Luxury Homes Pty Limited v Margaret Patricia Lanham - [2009] NSWSC 873

No judgment structure available for this case.

CITATION: Luxury Homes Pty Limited v Margaret Patricia Lanham [2009] NSWSC 873

HEARING DATE(S): 10, 11, 12 and 13 August 2009

JUDGMENT DATE :
14 September 2009

JURISDICTION: Equity Division

JUDGMENT OF: Bergin CJ in Eq

DECISION: Plaintiff's claim is dismissed. Defendant's Cross-Claim is dismissed.

CATCHWORDS: CONTRACTS - whether contract void for uncertainty - whether implied term - whether breaches entitling defendant to terminate contract - claim for damages

CASES CITED: Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (1982) 149 CLR 600
BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266
Brogden v Metropolitan Railway Co (1877) 2 App Cas 666
G Scammell & Nephew Ltd v HC & JG Ouston [1941] AC 251
Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115
Luxury Homes Pty Ltd v Danieli & Anor [2005] NSWSC 379
McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579
Meehan v Jones (1982) 149 CLR 571
Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451
Thorby v Goldberg (1964) 112 CLR 597

PARTIES: Luxury Homes Pty Limited (Plaintiff)
Margaret Patricia Lanham (Defendant)

FILE NUMBER(S): SC 55022 of 2008

COUNSEL: VRW Gray (Plaintiff)
VF Kerr (Defendant)

SOLICITORS: McCoy, Grove & Atkinson (Plaintiff)
Phillip A Biber (Defendant)

- 1 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
TECHNOLOGY & CONSTRUCTION LIST

BERGIN CJ in EQ

14 SEPTEMBER 2009

55022 of 2008 LUXURY HOMES PTY LIMITED v MARGARET PATRICIA LANHAM

JUDGMENT

1 The plaintiff, Luxury Homes Pty Ltd, and the defendant, Margaret Patricia Lanham, entered into a Joint Venture Agreement (the Agreement) in March 2004 to develop land in Frenchs Forest, a northern suburb of Sydney, New South Wales (the Project). The plaintiff claims that the defendant wrongfully repudiated the Agreement for which it is entitled to $1,418,821 in damages.

2 The defendant alleges that the Agreement is void for uncertainty, but if it is not, claims that the plaintiff was in breach of its obligations under the Agreement entitling her to terminate it. The defendant, by Cross-Claim, claims damages for the loss of profit she would have derived from the Project if it had been completed. There is an alternative claim for the costs incurred by the defendant during the Project.

Background

3 The managing director of the plaintiff is Barry George Alcock (Mr Alcock) whose son, Jay Justin Alcock (J Alcock), was at all relevant times employed with the plaintiff. Mr Alcock has been involved in property development projects for approximately 34 years and the plaintiff has been similarly involved for the last 6 or 7 years. The plaintiff’s involvement has been more in the nature of project management and development than development of land. However the plaintiff developed and completed three sites in the Frenchs Forest and nearby Killarney Heights area in 2004.

4 The defendant owned three properties in the Frenchs Forest area being, 19 Sturt Street and 75 Forest Way outright and 17 Sturt Street as a joint tenant with her husband. In about 2001 the defendant had a conversation with the owners of 77 Forest Way, Barry and Jenny Nolan (the Nolans), in which she asked them if they would be interested in joining with her to develop the four blocks, being her three properties and the Nolans’ property. The Nolans said they were interested but would prefer to give the defendant an option over their property rather than being a “partner” with the defendant. In about 2001 the defendant had a conversation with J Alcock (whom she had met socially in 1997) in which he informed her that Mr Alcock was doing some property development in the Frenchs Forest area and would be interested in doing a development with the defendant. At about this time the defendant spoke briefly with Mr Alcock but decided she would try to do the development herself. Her plan was to develop her properties and the Nolans’ property by demolishing all existing buildings and constructing 19 home units for “over 55” purchasers. After 18 months and $60,000 in costs, the defendant decided it was “not worth” pursuing the development any further.

5 Mr Alcock became aware of the defendant’s abandonment of her development plans and met with her in January 2004. The following conversation took place:

Mr Alcock: We should do this development. It’s a great opportunity to make money.

The defendant: I’ve just wasted $60,000 on this development. I don’t have any more money to put into it.

Mr Alcock: I will cover the costs. I will prepare a proposal and send it to you. The Nolans will be part of the development but I will deal with them. We could look at doing it on the three blocks if we can’t get a buyer for the Nolans. Your blocks would be valued at $2.2 million - $800,000 for 17 Sturt Street and $700,000 each for the other 2 properties. If the Nolans aren’t interested, we’ll do it on just your 3 blocks. After all expenses of the development have been paid, my company Luxury Homes will get 50% of the remaining profit; you will get three quarters of 50% and the Nolans will get one quarter of 50%.

6 The defendant advised the Nolans that she had met with Mr Alcock and that he may approach them in due course in relation to a proposed development.

The proposal – 27 January 2004

7 On 27 January 2004 the plaintiff wrote to the defendant in the following terms:

Following our discussions concerning the development of your land at Sturt Street and Forest Way I have considered the various ways of proceeding and think the most suitable way is as follows.

1) We will enter into a joint venture with you to produce the optimum development and profit.

2) We will purchase number 77 Forest Way to add to the three blocks owned by you

3) All four blocks will – if a DA is obtained – be used as security for the development finance.

4) We will attend to the design and planning to get the DA, Construction, finance and marketing.

a) To pay the mortgages over the properties.

b) (1) Return of your original equity in your land, i.e.: agreed present value less present mortgages, and (2) return of our purchase price of number 77 less any mortgage taken to purchase it.

c) Payment of any remaining development and selling costs

d) Payment to the owners of 50% of development profit

e) Payment of the other 50% to Luxury Homes.

The apportionment of the owners profit would be 75% to you in respect of 3 blocks and 25% to us in respect of 1 block.

Should we agree at some stage prior to obtaining development consent, to discontinue the application and abandon the project all costs incurred in relation to the proposal up to that stage are to be borne in the same proportion as the profits would have been.

Should we not acquire 77 Forest Way the development will consist of only three blocks and the distributions of profit and sharing of costs incurred will be adjusted accordingly.

The defendant’s concern

8 After receiving the letter of 27 January 2004 the defendant spoke to Mr Alcock and asked him “what risk am I at? I don’t want the home that I live in to be in jeopardy in any way. Should I go and see a solicitor?” Mr Alcock informed the defendant that he did not like to have solicitors involved and that he had “done a lot of these types of developments” and that he knew “how it all works”.

The plaintiff’s response – 12 February 2004

9 On 12 February 2004 the plaintiff wrote to the defendant in the following terms:

As we discussed I am providing some details/explanations on how we will minimise the risks when we do the development.

The property stays in your name so that no stamp duty is incurred and so that you feel comfortable. We will not deal with the property without your permission.

When we get development approval we will have the property valued and the project valued by the banks valuer for the purpose of refinancing and borrowing for construction.

We will negotiate a “fixed price” contract with a builder for a price consistent with the feasibility done by the valuer.

We will determine the market value for the units and may sell one or more off the plan. Thus we will know that the project is profitable before we start the building.

sic

a) We have the money to finish retained by the bank.

b) The builder must have Home Warranty Insurance to cover such a contingency.

In summary – we do not start the project without a fixed price contract and approved finance which will be controlled by the banks quantity surveyors.

Defendant decides to proceed

10 On 20 February 2004 the defendant’s then solicitor, Paul Tocchini, wrote to Mr Alcock confirming that he acted for the defendant and advising that the defendant “would like to move forward with the proposals set out in your recent letters including the latest letter of 12 February”. Mr Tocchini requested the plaintiff to submit a “formal agreement” and advised that if that agreement was “appropriate it will be signed off”.

Heads of Agreement

11 Mr Alcock drafted a document entitled “Heads of Agreement” and gave it to the defendant. It was in the following terms:

1) The owner and the company agree to enter a joint venture to develop and sell townhouses on the land

2) For that purpose the development will also include the land at 77 Forest Way Frenchs Forest

3) All 4 blocks will be used as security for the development finance

4) The Company will attend to the design and planning to obtain development consent, construction, finance and marketing

5) The net proceeds of the sale shall be distributed in the following order.

a) To discharge the mortgages over the 4 properties

b) Return to the owner the original equity in the land i.e $2.2 million less the present mortgages

c) Payment of any remaining development or selling costs

d) Payment to the owner of 37.5% of the development profit

e) Payment of the balance to the company

6) Should the parties agree prior to obtaining development consent to discontinue the application and abandon the project all costs incurred in relation to the proposal up to that stage are to be borne in the same proportion as the profits would have been.

Defendant’s letter – 22 March 2004

12 On 22 March 2004 the defendant wrote to the plaintiff in the following terms:

Please find attached signed Heads of Agreement for the Sturt Street/Forestway Development.

I am happy to leave all proceedings from now on to Luxury Homes, however please call on me if there is any way that I can assist.

What I would ask of you is that I receive an update report on the last Friday of each month, as to what progress has happened during the previous month. That way I won’t bother you with phone calls as I will want to know what is happening.

This can either be faxed to me on [number provided] or email: [provided]

Let me know if you have any concerns re this. Can you please sign and return this letter, plus return the Heads of Agreement also signed by you.

The Nolan’s Agreement

13 Mr Alcock met with the Nolans in February 2004 and on 11 March 2004 the plaintiff wrote to the Nolans with a proposal in respect of their property. That letter included:

As you know we are entering into an agreement with Maggie Lanham to develop 3 blocks of land owned by her which connects with your block. We propose that we enter into an agreement with you to purchase your property at a time to coincide the completion of the development.

The development would incorporate your block and you would be paid a premium for allowing development and a delayed settlement.

Although the profit made by Maggie will be fully taxable your situation differs in that you are not taking any of the development risk but are simply selling your house on a delayed settlement.

14 The enclosed “draft agreement” attached to the letter was in the following terms:

Heads of Agreement dated 26 ^th February 2004 between Jenny and Barry Nolan (the owners) of 77 Forest Way Frenchs Forest (the land) and Luxury Homes Pty Ltd of 285 George Street Sydney (the Company).

S = A + B

B = 12.5% of the profit on the development and sale of the townhouses.

15 The plaintiff advised the defendant that he had “signed up” the Nolans and that under their agreement they were to get one quarter of 50% of the profits and the defendant would get three quarters. It was not until February 2007 that the defendant received a copy of the Heads of Agreement between the plaintiff and the Nolans.

Development Application: March 2004 – mid 2005

16 Between April and December 2004 the plaintiff worked with its architects, other consultants and the local Council to prepare plans for a development application. On 24 December 2004 the defendant signed the application for development approval and the plaintiff lodged it with the Council.

17 Between March 2004 and mid-2005 the defendant rang Mr Alcock occasionally to obtain an update on progress of the Development Application (the DA). She claimed that during these conversations she asked him when he was going to provide her with the “monthly progress report” and Mr Alcock responded that everything was “on track” and that he would provide her with the reports as promised. The defendant did not receive any written reports on the progress of the DA or the development itself from the plaintiff. Mr Alcock did not accept that he had an obligation to provide the defendant with monthly update reports, however he did accept that the defendant was entitled to know what was happening (tr 126). He said that between March 2004 and December 2005 “there was nothing to communicate” and that “nothing was happening” (tr 127). This was during the period that documents were being drafted and lodged with the Council for development approval.

18 Shortly after 3 February 2005 the defendant received a letter of that date from the plaintiff which was in the following terms:

Development 17-19 Sturt Street & 75-77 Forest Way Rd Frenchs Forest

I know you said you did not have any money to put in for the development (which is not our normal arrangement) but I wonder if you could perhaps reimburse some of the extensive costs we have had on our project.

So far we have spent nearly $100,000 on Architects, Planners, Surveyors, Landscape Architects, Engineers, Council fees etc and the artist who produced those great perspectives.

Could you possibly contribute say $30,000 towards those costs?

19 At a chance meeting at the local shopping centre with Mr Alcock, the defendant advised him that she was happy to contribute the expenses of $30,000. She then received an invoice for that amount dated 10 March 2005 that she paid over the period March 2005 to January 2006. The Nolans advised the defendant that they had also been asked to contribute to the development costs but had decided not to do so because it was not part of the “deal”.

20 The defendant attended a Warringah Council meeting in late 2005 with J Alcock at which the development application for the Project was being considered and discussed by the Council members. The defendant’s evidence was that during June 2005 she spoke to Mr Alcock who explained that the proposed development was for over 55’s comprising “13 upmarket units with fittings of the highest quality”. The defendant informed Mr Alcock that she was happy for him to proceed and to do whatever he thought worked best.

Development Approval

21 In November 2005 J Alcock telephoned the defendant and advised her that development approval had been granted although it was not yet in writing.

22 On 24 November 2005 the plaintiff wrote to the defendant in the following terms:

Our Development Project

As we now have development approval, the next step is to have detailed building plans prepared and engage a certifier who will issue us with a construction certificate.

Up until now we have paid the majority of costs that have been incurred, which as I said was not our normal practice. We will need to obtain mortgage finance to fund the construction. Also we need to be reimbursed for our outlays.

Would you please indicate the extent of any mortgages currently existing on the properties and authorize us to begin negotiations for finance on your behalf.

23 On 29 November 2005 the plaintiff wrote to the Nolans in identical terms to the letter to the defendant of 24 November 2005.

24 On 13 December 2005 Warringah Council wrote to the plaintiff advising that, with certain amendments, the following development consent was granted:

The Nolans change position

25 In late November or early December 2005 the defendant met with Mr Alcock, J Alcock and the Nolans at the Nolans’ house to celebrate obtaining the development approval and to discuss proceeding with the Project. The following conversation took place:

Mr Alcock: Now we have the DA we need to organise finance for construction as soon as possible. We’ll use the equity in your house (indicating the Nolans’ house) plus the equity that Maggie has in her houses to organise the finance.

Mr Nolan: You can’t do that because we use the equity in our house to draw down funds from the Bank for our importing business as and when we need money. We are unfortunately presently in financial difficulty because of the closure of the Spastic Centre up at Allambie Heights where our goods have been impounded. There is some asbestos problem with the building which has put us in a really dire financial situation.

Mr Alcock: What do you want to do? Do you want to continue on or sell at this stage?

Mr Nolan: What would we get for it if we sold out at this stage?

Mr Alcock: I don’t really know. I’ve got people I can approach, but I’m pretty sure we’d get $825,000.

Mr Nolan: That seems to be the way for us to go. We’ll accept $825,000, but it has to be done quickly.

Mr Alcock: We should have a construction certificate by June next year. Then we’ll get quotes from Masterton Homes to build the development.

Mr Alcock: The value of the 4 blocks with the DA is $4 million.

December 2005 – March 2006

26 On 15 December 2005 the plaintiff wrote to the defendant as follows:

I enclose a copy of our heads of agreement. I also enclose a copy of our letter to you dated 12 ^th February 2004 which sets out the mechanics of the deal.

We are now at the stage where

1) We have to mortgage the properties to the bank which will be providing the project funding. Presumably St George.

2) We have to spend money to obtain our construction certificate.

3) We need to recover the costs we have paid to date.

4) We have to get the properties valued.

5) We have to get building quotes.

6) We have to arrange all of the funding.

sic

27 In January 2006 the defendant had a telephone conversation with Mr Alcock in which she asked him how the finance was to be arranged. Mr Alcock advised the defendant that he had not formulated the proposal for finance with any precision at that stage. It was then that the defendant decided to obtain legal advice concerning the Project and on 24 January 2006 she wrote to Mr Alcock in the following terms:

1. Who is to borrow the funds from the bank?

2. Who is to enter into the Contract with the builder?

3. What will be the terms of the Contract with the builder?

sic)

5. What additional costs have been, and are to be, incurred in addition to the building costs.

28 On 1 February 2006 the plaintiff responded to the defendant’s letter in the following terms:

1) Probably you with Luxury Homes and myself as guarantors.

2) Luxury Homes.

3) Standard AS 4000 contract.

a) There is already substantial profit by virtue of the DA

b) We will only enter a fixed price contract – presumably with Masterton Homes.

c) We will have established expected sales prices – realistically. These are anticipated to bring further substantial profits.

Traffic Cons $3,025
Architect $72,215
Handicap Access $1,320
Printing $815

$153,384

We will incur further professional fees to obtain the construction certificate and contract administration and project management estimated at $150,000.

The estimated construction costs for the 13 units is $3.9 million and the sales are estimated at 9.75 million.

29 On 10 February 2006 the defendant gave the plaintiff a copy of a letter from her solicitor, IE Duffield, to her of the same date. This letter dealt with a number of matters. The plaintiff responded to the matters raised in that letter by letter dated 13 February 2006, which included the following:

I have digested the letter from your solicitor and recognise that he is looking after your best interests. In my view our arrangement is simple and does not need lengthy and complicated legal documentation. However if you want him to prepare a longer agreement – I have no objection as long as the terms properly express what we have agreed.

I get the impression from his letter that an element of doubt or distrust exists. That is not the atmosphere we should be working in.

You will recall that we had many discussions prior to our written agreement whereby our methodology and principles were put to you. Our most important principle being that the “net profit” on the joint venture was to be shared equally. That is to say all the costs associated with the project would be shared equally as would the sale proceeds.

When you returned the heads of agreement and in our earlier conversations you expressed the desire to leave all proceedings to us. This is part of the deals we do. It is done that way to save you the hassles we have to go through along the way.

^th

30 In respect of the borrowings from the bank, the plaintiff advised that it had no objection to it being the borrower, but advised that the bank and the home warranty insurance provider would want the owner to be the borrower and to have the contract with the builder. The plaintiff advised that it and Mr Alcock would be the guarantors and that the defendant’s liability would be for the full borrowings but that “our agreement sees us as partners sharing income expenses and liabilities”. In dealing with the question in relation to interest, Mr Alcock advised that it was a cost of the project and as such should be borne equally, but that in negotiations interest would be capitalised and would not need to be paid monthly.

31 As to the identity of the contractor with the builder, the plaintiff advised that the insurance company would insist on the owner entering into that contract, and although the plaintiff would be happy to enter into the contract, it may not be practical. However the plaintiff advised:

32 There were also questions raised in the solicitor’s letter in relation to development approval costs and the costs for construction certificates. Mr Alcock advised that the architect’s fees would be as follows:

33 Mr Alcock also advised that he estimated the certifier’s fees at $5,000 and the basic feasibility, before the actual quotes were obtained, at: land value for the four blocks - $2.9 million; construction - $3.9 million; and sale proceeds - $9.75 million. At the conclusion of his letter of 13 February 2006 Mr Alcock said:

As I understand it we need to pay out $1,500,000 on your present loans, $150,000 in costs to date and $825,000 for Jen and Barry less their share of costs to date say $37,500. We then borrow for construction.

34 By email dated 13 February 2006 the defendant thanked Mr Alcock for his prompt response and agreed that her solicitor did have an element of doubt and distrust but that she thought it went with his profession. That email included the following:

Please be assured that I do not have these thoughts. Ian is, however looking after my interests, in a better way than I can. What I don’t want to happen is the misunderstanding that Jenny and Barry had about their arrangement (which I was not privy to) and which was only clarified with them at the last meeting – whereupon they decided to sell out of the arrangement.

35 On 20 February 2006 the defendant forwarded a further letter from her solicitor to the plaintiff with a covering letter which included the following:

A main concern I have is re the finance. I am to be the borrower with Luxury Homes and you as guarantors.

Ian notes that if there were default under the mortgage and the properties sold, the bank could look to you for any shortfall. However the bank is not obliged to chase you, the guarantors, and may look to me as the borrower.

I know this is the worst case scenario, however I am not prepared to risk ‘everything’ for this project; I am prepared to risk the four properties – but not the rest of my assets – i.e. I don’t want to lose the place I am living in.

Can you advise what can be put in place as an ironclad safeguard against this.

Building contract – as you are to arrange the contract with the Builder and monitor it, I think it is best you enter the contract with the builder – as stated in your letter of February 1, 2006.

I have just received a land tax bill on the properties for 2006 which I will pay – can you confirm that future land tax bills will be paid by the project.

36 The letter from the solicitor dealt with many of the matters that were in the first letter. On 21 February 2006 Mr Alcock responded in terms that included the following:

Our problem is not so much the profitability and risk of the project but our capacity to fund it. Normally we have a situation where the land value at the start of our joint ventures is increased considerably when development consent is granted. Usually the increased value – plus the existing equity in the land provides enough equity in the project to enable the full construction costs to be borrowed.

If the 4 blocks were valued today they would probably be worth $2.5m. Unfortunately, after buying the fourth block the debt will be $2.325m. Under our original agreement including Jen and Barry the debt would only have been $1.8m. The valuer would probably value the site with the DA at about $3.25m. To fund the project we would need to borrow the $2.325m plus $3.9m for the construction. Whereas before we would only need $1.8m plus $3.9m.

The bank would only advance 80% of the improved land value plus construction costs. That means we would need an equity of 20% = $1.43m – but we only have $0.9m ($3.25 - $2.325). Before we would have had $1.45m.

Thus – as you can see all the concern about the future and the potential risk is perhaps premature. I think the right thing to do now would be to sit tight and wait for the perception of a drop in values to disappear. The DA is good for 5 years and in that time the market will increase (according to RESIDEX) at the rate of 8-12% p.a.

As I do not know anything about your financial position I can not offer you any advice in that regard but if you rent out the four properties rather than the 3 now I presume that the shortfall against interest is manageable.

The other two options are to sell the consolidated site with a DA or to seek another equity participant.

37 On 21 February 2006 the defendant responded to Mr Alcock by email advising that she would contact her accountant and organise a time to suit all parties. She expressed disagreement with the estimated value of $2.5 million and also referred to the plaintiff’s recent statement that with the DA the four blocks would be worth $4 million, which he had revised to $3.25 million. She suggested that perhaps the properties should be valued so that they had a clear idea of their worth. That communication included the following:

I should also be very clear that I am not prepared to wait 5 years for the development and I am not prepared to take on another property for another 4-5 years. - you say that the shortfall against interest is manageable – I find it hard enough to manage the properties I have as it is now, let alone taking on another property for an indeterminate ( sic ) time.

Perhaps if you find the interest is manageable, it might be best if you purchased the 4 ^th property or found another equity partner.

The main query I had, and this will not change, is that I will not be put at risk for anything more than the value of the properties in the development – can you advise re this in relation to the figures…in your letter today.

38 On 23 February 2006 Mr Alcock wrote to the defendant agreeing with her in relation to valuations but noting that one of his regular frustrations was trying to convince valuers they were wrong. That email also dealt with the solicitor’s further questions. It reiterated that the arrangement between the plaintiff and the defendant saw the defendant getting first distribution at the rate of $2.2 million for three blocks and $2.9 million for four blocks. It also included reference to the agreement that the plaintiff was the last one to be paid after all expenses and after the distribution to the defendant.

The Valuation – March 2006

39 The plaintiff obtained a valuation report dated 21 March 2006 from Carritt Taylor Valuations Pty Ltd. That report was to assess the then current market value of the four properties reflecting the existing development consent for a medium density development under SEPP (Seniors Living) 2004. It included the following:

Currently, the residential real estate market is demonstrating a more positive mood. It is generally perceived that prices have bottomed out and there has been a noticeable increase in enquiry in recent months. Whilst values are not expected to increase for some time, the prevailing activity is encouraging.

…

VALUATION RATIONALE

In the absence of comparable sales of medium density redevelopment sites with SEPP (Seniors Living) 2004 approval, we have had regard to hypothetical development or residual value calculations. Assumptions made in this exercise are:-

Gross realisation of $9,750,000 which is based on an average price of $750,000;
Construction cost of $3,575,000 including GST;
Professional fees at $250,000;
Statutory contributions of $30,000;
Construction period of twelve months;
Marketing commencing at three units per month for the first two months, then two units per month for the next two months, with one unit in each month for the following three months, resulting in a total selling period of seven months from completion;
Profit and risk of realisation of at least 15%; and
Interest assessed at 9.5% on 100% borrowings.

Details of our calculations are included hereunder:-

Gross Realisation		$9,750,000
Less:	GST on End Sales (Margin Method)	$ 581,818	$ 9,168,182
Less:	Marketing Expenses	$ 268,125
Plus:	Input Credits on Marketing	$ 24,375	$ 243,750
$ 8,924,432
Less:	Profit & Risk @ 15.42%	$ 1,192,097
$ 7,732,335
Less:	Development Expenses incl GST	$3,855,000
Rates & Taxes	$ 15,445
Project Interest	$ 651,844
Acquisition Expenses	$ 208,535
$4,730,824
Plus:	Input Credits on Development Exp.	$ 348,489	$ 4,382,335
DEDUCED LAND VALUE	$ 3,350,000

The above calculations support a market value of the site reflecting the existing Development Consent, of $3,350,000 (Three Million Three Hundred & Fifty Thousand Dollars ). This figure which equates to $257,692 per site is considered to be indicative of market.

We refer to your request to provide an approximate value range for the individual homes, on a single residential basis, ignoring any approval. It is highlighted that this opinion, is given in accordance with your instructions from external inspection only, and is to be used as a guide only and should not be construed as a formal valuation, which requires full detailed inspection, research and analysis.

On this basis, we believe that the values of the properties could lie in the range as follows:-

Property	Value
17 Sturt Street	$650,000 to $700,000
19 Sturt Street	$600,000 to $650,000
75 Forest Way	$550,000 to $600,000
77 Forest Way	$550,000 to $600,000

Alternatives for the Nolan’s property

40 On 12 April 2006 the defendant advised Mr Alcock that she had received a telephone call from the Nolans on 10 April 2006 asking to know what was happening. She advised Mr Alcock that she was surprised by this as he had informed her that he was to call them the previous week in relation to what options were available for them. The defendant advised Mr Alcock that she informed the Nolans that he had the valuations and that she had asked for a meeting. The defendant advised Mr Alcock that she had been thinking about the situation and wondered whether “the following would work”; that she would buy the Nolans’ property then for $600,000 and that they would receive the remainder of the agreed value less the DA costs on completion/sale of the development. The defendant asked whether the other three properties would give “us” enough equity to satisfy the banks.

41 On 18 April 2006 the defendant wrote again to Mr Alcock advising him that she had spoken with two friends the previous weekend, both of whom were interested in the development and both of whom had money to invest. The defendant advised:

I explained the arrangement I had with you – but they had lots of questions that I could not answer.

Could you please send me details of how the arrangement would work with them (how the financing would work); what the ‘figures’ are – i.e. what they would make out of it; one also wanted to know how long he would have to finance the mortgage of the one property before the development finance took over.

If you could get these details to me asap – I think they will make a decision quickly – and hopefully one of them will take up the opportunity.

Also, can you advise how you got on re speaking with [the Nolans] about putting their property on the market.

42 On 27 April 2006 Mr Alcock forwarded a letter to the defendant in the following terms:

1) They acquire Jen and Barry’s block for $750,000.

2) They could probably borrow $480,000 against the property.

3) They would rent the property for say 6-12 months and pay the interest on the borrowings.

4) We would then obtain finance for the development and begin work. The rent and interest would cease.

5) 12-18 months later the units would be sold.

6) They could make as much as $250,000 profit, i.e. 93% on the equity they put in.

7) As a protection for them we would (as a bottom line) buy back the property for what it cost them.

43 On the same day the defendant requested that Mr Alcock also provide the details of the arrangement between Luxury Homes and the person buying the property. There was no response to that request and on 2 May 2006 the defendant asked for a reply and wrote:

44 The defendant advised that she would be away between 10 and 29 May 2006 and wanted to finalise the information prior to her departure. That did not happen and on the defendant’s return from overseas on 29 May 2006 Mr Alcock wrote to her in the following terms:

I have been continually thinking about our situation. I feel strongly that it is in your best interests to refinance the 4 blocks and generate almost enough money to buy Jenny and Barry’s property.

The 4 blocks have been valued at $3,350,000 with the DA. As I understand it you have loans of $1.5m against your 3 blocks. We could borrow 65% against the DA value – that is $2,177,500. You could borrow say $100,000 against your home and purchase their block.

To ease your concerns we would make the same offer to you that we suggested to your “new purchaser”. That is buy the block for $750,000 and we would guarantee to pay you as a “bottom line” scenario that $750,000.

This really is the best way to go and does not introduce potential problems with new partners.

By borrowing only 65% at this stage that should enable us to take that up to 80% and also fund 80% of the construction costs.

45 On the same day the defendant wrote to Mr Alcock in the following terms:

I agree that this would be the best way if it could be done.

Are you saying that Jenny and Barry will accept $750,000 for their property – can you confirm this definitely before I speak to my financial people.

46 Between June and November 2006 there were a number of email communications between the defendant and Mr Alcock in which the defendant sought information about what was happening with the Nolans. Mr Alcock advised that the Nolans were still making up their minds as to what they wished to do with their property.

47 On 6 December 2006 the defendant wrote to Mr Alcock in the following terms:

Approval was given for the development 1 year ago today. Unfortunately it seems we have taken steps backwards rather than forwards since December 6, 2005; and I have been trying for three weeks now to get an update on what is happening, if anything, or what you intend to happen.

48 On 6 December 2006 J Alcock wrote to the defendant in the following terms:

The current status is that after 3 conversations over many weeks with Barry Nolan he still has not made up his mind what he wants to do. We need, as before, to buy him out and I have been strongly putting to him that all someone would pay is $700,000. However we need him to make up his mind to sell.

We have a valuation which I think is high enough for us to refinance your three blocks and pay Barry $700,000. That would see you owning all four blocks and things would run more smoothly.

sic

49 On 6 December 2006 the defendant responded in the following terms:

Thank you for finally letting me know what is going on; so in fact Barry and Jenny have control over the situation, which they have had for the past year; I am not prepared for this to continue indefinitely – and I am finding it increasingly difficult to pay the three mortgages with so many interest rises.

Nolans decide not to sell –December 2006

50 A couple of days after these communications the defendant had a telephone conversation with Mr Alcock in which he advised her that the Nolans had decided not to sell their property but to renovate it. The defendant claims that Mr Alcock agreed that he could force the Nolans to continue in the agreement but that he would check to see whether it was possible to do the development with only the three blocks owned by the defendant. The defendant questioned Mr Alcock about this saying that he had already advised her that it was possible. Mr Alcock then informed the defendant that he had to obtain some more information and he would let her know when he obtained it. Mr Alcock denied that this conversation took place and that the only time he discussed the possibility of using only three blocks for the development was prior to entering into the agreements with the defendant and the Nolans in 2004.

51 On 11 December 2006 the defendant wrote to Mr Alcock in the following terms:

Hi – further to your call Barry last week, advising that Barry Nolan has said he has decided to stay in his place and renovate.

It has taken a year to get to this stage and we have been through many different scenarios, many things said that have been misunderstood and it is now time for us to work out a way forward.

Firstly everything that is decided must now be put in writing – so that there are no future misunderstandings.

I have some ideas of what we can do and I am sure you do as well. As discussed last week you will now check the feasibility of doing the development on my three blocks only; you had always said this was possible and then last week you said it may not be – so this needs to be sorted out absolutely.

Can you advise when this information has been ascertained – and then I propose we meet to discuss our options.

I am prepared to be patient re market prices of properties for as long as I can – even though this is financially difficult for me; however I am not prepared to be patient and hope that the Nolans will somehow ‘come on board’.. The Nolans must also realise the consequences for them if they decide not to go ahead with their share of the development. I had hoped that you and the Nolans would work this out, but after a year of ‘waiting’ for the Nolans to make up their minds about what they are going to do, this is obviously not going to happen and so now I am going to become more involved (which was not my original intention or wish) so that the development can move forward.

52 The defendant did not receive a prompt response to this email and on 8 January 2007 she wrote again to Mr Alcock asking him to reply to her email of 11 December 2006. On the same day J Alcock advised the defendant by email that Mr Alcock was still on holidays but that he would speak to him and respond to the defendant shortly. On 19 January 2007 the defendant wrote again advising that she was still awaiting a response to her email of 11 December 2006. Approximately a week later the defendant spoke with Mr Alcock on the telephone asking him what was happening with the Nolans and whether it was feasible to proceed with the development with her three properties. Mr Alcock advised that he was visiting the Nolans on 25 January 2007 and he would let the defendant know the outcome of that meeting, and said he would prefer to proceed with the 4 properties as the DA was already in place. On 31 January 2007 the defendant, having not heard from Mr Alcock, wrote asking what had happened at the meeting with the Nolans.

53 On 1 February 2007 Mr Alcock wrote to the defendant in the following terms:

We have spoken to Barry & had a look through the property.

We can not use the D.A. for only three blocks.

I told Jen that we would arrange a meeting with the four of us to discuss where we go from here.

I have re read my agreement with them under which they have to enter a contract with me which has to settle on completion of the project.

If they will not come to some agreement satisfactory to us we can insist that they stay with our agreement.

54 On 2 February 2007 the defendant requested a copy of the contract between the plaintiff and the Nolans and a breakdown of what the Nolans could expect to make out of the development if they stayed in it. The defendant also agreed to meet the following week and asked Mr Alcock to clarify what he meant in relation to the DA for the three blocks. She asked whether they could modify the current DA or was it the case that a development with only the three blocks was not possible.

55 On the same day Mr Alcock advised that his conversations with the Nolans were along the lines of trying to organise the Nolans pay out. He provided the defendant with a copy of the agreement with the Nolans and said that the basic premise on the deal was that the Nolans would get about $1 million.

Meeting with the Nolans – 8 February 2007

56 A meeting was arranged between the plaintiff, the defendant and the Nolans for 8 February 2007. Prior to the meeting the defendant had a brief conversation with Mr Alcock in which he advised her that he was going to offer the Nolans $700,000 immediately and $125,000 on completion. The defendant agreed that she would leave the negotiations to Mr Alcock. At the meeting Mr Nolan advised that they wanted $825,000 paid as soon as possible and not by instalments. He requested that any proposals be put in writing and that he and Mrs Nolan would consider them. After the meeting Mr Alcock advised the defendant that he would formulate a proposal to put to the Nolans. Mr Alcock said he thought there were two options; first, to offer to pay $700,000 immediately and $125,000 as soon as finance allowed; secondly, to offer $700,000 immediately and $300,000 when the development was sold. The defendant observed that the Nolans had said they wanted to be paid in full upfront and wondered why Mr Alcock was continuing to offer the split payments. The defendant claimed that after the meeting she received a telephone call from Mr Nolan confirming that they would only accept a full upfront payment and no split payments.

57 On 13 February 2007 the defendant asked Mr Alcock to provide any proposal to her prior to it being put to the Nolans. On 7 March 2007 Mr Alcock advised the defendant that he had been working with “our broker on the refinance to buy out” the Nolans and that the broker believed that “we can do it but he needs to know whether if you buy it would we need what is called a low doc loan or would you provide details of your income and see if it stacks up”.

March/April 2007

58 On 20 March 2007 the defendant wrote to Mr Alcock emphasising that it had been two months since the meeting with the Nolans which seemed an inordinate length of time to put together the two suggestions they were interested in; to pay them $700,000 immediately and $125,000 as soon as finance allowed; or pay them $700,000 now and $300,000 when the development was sold. The defendant requested that Mr Alcock advise her when he could show her what he thought would work. There was further discussion between the defendant and Mr Alcock in relation to the defendant’s assets and capacity to pay any loans.

59 On 21 March 2007 the defendant advised Mr Alcock that as she understood the development, the loan repayments would come out of the refinancing and she would not be expected to pay any additional loan repayments and requested confirmation of her understanding. On the same day Mr Alcock advised by email that there were “several steps”; firstly to get an investment loan to buy the Nolans’ block; then to generate enough funds to pay for the costs related to the construction; and when they were ready to undertake construction, to borrow for that purpose with interest capitalised thereafter. The defendant wrote back immediately after this communication as follows:

You didn’t answer my question – am I expected to pay the difference between the rent received and the investment loan to buy the Nolans’ block?

As I understand it, you were going to refinance the whole development and this is where the money would come from to buy the Nolan’s block, plus costs related to construction costs.

60 On 22 March 2007 J Alcock advised the defendant that a meeting had taken place with the broker and that he and Mr Alcock were putting some details together to send to her so “we can look at moving forward”. That information was provided in the following form by email dated 28 March 2007:

1) We could borrow up to 65% against the value with the DA that would provide only $2,177,500 which is not quite enough. This would be expensive at 2% higher interest than the alternative with an establishment fee of 2%.

2) We could borrow against each block separately to a total of 80% of the value of each. We would need to have each property properly valued. Jay and I believe the four may total $2,800,000 and provide $2,240,000 which would just do. We would need to buy the property in your name because it would be preferable to have only one owner when the time comes to borrow for the development. We need part of the equity in your blocks as part of the equity for the 100% funding of $700,000 for the Nolan’s block. Our broker is trying to give us favourable valuations and his current estimates are:

$2,800,000

80% = $2,240,000

The funds would be used to pay out your mortgages, $1,400,000 and purchase Nolan’s block for $700,000 and reimburse part of the costs paid by us to date.

3) We will need a statement of your assets and liabilities and a copy of your tax return or other income details. We will need to demonstrate the capacity to pay the amount by which the interest exceeds the rentals.

4) We are prepared to meet half of the difference between interest in respect of the Nolan’s block and the rent paid by the tenant.

61 On 29 March 2007 the defendant asked a number of questions about this information including: the interest rate in relation to option 2; the amount of repayments per week; what would happen when the properties were no longer rented when construction began; and what Mr Alcock was proposing to offer the Nolans in addition to the $700,000. On 3 April 2007 the defendant requested a response to those questions. On 13 April 2007 the defendant wrote to Mr Alcock as follows:

I am at a loss to understand why you have not replied to my email of last week or my email of two weeks ago – as below. These were just simple questions.

62 On 16 April 2007 Mr Alcock responded to the defendant’s questions advising that: the interest rate was 7.37%; the weekly payments would be $3,175; additional interest would not need to be paid if it were capitalised by the lender; and that he was proposing to offer a figure of $100,000 to $125,000 to the Nolans but they would have to agree on that number.

63 On 17 April 2007 the defendant had a telephone conversation with J Alcock in the following terms:

Defendant: This is just ridiculous. You’re not answering my emails or telephone calls – it has been over 15 months since we got the DA and we are not one step forward. Why don’t you let me know what’s going on?

J Alcock: I’ll send you fortnightly updates on the progress of the development. I will send the first update on Friday, 27 April.

Defendant: Can you show me details of the costs incurred so far?

J Alcock: We have all the invoices to get the development approval at our office. You can come in on Friday to look at them.

Defendant: I will also want to see proof of payment of the invoices by Luxury Homes.

J Alcock: That may take some time to put together.

Defendant: Its no use me coming to look at invoices until you have collated proof of payment.

64 On 18 April 2007 the defendant sent the following email to Mr Alcock and J Alcock:

…further to our discussions on Tuesday night, following is the action that was decided.

1. you will send me fortnightly updates on progress of the development – the first one to be on April 27.

2. you invited me to your offices on Friday to look over the invoices re the development approval. I also asked to see proof of payment by Luxury Homes of these invoices; you said this may take some time to put together; can you advise by COB on Thursday, April 19 if you have all the required information – otherwise we can reschedule it for next week.

3. The valuer, Andrew Woodjer (sic) called; it has been arranged to do the valuations on my 3 properties from 10-12.30 next Monday, April 24; he said he will liaise with Barry Alcock re doing a valuation on the Nolans at 9.30am.

Meeting – 17 May 2007

65 J Alcock delayed the meeting for a further week and then the defendant had to reschedule the meeting to suit her convenience. For various other reasons the meeting did not take place until 17 May 2007. That meeting was between the defendant and J Alcock as Mr Alcock was not well. The defendant wrote by email on 18 May 2007 to Mr Alcock and J Alcock in the following terms:

Action following May 17 meeting – Jay Alcock and Maggie Lanham; Barry Alcock sick.

Jay advised we may need presales before getting construction finance.

Jay sending bank statements verifying payment of invoices re development approval stage.

Jay check re refinancing the four properties or just the Nolan’s property – and to advise.

Jay to find out the construction costs to get to tender stage.

Jay said the Nolans have accepted $700,000 – it is now to be decided additional amount; I think we should offer them a further $100,000 plus their portion of development approval costs.

Jay advised the following valuations -

17 Sturt Street $860,000

19 Sturt Street $650,000

77 Forestway $630,000

75 Forestway $610,000

Jay advised the following timetable should be in the vicinity of action -

Mid June – refinance organised

Sep 1 – construction certification ready to go to tender

Oct 1 – prices from builders

151 The plaintiff’s claim against the defendant will be dismissed.

Defendant’s Claim for Damages

152 The defendant successfully claimed that the Agreement was unenforceable by reason of its uncertainty. In those circumstances the defendant’s claim for damages for breach does not need to be considered. However because I have approached the matter on the basis that I would decide the issues on the presumption of enforceability, it is appropriate to deal with this aspect of the matter.

153 The defendant claimed that the lawful termination of the Agreement on 8 August 2007 entitles her to damages for the loss of bargain arising from that termination. The defendant called no evidence to establish the loss of bargain case and the only claim that was pursued was the difference between the rental receipts of the properties and the mortgage payments for the period January 2006 to the date of sale of the properties.

154 The defendant claims damages for the costs she incurred in continuing to hold her three properties after January 2006. The evidence establishes a holding cost for that period of $192,554.43. It was submitted that had the plaintiff performed its obligation to acquire the Nolans’ land and attend to the construction, financing and marketing of the Project within a reasonable time then by January 2006 the defendant would no longer have been bearing those costs.

155 The development approval obtained by the plaintiff was at its cost, albeit that the defendant paid $30,000 towards those costs. The costs of obtaining the development approval were quantified in the plaintiff’s letter of 1 February 2006 at $153,384. The plaintiff advised the defendant it would incur further professional fees to obtain the construction certificate and for contract administration and project management estimated at $150,000. The plaintiff did not call any evidence to establish the amount of any further costs incurred by it during the Project. The defendant requested verification of the costs referred to in the letter of 1 February 2006. Although there was some conflict between the evidence of the defendant and J Alcock in relation to these requests, the defendant did not call any evidence to suggest that the costs referred to in the plaintiff’s letter of 1 February 2006 were not properly incurred. In correspondence post purported termination between the defendant’s solicitor and Mr Alcock, the plaintiff claimed that the costs incurred were $182,643. The defendant’s solicitor claimed that the tax invoices suggested that the correct figure was $171,686.95. In all the circumstances I intend to take this latter figure as the costs incurred by the plaintiff.

156 I think it is reasonable to bring these costs to account in determining the defendant’s claim for damages. Although the plaintiff agreed to pay these costs and to recoup them out of the profit of the development, it would not be fair to burden the plaintiff with the whole of these costs in such an assessment. I think it is appropriate that the burden of these costs be borne equally between the plaintiff and the defendant. Accordingly each party would be responsible for payment of $85,843.48. The defendant has already paid $30,000 and her remaining liability for these costs would be $55,843.48

157 The defendant claimed an entitlement to the holding costs for the period January 2006 until the sale of each of the properties. After the Nolans advised the plaintiff and the defendant in December 2005 that their property could not be used as security for construction finance, the defendant continued to negotiate with the plaintiff in relation to the process to be adopted to secure or to attempt to secure the Nolans’ property. The unavailability of the Nolans’ property as security for the development was the real impediment to progressing the refinance of the properties. It is true that the defendant relied upon the plaintiff to progress the Project and the first step to be taken in that regard was as outlined in the plaintiff’s letter to the defendant on 15 December 2005, to mortgage the properties to the bank that would be providing the Project funding. Neither party had the funding absent the Nolans’ property, however the defendant continued to discuss with the plaintiff the alternative ways in which the Nolans’ property could be brought into the development. It is true that those discussions were less than satisfactory because Mr Alcock did not respond to the defendant’s requests promptly. It is obvious that an element of distrust entered the relationship and once Mr Alcock’s son met with the defendant in May 2007 a timetable was put in place that required refinancing of the Project by mid June 2007.

158 It became clear in late June 2007/early July 2007 that the plaintiff was not going to acquire the Nolans’ property nor were the Nolans going to agree to the alternative methods of acquisition which involved a part payment. I am satisfied that the defendant would be entitled to the holding costs, less the rental receipts for the period July 2007 to the date of sale of those properties. The holding costs for 17 Sturt Street were $33,746.35 or $1,088.60 per month. The holding costs for 19 Sturt Street were $70,001.76 or $2,333.39 per month. The holding costs for 75 Forest Way were $88,806.32 or $2,466.84 per month. Accordingly the defendant would be entitled to 13 and 12 months holding costs for 17 and 19 Sturt Street respectively, totalling $14,151.80 and $28,000.68. The defendant would also be entitled to 18 months holdings costs for 75 Forest Way totalling $44,403.12.

159 The defendant would be entitled to $86,555.60 in holding costs less her liability for the costs of obtaining the development approval of $55,843.48. If the Agreement were enforceable, the defendant would be entitled to entry of judgment in the amount of $30,712.12.

Conclusion

160 The plaintiff’s claim is dismissed. The defendant’s Cross-Claim is dismissed. If the parties are unable to agree on a costs order I will hear argument when the matter is fixed for the filing of Short Minutes of Order at 9:30 a.m. on 25 September 2009.

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Citations

Luxury Homes Pty Limited v Margaret Patricia Lanham [2009] NSWSC 873

Most Recent Citation

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Statutory Material Cited

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CITATION:	Luxury Homes Pty Limited v Margaret Patricia Lanham [2009] NSWSC 873
HEARING DATE(S):	10, 11, 12 and 13 August 2009
JUDGMENT DATE :	14 September 2009
JURISDICTION:	Equity Division
JUDGMENT OF:	Bergin CJ in Eq
DECISION:	Plaintiff's claim is dismissed. Defendant's Cross-Claim is dismissed.
CATCHWORDS:	CONTRACTS - whether contract void for uncertainty - whether implied term - whether breaches entitling defendant to terminate contract - claim for damages
CASES CITED:	Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (1982) 149 CLR 600 BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 Brogden v Metropolitan Railway Co (1877) 2 App Cas 666 G Scammell & Nephew Ltd v HC & JG Ouston [1941] AC 251 Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115 Luxury Homes Pty Ltd v Danieli & Anor [2005] NSWSC 379 McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579 Meehan v Jones (1982) 149 CLR 571 Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 Thorby v Goldberg (1964) 112 CLR 597
PARTIES:	Luxury Homes Pty Limited (Plaintiff) Margaret Patricia Lanham (Defendant)
FILE NUMBER(S):	SC 55022 of 2008
COUNSEL:	VRW Gray (Plaintiff) VF Kerr (Defendant)
SOLICITORS:	McCoy, Grove & Atkinson (Plaintiff) Phillip A Biber (Defendant)