Maxwell v Moorabool Developments Pty Ltd
[2004] VSC 392
•14 October 2004
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL LIST
No. 2037 of 2003
| TIMOTHY KEITH MAXWELL AND MEDLEY CLOSE PTY LTD (ACN 007 135 186) | Plaintiffs |
| v | |
| MOORABOOL DEVELOPMENTS PTY LTD AND DAVID JOHN SCOTT (ACN 005 906 507) | Defendants |
| AND BETWEEN | |
| MOORABOOL DEVELOPMENTS PTY LTD (ACN 005 906 507) | Plaintiff by Counterclaim |
| v | |
| TIMOTHY KEITH MAXWELL AND MEDLEY CLOSE PTY LTD (ACN 007 135 186) | Defendants by Counterclaim |
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JUDGE: | HABERSBERGER J | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 27-31 OCTOBER; 3, 5-7, 10, 11, 17-19 NOVEMBER 2003 | |
DATE OF JUDGMENT: | 14 OCTOBER 2004 | |
CASE MAY BE CITED AS: | MAXWELL v MOORABOOL DEVELOPMENTS PTY LTD | |
MEDIUM NEUTRAL CITATION: | [2004] VSC 392 | |
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Contract – Terms of Agreement concerning share of profits of property development – Whether developer's project manager and sales agent required to hold written engagement – Sections 4, 49A and 50 of the Estate Agents Act 1980 – Whether 17 alleged contracts of sales of lots in development existed – Whether nine signed contracts of sale were signed with intention to create legal relations – Agent's breach of fiduciary duty – Whether stance that no deposit was payable constituted repudiation of contact – Whether alleged improper purpose of contracts could be relied on to defeat purchaser's claim – Whether purchaser should be denied order for specific performance because of unclean hands – Caveats lodged as dealing tool – Whether there was honest belief based on reasonable grounds for lodging of caveats – Section 118 of the Transfer of Land Act 1958.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr M.D.G. Heaton QC with Mr J.B. Nunns | Maddens Lawyers |
| For the Defendants | Mr C.R. Northrop | Harwood Andrews Lawyers |
HIS HONOUR:
The Issues in the Proceeding
This proceeding involves a number of disputes which arose out of a property development on Lots 1 and 7 Allenby Road, Hillside ("the Hillside land"). Very broadly, these disputes can be grouped into four separate but related issues.
The first issue was whether an agreement alleged by the first plaintiff, Timothy Keith Maxwell, to have been made between himself and the second defendant, David John Scott, or the first defendant, Moorabool Developments Pty Ltd ("Moorabool") in late June 2001 was an agreement jointly to purchase, subdivide, develop and sell the Hillside land with each party entitled to a half share of the profits. It was pleaded in the Further Amended Statement of Claim filed on 28 October 2003 that the terms of the alleged joint venture agreement were that Mr Maxwell would negotiate the purchase of the Hillside land, project manage the development and subdivision and conduct the marketing and sale of what became the 80 lots in the development and that Mr Scott would be totally responsible for the provision of all necessary finance to enable the purchase, development and subdivision of the land in question and that the parties would share the profit equally. It was further pleaded that in addition Mr Maxwell would be entitled to a commission of $2,000 for each lot sold by him. In order to assist Mr Scott to raise the necessary finance, Mr Maxwell said that it was agreed that the Hillside land could be purchased in the name of Mr Scott or his nominee but that Mr Maxwell would be entitled to secure his interest in the joint venture by lodging a caveat. As the first defendant Moorabool Developments Pty Ltd ("Moorabool"), subsequently became the registered proprietor of the Hillside land on the nomination of Mr Scott, it was pleaded that it thereby became a party to the joint venture agreement.
In the Second Amended Defence and Counterclaim filed on 31 October 2003, the defendants denied the existence of such an agreement. However, Moorabool pleaded that by an agreement made between it and Mr Maxwell between July and December 2001, Moorabool agreed to engage Mr Maxwell to provide management and sales services for Moorabool in connection with the subdivision, development and sale of the Hillside land acquired or to be acquired by Moorabool and that Moorabool would pay to Mr Maxwell 10% of the net profits of the development payable on completion of the sale of the last of the subdivided lots forming part of the development and $2,000 per lot on the completion of the sale of each lot sold by Mr Maxwell to a party not related to him.
In this proceeding, Mr Maxwell sought an account of profits in the sum of 50% of the total profits of the development.
Mr Maxwell also sought judgment for the sum of $126,000, being $2,000 per lot for each of the 63 lots in the 80 lot development which had been sold by him to third parties. The second issue was whether by reason of s.50 of the Estate Agents Act 1980 Mr Maxwell was not entitled to sue for or recover or retain his commission or agreed selling fee because he did not hold a written engagement as required by s.49A of that Act.
The third issue concerned 17 contracts of sale allegedly entered into by Moorabool whereby it sold 17 lots in the development to the second plaintiff, Medley Close Pty Ltd ("Medley Close"), 15 at a price of $90,000 per lot and two at a price of $92,000 per lot. Medley Close was the trustee of Mr Maxwell's family trust. It was pleaded on behalf of Medley Close that the 15 contracts of sale were signed by Mr Scott on behalf of Moorabool on 7 June 2002 whilst sitting in Mr Maxwell's car in Geelong, and the other two some weeks later at Mr Scott's office. Mr Scott denied signing the 17 contracts of sale and pleaded that his purported signature on the 17 copy contracts produced by Mr Maxwell were forgeries. The original 17 contracts, which Mr Maxwell said he gave to Mr Scott, were not produced.
However, it was admitted that Mr Scott on behalf of Moorabool did execute nine original contracts of sale to Medley Close, which were produced. Mr Scott said that these nine contracts were signed by him at the request of Mr Maxwell to be used as evidence of sales in a forthcoming meeting with representatives of the National Australia Bank Ltd ("the NAB"), a potential financier of the development. Mr Scott said the contracts were not shown to the NAB representatives and he subsequently agreed with Mr Maxwell that they were no longer operative. The nine lots the subject of the nine contracts of sale were part of the 17 lots allegedly sold to Medley Close. The purchase price in each of the nine contracts of sale was $90,000.
Medley Close sought an order for specific performance of the 17 contracts of sale, alternatively the nine contracts of sale. Apart from the question of whether or not the 17 contracts ever existed, the third issue involved questions of whether, as pleaded by the defendants, the nine contracts had been terminated by agreement or by acceptance by Moorabool of Medley Close's repudiation or whether the nine contracts were not enforceable by reason of breaches by Mr Maxwell of his fiduciary obligations, of which breaches Medley Close was aware.
The fourth issue concerned caveats lodged by Mr Maxwell over the Hillside land and by Medley Close over the 17 lots. In its counterclaim, Moorabool sought orders for the removal of the caveats and compensation from Mr Maxwell and Medley Close for the damage suffered by Moorabool as a result of the lodging of the caveats.
It was agreed that this was a trial on liability only.
The Factual Background
The following is a summary of the evidence of the 14 witnesses called at the hearing. Although all of the proposed witnesses had sworn affidavits, I ruled that the two most critical parts of the evidence should be given orally by Mr Maxwell and Mr Scott. They were the initial negotiations leading to the so called joint venture agreement and the circumstances surrounding the signing of the 17 contracts of sale. I will therefore ignore the parts of these witnesses' affidavits which deal with those topics and refer only to their oral evidence.
The Evidence of Timothy Maxwell
Both Mr Maxwell and Mr Scott played veterans Super Rules for a football club in Geelong. Mr Maxwell was a real estate agent and property developer. Mr Scott was a chartered accountant. In 2001 Mr Maxwell was working as a consultant or project manager of a subdivision development of Lots 8 and 9 in Allenby Road, Hillside, which was a new suburb on the western side of Melbourne.
In 2001 Mr Maxwell mentioned to Mr Scott at football training that he had a further development coming up at Hillside. Mr Scott expressed interest in being involved. Mr Maxwell told Mr Scott that he might be looking for venture finance for a less than half share, but that he had other acquaintances interested with whom he preferred to deal. Mr Scott offered to provide the funds for a less than half share and to provide Mr Maxwell with easy funding for this and other property developments.
About a week or so later at training Mr Maxwell told Mr Scott that if Mr Scott could provide the finance, he would be happy with a joint venture equal share. After training Mr Scott and Mr Maxwell went to a hotel to meet Mr Maxwell's partner, Ms Melissa Connoley, and her cousin. The proposed development was discussed at the hotel and Mr Scott then followed Mr Maxwell home to continue the discussion. It was agreed at that meeting that they would enter into a joint venture to purchase and develop Lots 1 and 7 Allenby Road, Hillside. The gross profit, which Mr Maxwell estimated would be about $2.4 million or $30,000 per lot, prior to the costs of funding, would be shared equally. Mr Maxwell explained to Mr Scott that gross profit meant sales revenue less the cost of purchasing and developing the land and a fee of $2,000 per lot to Mr Maxwell for each lot sold. The cost of funding was to be Mr Scott's responsibility. Mr Maxwell's partner, Ms Melissa Connoley, was present at this meeting and heard the conversations.
Mr Maxwell told Mr Scott that he would do all of the negotiating to acquire the land, project manage the development through surveyors, engineers and civil contractors, organise the subdivisional approvals and handle the sales of the lots right though to settlement. All Mr Scott had to do was to take care of funding. Mr Scott readily agreed that Mr Maxwell would be paid a fee of $2,000 per lot in respect of the sale of each of the lots. Mr Maxwell told Mr Scott that he would nominate him as the purchaser on the contracts he was negotiating to facilitate his obligation to provide the funding, and that he would caveat to protect his interest later on. He advised Mr Scott that in his experience it was possible to obtain purchase and development funding of about half of the cost if the land had been put up as equity, but that more might be able to be borrowed depending on how many sales were made off the plan. Mr Maxwell told Mr Scott that he was dealing with the owners of both Lots 1 and 7 and that he believed that each one could be purchased for about $800,000 to $900,000. He also told Mr Scott that the development costs could be about another $2 million.
According to Mr Maxwell, Mr Scott agreed that these would be the terms of their agreement which they had reached that night. They were subsequently confirmed on a number of occasions with Mr Scott in his office and on the telephone.
Mr Maxwell agreed in cross-examination that he had sent various property development proposals to Mr Scott. He agreed that he had not done any of these developments himself. He said that it would not have been possible at that time. Mr Maxwell agreed that he was continually trying to persuade Mr Scott and others to invest money in property deals.
Mr Maxwell also said in cross-examination that Mr Scott only inspected the Hillside land in July 2001. He agreed that this meant that the inspection occurred after agreement had been reached in June.
A contract of sale dated 22 August 2001 for the purchase of Lot 1 for a price of $907,500 was entered into by T A Maria Pty Ltd as vendor and Mr Scott "and/or nominee" as purchaser ("the T A Maria contract"). A deposit of $310,000 was payable by the sum of $10,000 on the signing of the contract and the balance of $300,000 within 30 days of obtaining planning approval for a multi-lot residential subdivision. The remainder of the purchase price was due on 22 June 2002.
Lot 7 was owned by two different groups each with an undivided half share. One half share in Lot 7 was purchased for $405,900 pursuant to a contract of sale dated 5 August 2001 between Mr Scott "and/or nominee" and Laurence and Georgina Micallef and Charles and Grace Attard. The purchase price was payable by a deposit of $10,000 with the balance due on 20 January 2002.
Mr Maxwell had orally agreed with John Vassallo, who with his wife, Victoria, owned the other half share of Lot 7, to purchase their interest. However, on 27 July 2001 the Vassallos sold their interest to Mr Mohamed Fouz for $397,000, who in turn sold it in December 2001 to Marner Pty Ltd ("Marner") "and/or nominee" for $575,000. Settlement was due on 31 March 2002. There was an adverse possession problem between Lots 7 and 8 in Allenby Road. Marner was developing Lots 8 and 9 and Mr Maxwell arranged with Marner to settle the adverse possession claim in return for it nominating Mr Scott as the purchaser under its contract with Mr Fouz. However, this step cost the developers at least an extra $100,000. Although this was Mr Maxwell's estimate, it seems that it was in fact considerably more because presumably Mr Maxwell offered both sets of owners of Lot 7 the same price of $405,900 or thereabouts. Mr Maxwell said that he could not remember the exact amount agreed with Mr Vassallo. Nevertheless, Mr Maxwell still considered the total amount paid for Lot 7 of $980,900 to be an "exceptionally good price." Mr Maxwell denied that he knew about the sale to Mr Fouz before Mr Scott entered into the contract to purchase the other undivided half share of Lot 7 from the Micallefs and the Attards.
From July 2001 Mr Maxwell carried out his project management role of the joint venture agreement as agreed with Mr Scott. Using his business name, Platinum Properties Australia, he engaged surveyors, Carson Simpson Pty Ltd, and engineers, Earth Tech Engineering Pty Ltd. Mr Maxwell agreed, however, that the fees charged by both of these companies were paid by Moorabool.
Mr Maxwell confirmed the joint venture agreement with Mr Scott by a letter dated 21 September 2001. However, Mr Scott denied receiving this letter. Like much of his correspondence which I will be quoting verbatim in this judgment, Mr Maxwell’s letter was written in his unusual and often difficult to understand manner of expression. It read as follows:
"ALLENBY ROAD, HILLSIDE
LAND DEVELOPMENT
I refer to the above and our conversations pursuant the joint venture since you visited me at home in June.
Given other parties I have now notified of non involvement were agreeable to equal share terms based on funding, I can only emphasize your need for such provision with bank endorsement ASAP.
Your indication the bank would be more receptive through your business security – and thence maybe you personally involving John – and if a number of early contracts are signed, is no problem as I am already significantly advanced in attaining sales, and am available to meet with the bank at any time.
You are aware of my allowance for you to pursue and advance finance on (sole) security of tenure, and further, if still necessary, your name on title at settlement, but if this becomes the case, as agreed, my equal share will then have to secured by caveat. This follows our discussion that you sign contracts on primary land in recent weeks with nomination clause, to allow us further time on the entity, given the funding objectives.
As discussed, the terms I negotiated on the contracts were exceptionally favourable, and I will have sold numerous blocks prior to full settlement, providing income in advance of costs.
I am presently progressing schedule of quantities in relation to costs with all very much as expected in line with previous developments, and my surveyor, Cliff Carson has been engaged to undertake preliminary plans of subdivision.
It is important however, finance is finalised in consideration of your shareholding, given my agreed equity contribution of project management etc is well progressed.
I will call in shortly with further info."
The reference to "John" was a reference to Mr John Cleary, Mr Scott's accountancy partner. Mr Maxwell denied in cross-examination that this letter was typed much later than September 2001. He said that he had typed it himself on an old computer he had at home. In about July 2003 he had disposed of that computer at the Geelong tip because it had completely broken down. He had not asked anyone to try to fix his computer. He had not yet bought a replacement computer. Mr Maxwell agreed that in September 2001 there were still problems about acquiring the third title and that this was not resolved until December 2001 at the earliest when Marner purchaser the interest from Mr Fouz. Yet no mention was made of this problem in his letter. He also agreed that preliminary plans of the subdivision were not forwarded to Mr Maxwell by Mr Carson until 12 October 2001. It was put to Mr Maxwell that without a dealing number, which had not been obtained, it was not possible to sell lots off the plan. Yet he said in his letter that he was “significantly advanced in attaining sales”.
In re-examination Mr Maxwell said that he believed he took this letter into Mr Scott's office and they discussed it. It was agreed that they had a deal.
Mr Maxwell gave evidence that, in December 2001 Mr Scott told Mr Maxwell that he would probably have to finance the development through a company and/or his business. In January 2002 Mr Scott mentioned that the company would be Moorabool Developments Pty Ltd. In February 2002 Mr Scott started complaining that he was having difficulty achieving funding and that he wanted Mr Maxwell to start selling lots in the subdivision to assist in persuading the NAB to provide finance. Contrary to what he said in his September 2001 letter that he will have sold "numerous blocks prior to full settlement", Mr Maxwell said in his affidavit that he told Mr Scott that early sales would be "a huge disadvantage" given the increase in value that would occur over the duration of the development. However, in cross-examination he agreed that it was always intended that lots at the Hillside development would be pre-sold if they could.
By a letter dated 3 March 2002 Mr Maxwell sent to Mr Scott what appears to be the first of his "project management appraisals." It is unnecessary to refer to the detail of this letter as most of it was repeated verbatim in a subsequent letter dated 23 March 2002, to which I refer below. In order to assist Mr Scott with his negotiations with the bank, Mr Maxwell also sent to Mr Scott a "property appraisal re lots 1 and 7 Allenby Road, Hillside" from a real estate and business broker, Mr Daniel Colman. Of later interest were Mr Colman's comments upon achievable sales in the proposed subdivision:
"Average price expectation of lots 501 sq mtrs to 588 sq mtrs would be conservatively $74,000; 618 sq mtrs to 688 sq mtrs would average $77,000, and the 700 and 812 sq mtr lots (given dual occupancy potential) would return $86,000."
When Mr Scott first mentioned Moorabool to him, Mr Maxwell searched that company and found that Mr Scott was the sole director. He did not find out until 2003 that Mr Scott's accountancy partner, Mr John Cleary, and his brother, Mr Robert Scott, had been appointed directors of Moorabool in March 2002.
The planning permit for the development was issued on 8 March 2002. Mr Maxwell agreed that sales of the block only commenced in earnest after that date.
Mr Maxwell also sent two letters both dated 23 March 2002 to Mr Scott at a time when Mr Scott was having difficulties in raising the necessary finance of about $3.7 million. Only one of those letters was acknowledged by Mr Scott as having been received by him ("the first letter dated 23 March 2002"). Mr Scott's copy of this letter had a handwritten note by Mr Maxwell which said that he had typed it "a time ago" and thought he had sent it. Mr Maxwell said that he took it to Mr Scott's office in about April 2002 although Mr Scott said this did not occur until the following month. The handwritten note concluded:
"Please call me once read."
However, Mr Scott did not talk to Mr Maxwell about the contents of this letter. Mr Maxwell's copy of this letter had the following handwritten note on it:
"Updated projections faxed to David."
The letter itself commenced with Mr Maxwell saying that "in due diligence" he was making "the following project management appraisal" in relation to the costings on the Allenby Road development. Mr Maxwell pointed out that because of the similarity of the development he had "undertaken adjoining this development", his estimates were "accurate." He then set out figures for the anticipated 80 lots of $50,000 per lot for the purchase and development costs and $80,000 per lot for the average sale price, including "12 x 700 sq mtrs, (dual oc)," at $89,000 each. The letter continued:
"The profit before interest and tax is therefore expected to be about $2,400,000 in a turnaround timetable of nine months (before Xmas) settlement.
My requirement for services which commenced some six months ago is 10 (ten) percent of cost or 17.5 (seventeen and a half) percent of profit, or alternatively in this case, simply $400,000.
This leaves a profit of $2 million, unheard for 'idle' investment in a one year turnaround, and consistent with my initial overture to you for such project.
As always, I am pursuant our general concensus [sic] to thus formulate a proper agreement forthwith."
The last three paragraphs were new. They were not in the earlier letter of 3 March.
The other letter dated 23 March 2002 ("the second letter dated 23 March 2002") which Mr Scott denied receiving was headed "Allenby Road Land Development Joint Venture Agreement" and read as follows:
"I refer to the above and final paragraph of today's estimate on schedule of quantities projection re formulating a proper agreement.
As emphasized in my letter of September last year while negotiating and achieving contracts on primary land to accommodate the development this was a joint share undertaking, but given our conversations since I have now reduced to a lessor [sic] share as specified today due to your seemingly greater equity requirement through your business which involves John in association.
I reiterate my recourse could be to proceed the project alone in my own right, but given your keenness and having already contributed funds, but more particularly my nomination already of you on primary land contracts to assure the (development) finance for you, I am satisfied to undertake the joint venture on the basis of the 17.5 percent of GROSS PROFIT prior to commission and taxable deductions.
Critical to this however, as agreed, is your attainment of full funding for the development, after which I would then caveat my interest at Lands Titles prior to subdivisional registration, which has now been certified, and of which I had earlier proceeded with sales subject to this.
As discussed, I will progress sales and am happy to further assist with meetings and presentation to the bank in overcoming your funding difficulties.
If you have any comments or concerns re the enclosed please do not hesitate to reflect same.
I will otherwise keep you informed."
Mr Maxwell said that he gave both letters to Mr Scott at the same time.
In his affidavit Mr Maxwell said that prior to writing these letters he was not happy with Mr Scott failing to fulfil his obligation to raise the finance, which was compelling lots to be sold earlier than they should have been. He told Mr Scott of his objections. Mr Scott retaliated by telling him that he believed that Mr Maxwell had misrepresented the amount he would need as equity and the amount he would need to raise. Because Mr Scott had his name on the contracts, Mr Maxwell thought it "best to attempt to appease and assist him in trying to raise finance." He therefore offered the "compromise reduction to 17.5% of gross profit, conditional on him achieving full funding without any further contribution from me or any delay or further problems."
In April or May 2002 Mr Maxwell said to Mr Scott that they needed some sort of a letter to show potential purchasers stating "what we were doing in selling the lots as a private development, as opposed to a real estate agent's authority." He prepared what he called "the letter of authority" which was dated 26 May 2002. Mr Scott signed it at the same time as he signed 15 contracts of sale to Medley Close or when he signed the later two contracts of sale to Medley Close. Mr Scott held on to "the original letter of authority". Mr Maxwell received one or more copies on one or more occasions "much later in the development." He said in evidence that "As far as I recall it [the original] was left with him" and that he believed that he "picked that up" off the boardroom table in Mr Scott's office in November or December. The letter of authority was on Platinum Properties Australia letterhead and stated as follows:
"Mr David Scott
Moorabool Developments
Scott & Associates
BelmontMay 26, 2002
RE ALLENBY ROAD, HILLSIDE
LAND DEVELOPMENT(To whom it may concern)
As all land lots in plan of subdivision Nos PS 502 922D & PS 502 923B are a designated private land development, all lots are to be privately sold by Mr Tim Maxwell in full authority, except for the 17 lots his company, Medley Close Pty Ltd purchase, of which I hereby sign.
(SIGNED DJ SCOTT)"
In response to a question from me, Mr Maxwell explained the purpose of this document:
"I didn't have an exclusive authority and basically it was on account to someone questioning the subdivision and I had back up and it's the normal course of a real estate agent – agency or form – you would at least be able to go to the real estate office. At least I had a back up and that was David in respect to this, and – who was the entity which was Moorabool. And it was all I had basically in respect to the sales."
Mr Maxwell was also asked what the point was of putting in this document the reference to the 17 lots purchased by Medley Close. He did not really explain why it was necessary, but he did say "it was for David and me as much as that – as a dual purpose thing."
Mr Maxwell ended up not even using this letter. He was never asked a question that required him to show it to a prospective purchaser. The letter was dated 26 May 2002 because, although it had been prepared before that date, he planned to see Mr Scott on that day. Instead, they did not get together until 6 June.
By a letter dated 16 May 2002 Mr Maxwell wrote to a developer, Mr Sam Chiodo, advising that "my consortium will provide 40 land lots to your company for singular dwelling house/land investments." He also stated in the letter:
"5/ Pivotal to the land allocation is our dual occupancy joint venture involving another 17 lots and agreeance on each 'build' cost and guaranteed sale/investment price is required forthwith to satisfy our commitment to the agreement.
6/ All planning approvals will be attained by myself, and any responsibilities to dual occupancy sites that that[sic] do not get approval are naturally voided."
In February or March 2002, Mr Maxwell told Mr Scott that he was keen to buy at least 12 lots to develop. Mr Scott agreed. By June 2002, Mr Maxwell had had several discussions with Mr Scott in which it was agreed that Mr Maxwell would buy more than 12 lots at a price of $90,000 each, which Mr Maxwell said to Mr Scott was $10,000 more than all of the sales so far made. Mr Scott was happy with this because it advanced the overall sales which would help with obtaining funding. Mr Maxwell said in his affidavit that the purchase of these lots was another reason he was prepared "to revise my position down to 17.5% share of gross profit."
After Mr Scott agreed to the sale of the lots to Medley Close, in about May and June 2002 Mr Maxwell prepared 15 contracts of sale in duplicate over a few weeks. Originally he intended to buy 16 lots but he was only able to prepare 15 contracts. The 15 lots were Lots 1, 2, 10, 12, 26, 30, 31, 35, 38, 46, 49, 56, 59, 71 and 80. Mr Maxwell arranged to meet Mr Scott on or about 6 June 2002 at their townhouse development at 48 Queen's Park Road, Geelong, which was near where Mr Scott was living. They both signed the 15 duplicate contracts in a car outside the Queen's Park Road development. He had pre-dated the contracts with various approximate dates leading up to the meeting because he was not sure when he would catch up with Mr Scott. When Mr Maxwell went to get his cheque book out to write out the cheque for $30,000 for payment of the 15 deposits of $2,000 each, Mr Scott said to him that they could not do anything with the money until "settlement of the blocks" and that the deposit could be taken out of his $2,000 commission. Mr Scott said that he was quite happy with that arrangement.
A couple of weeks later Mr Maxwell and Mr Scott signed another two contracts of sale at Mr Scott's office. As previously agreed in telephone conversations, the lots the subject of these contracts (Lots 52 and 53) were priced at $92,000 each.
On both occasions Mr Maxwell kept all of the signed contracts. He did not initially give Mr Scott a copy of the signed contracts because "it was a natural course" to hang on to them. "I was it … it was my development." He kept one set of the 17 contracts at home and the other set in his car to discuss them with his friend Mr Simon O'Keefe, who was a director of Medley Close. None of the 17 contracts had a guarantee form attached. Mr Maxwell told Mr Scott that he would definitely get a guarantee signed by Mr O'Keefe. No such form had been part of the other contracts of sale to that date. Later, Mr Maxwell asked Mr Scott "to get one made up" for the other contracts. He also handed a guarantee dated 6 June 2002 and signed by him and Mr O'Keefe to Mr Scott in his office at a later time. Mr Maxwell said that this guarantee had probably been signed "around about the first occasion" of the signing by Mr Scott of the Medley Close contracts. He thought that he had seen Mr O'Keefe sign the guarantee in Mr O'Keefe's office.
In June 2002 Mr Maxwell faxed to Mr Scott a letter dated 20 June 2002 which he had written to Mr David Milsome, a manager with the NAB, to satisfy its request to Moorabool for a "sales projection and marketing program" and a handwritten summary of lot sales. In his letter to the bank manager, which he faxed to Mr Scott for his use, Mr Maxwell described himself as wearing three caps:
"as qualified real estate agent, project management and property procurement."
He did not describe himself as one of the developers. The handwritten list showed Medley Close as the purchaser of only 13 lots. Lot 12 was said to have been sold to another entity (and a deposit paid) and Lots 38, 52 and 53 were said not to have been sold. Mr Maxwell could not explain why this was the case. Overall, 74 out of the 80 lots were said to be sold with deposits paid. When queried about this in cross-examination, Mr Maxwell said that a large number of lots were left in which he knew were not sold. The purchaser “AFG” had not gone ahead. He said that the list was "just a adopted list", to help Mr Scott with the bank. He also said that the list was prepared "well before 20 June", although it contained a sale date of 15 June. He agreed that the reference to a deposit in respect of the sale of each lot to AFG could not have been to a deposit which had been received.
In late June 2002 Mr Maxwell told Mr Scott that as he had not obtained finance, Mr Maxwell would try to arrange it, because finance was becoming critical. Mr Maxwell told Mr Scott that his share would be returning to 50%. Mr Scott agreed because the joint venture "was about to fall over." By a letter dated 7 July 2002, Mr Maxwell wrote to Messrs Porto and Parth of Nova West Construction Pty Ltd ("Nova West") seeking funding of $3.75 million. In the letter Mr Maxwell referred to "62 contracts finalized."
Having received verbal offers of funding from Nova West and Ing, Mr Maxwell sent a facsimile dated 10 July 2002 to Mr Scott advising him of the offer from Nova West. Part of his facsimile read:
"Two fundamental pre-requisites, first mortgage, and 10 per cent (on drawdown) interest, I have agreed to. Please prepare to withdraw from Nat Aust Bank."
Funding was finalised on 2 August 2002 by Moorabool entering into an agreement with Rosslare Properties Pty Ltd ("Rosslare"), an associated company of Nova West, which was also engaged as the civil contractor for the development. Mr Maxwell said that shortly after this, he had a further discussion with Mr Scott in which Mr Scott agreed that Mr Maxwell's share of the joint venture would go back to 50% because he, Mr Scott, had not kept his side of the agreement.
Mr Maxwell said in his affidavit that he left one set of the original 17 contracts with Mr O'Keefe. He took them to Mr O'Keefe on one day. "I had them in me car and I took them in and had a chat to him about them, and he took them." When asked why he gave the contracts to Mr O'Keefe, Mr Maxwell said that Mr O'Keefe was a director of Medley Close. The other set of 17 original contracts sat at his home "in a pile in a box." He said that he showed them to Ms Connoley and other parties. Mr Maxwell said that subsequently he left this set with Mr Scott "for conveyancing purposes with other contracts I had signed as vendor for the development." He said that he also dropped off at Mr Scott's office the set which he had collected from Mr O'Keefe. When asked why he did that, he first answered:
"Conveyancing or just that somewhere to leave them."
He then suggested that perhaps he left them at Mr Scott's office "inadvertently on a day when I left other contracts …" He felt that this was his office as well.
Mr Maxwell said that he had made "copies of some of the front pages and some of the particulars pages" of the 17 contracts, before leaving both sets of the originals with Mr Scott, which he kept in the back of his car. He tossed out a whole lot of documents, including these pages in about April 2003.
Mr Maxwell discussed the question of dual occupancies with Mr O'Keefe and with another friend Mr Raymond Muller. He was proposing to do a joint venture with Mr Muller, in relation to a dual occupancy of one of the lots or possibly a child care centre. Mr Maxwell said that he got the contracts out to show Mr Muller the subdivisional plans and the lots on which he had obtained or was obtaining dual occupancies. They chose Lot 80, but also considered Lot 2 in combination with Lot 1. Mr Maxwell commenced to apply for dual occupancy permits in about late August 2002. Mr Maxwell said that he had no idea by how much the dual occupancy permit would increase the value of the lot. Although he said that he discussed the 17 lots with Mr Scott on several occasions he did not mention the question of dual occupancies to him until "later as things progressed."
At some time between June and September 2002, according to Mr Maxwell, Mr Scott came to his house. Mr Maxwell got the set of 17 contracts out and they discussed them and other issues in the development. Ms Connoley was also present.
In late October or early November 2002 Mr Maxwell told Mr Scott on the telephone that he wanted to pick up one of each of the original 17 contracts. Mr Scott asked whether he or Mr O'Keefe had copies. Mr Maxwell said that he needed originals. When he went to Mr Scott's office, he was told that Mr Scott did not have them but that they would be there in a day or two. Mr Maxwell said that Mr Scott asked him questions about how much he was making out of the lots. Mr Maxwell replied that he could not say as it was speculative but he needed to make at least $20,000 to cover his costs.
In late November or early December 2002 Mr Maxwell said to Mr Scott that he would definitely have to get the originals the following night "for Council approvals." Mr Scott said yes, but when Mr Maxwell called, Mr Scott said he had not brought them in and he asked Mr Maxwell "haven't you got yours?" Mr Maxwell said that he said that he had not and that he thought he said: "Simon may have some." Mr Maxwell said he would collect them from Mr Scott after work the next day. Mr Maxwell said that when he went to Mr Scott's office the next day, Mr Scott had "a copy of each of the 17 front pages of what appeared to be the contracts and a copy of the signed page of one vendor's statement", which Mr Scott gave him. Mr Scott said that he was keeping the originals together as much as possible and that they were not there. Mr Maxwell said Mr Scott told him to use these pages to add to what contracts Mr Maxwell had "to make up your own."
This is what Mr Maxwell did, as he stated in his affidavit:
"At home I eventually put together my copies of what the 17 contracts comprised according to my memory of the originals. I had full contracts, part contracts and loose pages of contracts in my home office and in the boot of my car, which came from previous changes, mistakes and aborted contracts and I used these to compile my copies. I had been selling lots from the boot of my car and some balance pages of contracts were in blank, other parts of the contracts had markings or numbers which I whited out and changed. The original 17 contracts in duplicate (that is 34 contracts in total), remained in the possession of David Scott with whom I had earlier left them for eventual conveyancing. I regularly did this in respect of many of the sales relating to the developments."
This evidence conflicted with what Mr Maxwell had stated in his affidavit sworn 5 September 2003 about the 17 contracts of sale. In that affidavit he said Mr Scott had given him photocopies of some of the contracts and that these photocopies, together with copies of some of the contracts which he already had, made up the 17 copy contracts of sale which he produced. Mr Maxwell referred to the statement in an affidavit of Mr Neil Holland that "white out has been used on some of the 17 copies" and stated that he had "no knowledge of white out being used on them."
Mr Maxwell said that his solicitors at the time this affidavit was prepared had misunderstood his instructions. He had told his solicitor that he simply picked up copies of the front pages.
Mr Maxwell said that he had a conversation with Mr Scott in November 2002 in which he told Mr Scott that he wanted his joint venture share secured and that if it was not worked out he would have to put the caveat on the land which was part of their agreement. They had another conversation in December 2002 which ended in an argument, so Mr Maxwell decided to lodge the caveat. On 13 December 2002 he signed a caveat, although his then solicitor did not lodge it until March 2003. This caveat ("the first caveat") claimed "an equitable interest as chargee … pursuant to terms and conditions of a joint venture agreement dated 23 March 2002 containing a charging clause from the caveator to the registered proprietor of the land." Although the details in the first caveat were in Mr Maxwell's handwriting, which he said was what his then solicitor told him to write, the date of the joint venture agreement was left blank. It was later added in someone else's handwriting.
Mr Maxwell said that in January 2003 he and Mr Scott had "a big blue." Mr Maxwell said that Mr Scott claimed that it was his development and that all Mr Maxwell was getting was his 17.5% and his commission. In a later discussion, according to Mr Maxwell, Mr Scott told him that he would be right with the 17 lots he was buying.
By a letter dated 28 February 2003, Mr Maxwell wrote to Mr Scott concerning the three property developments in which, by then, they were both involved. After referring to the fact that the Allenby Road, Hillside development was nearing completion, Mr Maxwell continued:
"As I indicated, after the considerable variables in the process of the project, the final profit figure of about $2.4 million will well exceed that indicated when I invited you into the project and is in line with my later development quantity survey and proposal to you of about $2.4 million profit (March 23, 2002).
This would have exceeded $3,000,000 if I was not pressed to have contracts to satisfy the banks very early in our selling timetable, given the capitalisation since.
Securing the consequent funding source, Nova West, was thus in no way my responsibility. But in attaining same the significant factoring of this provision and the flexibility/benefits it has created above all the acquiring, purchasing, management and sales responsibilities would unquestionably see me exceeding a half share in other joint ventureship. Such shareholding has regularly been proposed to me, before and since on prospective developments.
Given I value our business association and your difficulties encountered that were not anticipated in the funding of other projects, I stand loyally by the much lessor [sic] share offered in the earlier submission of 17.5 percent of gross profit, plus $2,000 per sale.
However, as I indicated, I am in agreeance with no such fee on Lots purchased by myself @ 17 = $34,000. This would see sales commission at $126,000. Please note all sales were made without marketing costs (usually at least $20,000).
This will thus see my venture profit probably slightly under $400,0000, less $22,000 management expenses (refer below herewith) already paid to me, and your venture profit slightly under $2,000,000, an extraordinarily generous joint venture, in light of funding and sales, initiatives which should well have seen an exchange for equal share, but nonetheless to remain unchanged.
I await your response in lieu of the drawing up of a legal agreement pursuant the respective share distribution ASAP."
Mr Maxwell agreed that the restriction of the sales commission to the 63 lots meant that he still owed the $2,000 deposit on each of the 17 lots. The two were no longer being set off, as previously agreed with Mr Scott.
Following a meeting with Mr Scott on 10 or 11 March 2003, Mr Maxwell wrote another letter to him about their three property developments. This letter, which was dated 15 March 2003, relevantly contained the following:
"Allenby Road Hillside has achieved (against some odds) above my own original projections on this development and the $2.2 million minimum gross is not an amount any fair minded investor would find unsatisfactory, then or now. I cannot and would not be responsible for further profitability accounting etc, especially given the can of worms interpreting GST reconciliations.
I have never altered any requirement on my shareholding (as per letter), a very minor share independent of sales/marketing which would have been costs in any case.
You can subtract $60,000 off this for revisiting signed contracts which no other agent would have attempted, but a further return to you.
Even after achieving another developer to pay for the $150,000 primary pipeline through your property (which was totally out of left field) and getting finance for you, when that source would have funded me alone, unfortunately it is felt by David that I have manipulated this deal.
The funding came after satisfying your (non funder) bank with contracts that cost us a gross $3 million profit, given capitalization, eg $10,000 per block in the subject months following signing, which explains the inadvertent variables that can apply, for better or worse.
Initially I wished an advancement of sales by signing for some lots, but in hindsight it appears perception of me manipulating as a benefactor.
Unlike my own principals on security of shareholding re title registration, I have done all without this need which is incomprehensible to even the most inexperienced business person/investors.
I do so based on a vulnerable trait of excessive trust but David now sees me as non trusting.
Please be advised I have now registered a caveat on the subject properties for our respective consideration, but I have done so with total commitment to its cancellation in lieu of our proper and mutual undertakings.
I have included further advice herewith (of positive costs nature) from engineer but you should understand my regular dealings/duties to bring this development to finalisation, as have been my own securities, are also severely compromised.
Nonetheless, I remain, as always diligently for your better interests."
Mr Scott also wrote a letter following the meeting. By a letter dated 12 March 2003 to Mr David White of Real Estate on Pakington, the estate agent who held the contracts of sale to purchasers of the lots pending the finalisation of the development, Mr Scott gave the following instructions to Mr White:
"As a result of meeting with Tim Maxwell, it has come to my attention that he has taken it upon himself to execute contracts of sale for Moorabool Developments Pty Ltd and has signed as vendor.
Tim has never been given authority by Moorabool Developments Pty Ltd to be able to sign contracts on its behalf. Furthermore it is disturbing to me and I would also think unethical that Tim would sign as vendor without authority on contracts to persons or entities associated with him.
In light of the above actions I hereby advise that Tim has no authority to sign contracts on behalf of Moorabool Developments Pty Ltd and no contracts or deposits executed by Tim and forwarded to your company should be accepted or acknowledged as legitimate contracts of sale.
We are seeking legal advice in respect to contracts already so executed."
Mr White attempted to mediate the dispute between Mr Maxwell and Mr Scott. On 7 April 2003 the three men met at the Sheraton Hotel in Geelong to discuss their differences. Mr Maxwell said that the 17 lots purchased by Medley Close were discussed at some length. He said that Mr Scott said that he wanted Mr Maxwell to concede some of the lots and that Mr Scott also said that Mr Maxwell's joint venture share should be only $300,000 not $400,000 and that he should only receive commission on 63 lots and not for those lots being purchased by Medley Close. Mr Maxwell said that he rejected these demands. In particular, he pointed out that Mr Scott had already said the commission on the 17 lots would "substitute" as the $2,000 deposit for them and that it was for this reason that he did make out a cheque for $30,000 at the time of the first signing. Mr Maxwell said that Mr Scott "nodded his head to this." The meeting finished without there being any resolution.
On 8 April 2003, Mr Scott wrote a "without prejudice" letter to Mr White which read as follows:
"Further to discussions yesterday with Tim, and in an effort to find a mutually acceptable resolution, I would agree to the following arrangements as part of a total settlement of all matters:-
Allenby Road
·Pay sales commission to Tim at the rate of $2000 per block sold to third parties (ie 63 x $2000) $126,000 less paid $20,000 balance due $106,000.
·Agree to pay a project management fee to Tim as discussed totalling $300,000.
·Agree to authorise the sale of 10 blocks from the venture to be sold to Tim and or a nominated entity at a sale price of $90,000. I note Tim mentioned that he had an arrangement with a builder for the development of 10 blocks on a profit share arrangement. Rather than cause a problem with this arrangement, and the fact this builder was on a 1/3rd profit share, and not ½ profit share, as offered to me, I believe it would be more beneficial for Tim to enter into this arrangement with the builder, ie his profit share would be greater. (As way of satisfying the payment of this project arrangement fee, I would be agreeable to reducing the sale price on these 10 blocks to $60,000 each ie, a reduction of $30,000 each times 10 blocks which would result in stamp duty savings.
·Would agree to Tim being able to select which 10 blocks he wants to acquire under this arrangement.
·The balance of the blocks in question namely 7 blocks are returned to the property venture.
Queens Park Road
…
LaTrobe Terrace
…
The agreement on any one of the above items is mutually dependent on all items being accepted in total. If no agreement, then none of these items are in any way agreeing to the fact that any monies are payable, or that these are my intentions in any one matter."
Mr Maxwell said that he received a copy of this letter from Mr White and Mr Mann after the Heads of Agreement (referred to below) had been signed and after he had been told by Mr White that Mr Scott "had pulled out of the Heads of Agreement." Although in his evidence Mr Scott expressed some dissatisfaction with this letter having become available, no objection was raised to it being received into evidence.
On 9 April 2003 Mr Maxwell faxed to Mr Cleary a copy of his letter to Nova West dated 7 July 2002 seeking funding of $3.75 million for the project. Part of the financial information in the second page of that letter stated the amount of "owner equity … to date" to be $538,481. Mr Maxwell wrote the following message to Mr Cleary on the top of the first page of the faxed copy of the letter to Nova West:
"Cleary
Have a look at equity at rear. $538,000 between 3 dividing a $2,600,000 profit. I achieved all your finance and considerable financial benefits, and you are to rip this man off. We are ready like you've never known."
Further negotiations between Mr Maxwell and Mr Scott followed the meeting at the Sheraton Hotel. Subsequently, a solicitor, Mr Peter Mann, was instructed to prepare Heads of Agreement in respect of the three developments involving Mr Maxwell and Mr Scott. This document between the four parties to this proceeding was signed on 5 May 2003. Recitals B1 and B5 stated as follows:
"B1Moorabool is the owner and developer of the property known between the parties as Allenby Road ('the Allenby Road development'). Moorabool and Maxwell have an agreement under which Maxwell is to be paid a project management fee and other moneys in relation to the Allenby Road development.
…
B5The partners have agreed to reorganise their respective arrangements and agreements in relation to the Allenby Road development, Queen's Park Road development and LaTrobe Boulevard development in the terms and conditions set out in this Heads of Agreement."
In respect of the Allenby Road development the parties agreed as follows:
"1.1 Moorabool agrees as follows:-
1.1.1to pay to Maxwell the following:-
1.1.1.1the sum of $2,000.00 per lot sold by Maxwell to any parties not in any way related to Maxwell less the amount of $20,000.00.
1.1.1.2a project management fee of $300,000.00 on satisfactory completion.
1.1.2to sell to Maxwell 11 lots in the subdivision being lots 1, 2, 71, 46, 59, 35, 30, 31, 80, 52 and 38 as prepared, exchanged and contracted by Peter Mann Pty Ltd.
1.2Maxwell agrees to immediately, upon the execution hereof, arrange for the withdrawal of the caveat lodged over the Allenby Road property."
The Heads of Agreement were executed by Mr Maxwell and Medley Close. Mr O'Keefe signed as director/secretary witnessing the affixing of the seal of Medley Close. Mr Maxwell said that Mr O'Keefe was not very happy about signing the Heads of Agreement but he did. Mr Maxwell saw Mr O'Keefe sign the duplicate originals of the document. He could not say where he signed the document or where Mr O'Keefe was when he signed it. He could have been in Geelong or Melbourne.
Mr Maxwell said that he knew when he signed the Heads of Agreement that it referred to him being paid "a project management fee." He said that the dispute had been going on for so long that he did not care how it was put. He was happy to receive $300,000 for his contribution, however it was described.
Mr Maxwell said that he reluctantly signed the Heads of Agreement because, contrary to the agreement reached, the document did not include the price at which the 11 lots were to be purchased. He said that he had reached agreement with Mr Scott through the medium of Mr White that in return for giving up six lots the purchase price on 10 of the 11 lots would be reduced from $90,000 to $60,000. However, the Heads of Agreement very quickly fell into abeyance. Mr Maxwell did not remove his caveat and Mr Scott did not agree to Medley Close purchasing any, let alone 11, lots. Neither side sought to enforce the Heads of Agreement in this proceeding.
On 8 or 9 May 2003 Mr Maxwell faxed a letter to Mr Scott in which he "again" advised that:
"all lots, including lots 12, 49, 10, 56, 26 and 53 are sold and contracts completed pursuant normal process."
The letter went on to state that "smaller lot 12 with permit" had been sold for $130,000, "larger lot 53 with permit" for $135,000 and the remaining four lots without permits for $125,000. When asked in cross-examination whether he had copies of these contracts, Mr Maxwell said that he did not. The contracts "fell over" and he threw out the contracts. He then referred to letters of intent from builders with respect to these lots. Mr Maxwell complained that Mr Scott continually upped the price that he wanted on these blocks. Every time Mr Maxwell got agreement to the new price, Mr Scott changed his mind and wanted more.
By a letter dated 9 May 2003 Mr Scott wrote to Mr Maxwell as follows
"Dear Tim,
RE: HILLSIDE LAND DEVELOPMENT
In reference to your fax today I advise that there has been no agreement or authority for you to sell lots 12, 49, 10, 56, 26 and 53.
We have organised our own contracts for sale of these blocks at proper market value not the values you have tried to give them away at.
You can't sell someone else's land and you can't sell property twice.
How ethical are you? Silly Question."
The six lots referred to in the letter were the balance of the 17 lots apart from the 11 lots specified in the Heads of Agreement.
Mr Maxwell wrote a number of further letters to Mr Scott including a very abusive and aggressive letter dated 10 May 2003. Much of the correspondence revolved around the price at which the remaining lots were able to be sold. Mr Maxwell said that by this time he was "absolutely frustrated with David Scott's attitude", because he kept increasing the price which he wanted for these lots before he would agree.
Mr Maxwell said that at a meeting with Mr Scott on 13 June 2003, Mr Scott told him to take the 17 contracts at $90,000 and the sales commission in full settlement. Mr Maxwell rejected this. He said that Mr Scott then said that if he did not take the 17 contracts he might find out that they were not legal. Mr Maxwell said that when he asked Mr Scott what he meant by that, he smirked and said nothing. Mr Maxwell also said that Mr Scott again told him to take the 17 contracts in a subsequent telephone conversation.
Mr Maxwell sent two further letters dated 15 June 2003 hoping to resolve the dispute. However, it should be noted that in one of these letters Mr Maxwell said:
"I do urge our best efforts as the current caveat is only registered as a dealing tool, and if we proceed without a settlement to me a further one can be instigated (on now 80 lots) to ensure all proceeds from sales withheld in lieu of."
Mr Maxwell produced invoices which purportedly showed that Medley Close had paid for town planning drawings, development overlay plans and landscape plans in respect of virtually all of the 17 lots in the twelve months or so following August 2002. Some of the correspondence from the Shire of Melton was tendered in evidence. Receipt by the Shire of an application by Medley Close for a town planning permit for a dual occupancy at Lot 49 was acknowledged by a letter dated 29 August 2002 and at Lot 2 by a letter dated 30 August 2002. Approval by the Shire of a development plan for two dwellings on Lot 12 was notified to Medley Close by a letter dated 21 October 2002. The issue of planning permits for dual occupancy for Lots 1, 30, 31, 52 and 53 was notified to Medley Close by letters from the Shire in December 2002. Planning permits were issued on 8 July 2003 for Lots 79 and 80.
Mr Maxwell said in his affidavit that he mentioned to Mr Scott on several occasions in 2002 and 2003 that he was developing the 17 lots and later, as things progressed, that he was obtaining dual occupancies for a number of the lots. He said that a company related to Medley Close, Bellview Constructions Pty Ltd purchased Lot 79 for $125,000 in order to provide extra car parking so that Council permission was obtained to proceed with the proposal to put a childcare centre on Lots 79 and 80.
Mr Maxwell also said that Medley Close had entered into a contract for the sale of Lot 2 on 16 May at a price of $160,000 and contracts for the sale of Lots 35 and 46 each on 2 June 2003 at a price of $164,000. These three contracts were tendered as exhibits at the hearing.
Mr Maxwell repeated several times his complaint that Mr Scott had undervalued his contribution. At one stage in cross-examination he said that he had "worked full on" for the last three years whereas Mr Scott had "sat in his office" and not "done a thing." The funding was Mr Scott's obligation and he had not got that. Mr Maxwell said that he did "begrudge the under estimation of what it takes to do property procurement."
Part of the defendants’ case was that Mr Maxwell had followed the tactic he had previously used in respect of the development of Lots 8 and 9 in Allenby Road, Hillside to extract money from the developer. An agreement dated 1 August 2001 between Marner Pty Ltd ("Marner") and Mr Maxwell was tendered in evidence by the defendants. That agreement recited that Marner had contracted to purchase land at Allenby Road, Hillside for the purpose of subdivision and sale and that Mr Maxwell had provided and would continue to provide advice and assistance with the development and marketing of the proposed subdivision. It provided that Mr Maxwell would continue to provide his services on an "as required" basis and that he would be paid an amount of 5% of the net profit (as defined) of the subdivision venture and an amount of $2,000 in respect of each lot of subdivision sold "in which the consultant has had a significant role in the marketing and sale of the particular lot." The defendants also tendered another agreement between Marner and Mr Maxwell dated 19 September 2002. The recital stated in part that Marner had entered into contracts of sale of lots in the development and that to secure payment of his financial entitlements under the agreement dated 1 August 2001 Mr Maxwell had lodged a caveat over the land. The agreement provided that in consideration of Mr Maxwell agreeing to withdraw his caveat Marner agreed to pay him $55,000 for his consultancy services and $110,000 for the sale of 55 lots. Although he denied any improper conduct or pressure, Mr Maxwell said that this payment represented about 35% of the profit. The caveat lodged by Mr Maxwell was dated 12 June 2002 and claimed an interest by virtue of a constructive trust. Mr Maxwell said he had no understanding of what a constructive trust was.
Finally, before leaving Mr Maxwell’s evidence it is necessary to note a dramatic development which occurred on the eighth day of the hearing. On 6 November 2003, while Mr Scott was still being cross-examined, Mr Maxwell's counsel sought leave to recall him immediately so that he could make a statement. In all the circumstances, it seemed best to allow this highly unusual step to occur. Mr Maxwell then read a lengthy statement containing a considerable amount of irrelevant and incomprehensible material. However, it also contained very important admissions.
Finally, it was submitted by the defendants that the Court should decline to make an order for specific performance on the basis that Mr Maxwell and Medley Close do not come to Court with clean hands. The conduct constituting the unclean hands on the part of the plaintiffs is directly and immediately related to the relief sought.[9] Of course, on the present hypothesis, Mr Scott would also not have clean hands because he would have falsely denied the existence of the 17 contracts of sale. Nevertheless, in my view, the Court should not reward the plaintiffs by ordering specific performance in circumstances where Mr Maxwell has been found to have falsified a number of documents and given false evidence about critical events. Medley Close would therefore be left to its remedies at common law.
[9]Dewhirst v Edwards [1983] 1 NSWLR 34 at 51 per Powell J
Two other grounds were relied on by the defendants in support of their submission that the plaintiffs should not succeed, even if I found that there had been 17 contracts of sale entered into between Moorabool and Medley Close. I have left these grounds to last because I do not consider them to have any merit.
Mr Northrop submitted that Medley Close failed to provide a directors' guarantee as required by special condition 8 of each contract of sale. However, that condition required a corporate purchaser to "procure the execution by each of its directors of the Guarantee annexed to that part of this Contract to be held by the Vendor", and no guarantee was annexed. This meant, in my opinion, that there was no breach by Medley Close in not procuring a guarantee signed by the directors because the requirement by the vendor simply did not arise. The situation may well have been different if Moorabool had later presented a form of guarantee to be signed by the directors, but this was never done. This situation is to be contrasted with other corporate purchasers which were apparently sent a letter in about December 2002 requesting that an enclosed guarantee be signed by the directors. Further, it is therefore irrelevant, in my opinion, that the guarantee subsequently produced by Medley Close was not signed by "each of its directors." Mr Carr, who was a director, did not sign whereas Mr Maxwell, who was not a director, did sign the guarantee together with the other director, Mr O'Keefe. It is also irrelevant that this guarantee was only one document, so that there was no guarantee in respect of every one of the 17 contracts of sale.
The second unsuccessful ground advanced by the defendants was that even if Mr Scott had signed the 17 contracts of sale on behalf of Moorabool, he was an agent who was not authorised in writing to sign on behalf of his principal. Therefore, s.126 of the Instruments Act 1958 had not been complied with. I disagree. In my opinion, written authority is not required where a contract is executed not by an individual, Mr Scott, as an agent of the company, but by the company, its execution being authenticated by Mr Scott's signature.[10] I have no doubt that as a director and major shareholder Mr Scott had the authority of Moorabool to sign on its behalf.
[10]Richardson v Landecker (1950) 50 SR(NSW) 250 at 259 per Street CJ; Black v Smallwood (1966) 117 CLR 52 at 60 per Barwick CJ, Kitto, Taylor and Owen JJ and at 61 per Windeyer J; MYT Engineering Pty Ltd v Mulcon Pty Ltd (1999) 195 CLR 636.
Given my rejection of the defendants' submission concerning s.126 of the Instruments Act 1958, it is not necessary to consider whether the plaintiffs have established the estoppel pleaded in response to that defence.
Medley Close's Alternative Claim for Specific Performance of Nine Contracts of Sale
Having rejected Mr Maxwell's evidence about the signing of 17 contracts of sale, I turn to consider the status of the nine contracts of sale admittedly signed by Mr Scott in Mr Maxwell's car. Mr Scott's evidence was that these contracts were not intended to have legal effect. They were signed at Mr Maxwell's request as a temporary measure to be used in support of the presentation to the NAB pending receipt of other contracts.
Mr Northrop made the valid point that the circumstances of the signing of the contracts in Mr Maxwell's car suggested the need for something to be done quickly, which was to have them ready for the impending meeting with the NAB. They did not suggest that the signing was a culmination of negotiations between Mr Maxwell and Mr Scott about Medley Close purchasing a number of the lots. If that were the case there would have been no urgency about the signing of these contracts. They could just as easily have been signed at some convenient time in one of Mr Maxwell's frequent visits to Mr Scott's office.
Mr White's initial evidence about the meeting at the Sheraton Hotel was that both Mr Maxwell and Mr Scott had agreed that some contracts had been signed for the purpose of obtaining finance from the NAB. When he returned to clarify his evidence, one of the matters he qualified was that he was not sure whether Mr Maxwell had agreed with what Mr Scott had said about contracts being signed for the NAB.
I accept Mr Scott's evidence about the circumstances in which the nine contracts were signed and in particular that he and Mr Maxwell did not intend the temporary contracts to have legal effect. I agree with Mr Northrop's submission that this evidence of subjective intention can contradict the prima facie position resulting from the existence of the nine executed contracts. In Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd[11], Mahoney JA stated:
[11](1985) 2 NSWLR 309
"… if A, notwithstanding what he said, had the actual subjective intention that no contract should result, a binding contract may not be held to exist. If the terms of A's promise were such that B, as a reasonable man, would take it to involve a legal commitment and B did not know that A did not intend that there be a binding contract, then a binding contract would result. A would not be permitted to set up, against such a meaning of what he had said, a contrary subjective intention.
But the result would not, I think, be the same if B knew of A's actual subjective intention. The law would not, I think, impose the relationship of contract where, eg. A though [sic] he was play-acting and B knew of that fact, A's actual subjective intention would be effective to prevent the contract arising. A fortiori, if both A and B had the intention that no contract should result, and each knew of it, then none would be imposed. And, I think, this notwithstanding that a reasonable bystander would take from what they said and did that there was an exchange of congruent promises and a mutual purpose to contract. I put aside for this purpose special cases, of estoppel, third party rights, and the like.
The result is therefore that intention to contract, in the subjective sense, is relevant to but not determinative of the existence of a binding contract. It acts, in a sense, as a limiting factor, that is, as a reason for not giving to what on the face of it is an exchange of congruent promises, the legal consequences which would otherwise be given to it And on this basis it is, in principle, relevant to know what was the actual subjective intention of each party, in the example that I have given, in order to determine whether the legal relationship of contract is to be held to exist. More correctly, it is relevant to know the intention of the one party where it is the intention of or known to the other."[12]
Admission of such evidence does not breach the parol evidence rule. As Mahoney JA said:
"The basis of the rule, so understood, would not prevent the admission of evidence to show that, whatever be the terms or the meaning or effect of them, it was intended that they should not have contractual operation. Parties may, for example, be prevented from establishing by evidence that it was not the intention of one or perhaps both that the terms mean what they say but that, I think, does not go to the intention to contract at all … But there is, in general, a considerable body of authority for the view that extrinsic evidence may be admitted to disprove contractual intention …"[13]
Moorabool has therefore discharged what has been said to be the heavy onus of disproving an intention to contract.[14]
[12](1985) 2 NSWLR 309 at 330-331
[13](1985) 2 NSWLR 309 at 333
[14]Edwards v Skyways Ltd [1964] 1 WLR 349 at 355 per Megaw J
There is a further argument about the nine contracts of sale which needs to be considered. Mr Heaton submitted that Mr Scott should not be permitted to put forward the fraudulent purpose for which he says the contracts were executed by way of a defence to Medley Close's claim. He referred to the decision of Lawrence and Lush JJ in Gascoigne v Gascoigne[15] where a husband who had put property in his wife's name in an attempt to defeat creditors, with her knowledge and connivance, was not allowed, in an action by him for a declaration that his wife held the property as trustee for him, to set up his own fraudulent design to rebut the presumption that the conveyance was intended as a gift to her notwithstanding that she was a party to the fraud. I do not consider that this case applies to the present situation. Here, on the basis of my finding, both Moorabool and Medley Close have agreed to sign nine contracts in order to mislead the NAB. Moorabool is not seeking to enforce those contracts or any other relief in respect of them. Rather, it is Medley Close which is seeking to enforce the nine contracts despite the fraudulent purpose for which they were signed. In my opinion, Medley Close should not be permitted to do so when it was a party to the scheme.
[15][1917] 1 KB 223
As the nine contracts of sale were never shown to the NAB and no third parties were misled it is unnecessary to consider arguments about what the position would then have been.
If I am wrong about submissions based on the issue of the lack of intention to create legal relations then I do not consider that Mr Scott's subsequent conversation with Mr Maxwell can be regarded as constituting an agreement to terminate the contracts. In my opinion, Mr Maxwell's failure to object to Mr Scott's statement could not be treated as evidence of his consenting to that course. Nevertheless, the nine contracts of sale cannot be enforced by Medley Close for the reasons discussed above in respect of the 17 contracts of sale, namely breach of fiduciary duty and repudiation by purporting to set off the commission against the deposit. Again, I would not be prepared to order specific performance.
Moorabool's Claim for Removal of the Caveats and Compensation
Despite the fact that the second caveats, which had been lodged by Mr Maxwell on or about 18 June 2003, were removed by agreement on or about 26 June 2003 in order to allow completion of the sale of the 63 lots, Moorabool sought compensation under s.118 of the Transfer of Land Act 1958 ("the TLA") for the losses it suffered as a result of the lodging of the caveat without reasonable cause. The second caveats claimed that Moorabool held the Hillside land as trustee for itself and Mr Maxwell pursuant to a constructive trust. This claim was not pursued by Mr Maxwell. In any event, I do not consider that his entitlement to be paid a fee of 10% of the net profits of the development gave him any caveatable interest. He was not a joint venturer. Rather, he was engaged as a project manager at a fee fixed by reference to a percentage of profits instead of a specified amount.
However, I consider that the decision of Hayne J in Commonwealth Bank of Australia v Baranyay[16] makes it clear that to defeat a claim under s.118 the caveator does not need to establish that there was a caveatable interest. The claimant is required to show more than that there was no caveatable interest. Hayne J held that, without seeking to give "an exhaustive definition of the circumstances covered by the very general expression 'without reasonable cause'",[17] the foundation for reasonable cause would often be in the words of Wootten J in Bedford Properties Pty Ltd v Surgo Pty Ltd[18]:
"not the actual possession of a caveatable interest but an honest belief based on reasonable grounds that the caveator has such an interest."
Hayne J also held that the authorities made it clear that the onus was on the claimant to show that the caveator acted without reasonable cause.[19]
[16][1993] 1 VR 589
[17][1993] 1 VR 589 at 600
[18][1981] 1 NSWLR 106 at 108
[19][1993] 1 VR 589 at 600 citing Kaihu Valley Reailway Co Ltd v Kauri Timber Co Ltd (1889) NZLR 403 and Young v Rydalmere Credits Pty Ltd (1963) 80 WN(NSW) 1463 at 1472.
Part of the explanation for the disputes in this proceeding lies, in my opinion, in Mr Maxwell's feeling that his contribution to the apparent success of the development had been undervalued by Mr Scott and that it should have been recognised by an increased remuneration and/or opportunity to purchase some of the lots at a discount. I have previously referred to Mr Maxwell's complaints in his evidence that Mr Scott had not taken into account all of the work he had done throughout the project for little financial return, whereas Mr Scott had "sat in his office" and not "done a thing" and had continued to earn income as an accountant. Mr Maxwell appeared to be particularly upset by the fact that Mr Cleary and Mr Robert Scott stood to benefit greatly from his efforts when they had merely "bought in for the ride." Mr Maxwell aptly described himself, in his own words, as "a bit bitter and twisted." His grievance led him, I believe, to attempt to force Mr Scott into giving him a greater share by threatening to bring the development to a standstill by the lodging of caveats. This tactic appears to have worked well for him once (with Marner), if not twice (the Deer Park development) before. This view is borne out by Mr Maxwell's own statements that the first caveat had been lodged "with total commitment to its cancellation in lieu of our proper and mutual undertakings" (Mr Maxwell's letter dated 15 March 2003) and, more significantly, that "the current caveat is only registered as a dealing tool" and that if there was no settlement to him "a further one can be instigated (on now 80 lots) to ensure all proceeds from sales withheld in lieu of" (Mr Maxwell's letter dated 15 June 2003). In my opinion, the practice of lodging caveats as bargaining chips should not be encouraged.[20]
[20]Goldstraw v Goldstraw [2002] VSC 491 at [39] and [42] per Dodds-Streeton J
Therefore, I consider that Moorabool has shown that Mr Maxwell did not have an honest belief based on reasonable grounds that he had a caveatable interest when he lodged the first caveat, let alone the second caveats.
Moorabool also sought compensation under s.118 of the TLA for the losses it suffered as a result of Medley Close lodging its four caveats over the 17 remaining lots. I have found that there were no such contracts of sale as claimed by Medley Close and that the nine contracts of sale which were signed were not intended to have legal effect. In the circumstances it follows that Moorabool has also shown that Medley Close did not have an honest belief or reasonable grounds that it had a caveatable interest in respect of any of the 17 lots.
Moorabool's entitlement to an order for the removal of the Medley Close caveats and to claim damages under s.118 of the TLA against Mr Maxwell in respect of the second caveats and against Medley Close in respect of the Medley Close caveats has therefore been established.
Orders
Once the parties have had the opportunity to consider these reasons, I will hear submissions on the form of the orders or directions which should now be made.
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