ed, 2014), [11.10]. See also Toteff v Antonas (1952) 87 CLR 647, 659; Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1, 12; Wardley Australia Ltd v WA (1992) 175 CLR 514, 526; Sellars v Adelaide Petroleum NL (1994) 179 CLR 332, 348.

On the facts I have found, I do not accept that the statement set out in paragraph (b), if made, induced Loustas to believe that he was to receive equity in the land or project (for reasons already given). Rather, if made, it may have caused Loustas to believe that repayment of the liabilities to the Siers would be deferred to make the project more viable. For reasons already explained, if Loustas was induced to hold that belief, reliance upon the representation has not led to any loss. In substance, the dollar value of the two mortgage loans existing at the time of the AMS agreement remained invested in the project until the end. That is, Vincent Sier’s loan was not repaid at all before completion of the project and, as I have shown, an amount exceeding the portion of Peter Sier’s loan repaid at settlement was reinvested by him in the project.

Because it is necessary that some loss or damage must result from the misleading and deceptive conduct for a cause of action to be established,[107] the claim on this basis fails.
[107]See, for example, s 236 of the Australian Consumer Law: ‘If… a person (the claimant) suffers loss or damage because of the conduct of another person… the claimant may recover the amount of the loss or damage by action against that other person’ (my emphasis). The right to sue is expressly contingent on the claimant having suffered loss or damage. Section 159 of the FTA, prior to its repeal, used equivalent language and operated in the same way. See also I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109, [45] (Gaudron, Gummow and Hayne JJ).

Did Vincent Sier breach his retainer as solicitor for Arthur Loustas?

The final cause of action Loustas alleges is that Vincent Sier breached his contract of retainer to act as solicitor for Loustas. Loustas alleges a retainer to give him ‘ongoing legal advice’ concerning a great variety of matters, including matters involving JAD and the ‘first joint venture agreement’.[108]
[108]6ASOC, [35].

Passing over the breadth and imprecision of the alleged retainer, one breach of it is said to be that Vincent Sier advised Loustas that rather than him refinance the land, the Siers should buy the land with equity to be shared with Loustas in certain proportions.[109] I have already rejected this general narrative. In fact, Loustas did not give any evidence of receiving any such ‘advice’ from Vincent Sier. Nor did he say that he relied upon any such advice. In any event, no account is taken of reality by this allegation. In reality, receivers were appointed by BankWest to sell the land precisely because Loustas could not refinance the loans he had borrowed against the land and, try as he might right up to the eve of the auction, he could not obtain alternative finance.
[109]Ibid, [39].

The second breach Loustas alleges is that Vincent Sier breached the retainer when he entered the 405 High Street agreement in July 2012. Other than to repeat that, by then, any retainer of Vincent Sier by Loustas had well and truly come to an end, I need not discuss this basis of claim further. I reject it.

It follows that the claim based upon an alleged breach of retainer fails.

Did the project make a profit?

It is necessary to address the question of whether the project made a profit, for two reasons. First, it is necessary to ascertain whether Loustas suffered any loss of entitlement to profit as a consequence of the breaches I have found: that is, the breach of the AMS agreement and Vincent Sier’s breach of his fiduciary duty as solicitor. The second is related to the counterclaim addressed below. If sufficient profit was derived from the project to return the amounts outstanding on the Siers’ respective mortgage loans, there would be no basis for recourse against the guarantees.

The Siers argue that whatever basis of claim Loustas relies upon, all depend for their success on there being some profit from the project in which he could share—that is, something upon which the 38% promised to him could be calculated to result in a figure more than nil. On the evidence the Siers adduced the project made a loss. As I will show, the evidence that Loustas adduced also showed a similar loss before certain controversial allowances were made against that loss.

The difference between the parties’ respective initial profit/loss calculations can best be seen in a table produced by Mr Higginbotham of MBA. It was annexed to his Order 44 Witness Statement[110] and adjusted during his evidence to take into account an MW report dated 25 July 2017 (MW 25 July report)[111] which he had not been shown previously.
[110]Exhibit O.
[111]Exhibit E.

According to the MBA table (as adjusted) total expenses of the project as calculated by each accountant were:

MW

26,610,144

MBA

26,799,016

Difference

188,872

Total income was calculated thus:

MW

23,365,976

MBA

23,473,247

Difference

107,271

Before the disputed allowances which MW made, each accountants calculation of loss was as follows:

MW

(3,111,422)

MBA

(3,325,769)

Difference

214,347

MW made certain adjustments to the project’s loss to ‘add-back’ sums to take into account alleged understated income and excessive expenses, to arrive at a small notional profit. Those adjustments were presented in a table at 6.62 of the MW 25 July report:

Profit/(Loss) of the Second Joint Venture project

(3,111,422)

Adjustments (Income/(Expenses)):

- Unsold Unit 9

50,000

- Commission on future sales and current sales

(24,500)

- Units sold for less than commercial value (110, 111,308, 309)

1,250,000

- Interest 2^nd Mortgage of V&E Sier

126,069

- Excessive interest paid to ILS at settlement

1,122,053

- borrowing costs

1,242,919

Total adjustments

3,766,541

Adjusted Profit of Second Joint Venture Project

655,199

These adjustments were disputed but I will pass over them for present purposes. MW next calculated the sums due on the Siers’ mortgage loans assuming that no part of them had been repaid prior to the completion of the project and had remained wholly postponed until that time. They were presented in a table at 7.31 of the MW 25 July report:

P Sier

821,887

V Sier

101,734

On these calculations so far, the available profit for distribution between the Siers and Loustas was presented in a table at 8.10 of the MW 25 July report as follows:

Adjusted profit from project

655,199

Loan P Sier

(821,887)

Loan V Sier

(101,734)

Adjusted profit for distribution under AMS Agreement

(268,502)

Taking that adjusted profit, MW calculated the profit/(loss) entitlement of each of the three men according to the AMS agreement as presented in a table at 8.12 of the MW 25 July report:

Loustas

38%

(102,031)

P Sier

47%

(126,196)

V Sier

15%

( 40,275)

(268,502)

Finally, the table at 8.13 of the MW 25 July report discloses how the $504,204 in claimed damages is arrived at for Loustas. As appears, it is derived by attributing to Loustas, as ‘capital’ that he contributed to the project, the sum of $604,235—namely, the sum by which Peter Sier’s mortgage loan was reduced from proceeds of sale at settlement on 30 April 2009. The table is described as the ‘total amounts payable to each party from the adjusted profit and capital contributions’:

Loustas

- profit distribution

(102,031)

- capital contribution from sale of property

604,235

Total payable to Loustas

502,204

V Sier

- profit distribution

(40,275)

- V Sier loan repaid from profit

101,734

Total payable to V Sier

61,459

P Sier

- Profit distribution

(126,196)

- P Sier loan repaid from profit

821,887

- Minus drawings to repay mortgage

(604,235)

Total payable to P Sier

91,456

Total payable to 3 parties

655,119

For reasons I have already given, I consider the so-called capital contribution made by Loustas to be illusory. If that is removed, as it should be, it is evident that the Siers’ submissions are correct. There was no profit from the project in which Loustas was entitled to a share under the AMS agreement. Accordingly, he is not due any profit either as a matter of enforcement of the AMS agreement, or as damages for its breach.

I reach that conclusion without analysing the merit of the allowances made by MW against the initial loss. Without needing to reach precise conclusions on those disputed allowances, I am not convinced there is any sound basis for adding back so-called ‘excessive interest’ paid to ILS on settlement of the loan taken out to complete the project or ‘borrowing costs’ (being additional fees incurred for late settlement of that loan).[112] Additionally, although evidence was called from a real estate agent in an attempt to establish that the four units listed in table 6.62 were sold under value, that evidence was too general and broad-brush to be persuasive. Accordingly, I find that the loss to be distributed among the three men was probably closer to a $3 million figure, as agreed between MW and MBA before any allowances or add-backs were made.
[112]My lack of persuasion about these two elements is sufficient to dispose of Loustas’ claim to be entitled to further compensation, in addition to the claimed $504,204 share of profit, for his causes of action based upon breach of fiduciary duty as noted at [63] above.

As mentioned, the relevance of these findings about profit goes, first, to the amount of damages to be awarded for the one breach of AMS agreement that I have found in Loustas’ favour; the breach constituted by the Siers entering the 405 High Street agreement without Loustas’ consent. There being a breach but no substantive loss, I award Loustas nominal damages of $1.00 only. Secondly, the finding of there being no profit means that there is no compensation due to Loustas for the breach of fiduciary duty he has established against Vincent Sier; nor is there any benefit or gain for which Vincent Sier is liable to account.

Additionally, because the loss before any repayment of the Siers’ loans was probably in the vicinity of $3 million—at the very least likely to be more than $1 million—there is no prospect that the Siers recovered (or could be deemed to have recovered) their outstanding loan balances from the project proceeds. That conclusion brings me to the counterclaim.

Is Arthur Loustas liable as guarantor of JAD’s mortgages?

Loustas argues that the AMS agreement ‘supersedes’ any prior guarantees given by him for the payment of the JAD mortgage loans to Peter and Vincent Sier.[113] I take him to mean that the Siers, in effect, impliedly agreed to waive or discharge the guarantees he gave them in support of their loans to JAD by electing to confine their ability to recover those loans from the fortunes of the project.
[113]Loustas Closing Submission, [10.1].

But, having rejected the proposition that the AMS agreement required the Siers only to recover their mortgage loans to JAD from the proceeds of the project,[114] there does not appear to be any reason in principle why Loustas should not be liable for so much as remains outstanding under those mortgages pursuant to the guarantees.
[114]See [118] – [125] above. Note, a different conclusion might follow if the alternative construction discussed from [126] – [130] was adopted.

Little attention was paid to these claims in the course of the trial. But it seems that there is a problem with Peter Sier recovering the greater part of his mortgage loan under the guarantee and indemnity. As noted, a significant proportion of his loan was repaid on 30 April 2009. Most of the money he lost in the project thereafter was not money lent to JAD and guaranteed by Loustas; rather, it was money he chose to invest in his own enterprise.

Further, by the terms of the AMS agreement each of the Siers agreed with Loustas that any amount left invested in the project would not incur interest against the project. So, likewise, I do not think interest should run against Loustas under the terms of his guarantee of that same debt. I treat the AMS agreement as effecting an implied variation to the terms of those guarantees, discharging Loustas from any liability for interest on the outstanding loan balances that otherwise would have accrued after 30 April 2009.

To calculate the amount owing under the guarantee and indemnity for the debt to Peter Sier, I will take MW’s calculation of the sum owing to him by JAD at 30 April 2009 (that is, at settlement of the sale of the land) and deduct from it the amount Peter Sier received at settlement:

$821,887 - $604,235 = $217,652

On the other hand Vincent Sier recovered no part of his loan and the whole of it remained outstanding at the project’s completion. For the same reasons as given, I allow no interest after 30 April 2009. According to MW, the sum due on that date was $101,734.

On the counterclaims, I will order that Loustas pay $217,652 to Peter Sier and $101,734 to Vincent Sier.

Conclusion

For the reasons stated I reach the conclusions I have set out in the introduction and summary above.[115]
[115]See [10] above.

I will order on the claim that Peter Sier and Vincent Sier pay damages to Arthur Loustas fixed at $1. On the counterclaim I will order that Arthur Loustas pay Peter Sier $217,652 and that he pay Vincent Sier $101,734. I will hear the parties as to any consequential orders.

SCHEDULE OF PARTIES

S CI 2011 04822

BETWEEN

ARTHUR LOUSTAS
Plaintiff
and
PETER JOHN SIER
First Defendant
and
VINCENT JOHN SIER
Second Defendant
and
405 HIGH STREET PTY LTD (ACN 158 418 565)
Third Defendant

To BankWest	$3,271,422.78
To BankWest (but endorsed to Peter Sier)	$604,235.67
To City of Darebin (rates)	$114,036.75
To Yarra Valley Water (rates)	$8,405.33
To State Revenue Office	$8,602.57
Total	$4,600,703.10

Purchase price	$3,925,000
Add adjustments and penalty interest	$74,275.55
GST	$399,927.56
Total	$4,399,203.11
Less deposit	$392,500
Due at settlement	$4,600,703.10

Profit/(Loss) of the Second Joint Venture project	(3,111,422)
Adjustments (Income/(Expenses)):
- Unsold Unit 9	50,000
- Commission on future sales and current sales	(24,500)
- Units sold for less than commercial value (110, 111,308, 309)	1,250,000
- Interest 2^nd Mortgage of V&E Sier	126,069
- Excessive interest paid to ILS at settlement	1,122,053
- borrowing costs	1,242,919
Total adjustments	3,766,541
Adjusted Profit of Second Joint Venture Project	655,199

Adjusted profit from project	655,199
Loan P Sier	(821,887)
Loan V Sier	(101,734)
Adjusted profit for distribution under AMS Agreement	(268,502)

Loustas	38%	(102,031)
P Sier	47%	(126,196)
V Sier	15%	( 40,275)
(268,502)

Loustas
- profit distribution	(102,031)
- capital contribution from sale of property	604,235
Total payable to Loustas	502,204
V Sier
- profit distribution	(40,275)
- V Sier loan repaid from profit	101,734
Total payable to V Sier	61,459
P Sier
- Profit distribution	(126,196)
- P Sier loan repaid from profit	821,887
- Minus drawings to repay mortgage	(604,235)
Total payable to P Sier	91,456
Total payable to 3 parties	655,119

[2018] VSC 13

31 January 2018