McDowell v Kelic

[2000] NSWSC 796

CITATION:	McDowell v Kelic [2000] NSWSC 796
CURRENT JURISDICTION:	Equity Division
FILE NUMBER(S):	SC 3893/98
HEARING DATE(S):	1 and 2 August 2000
JUDGMENT DATE:	2 August 2000
PARTIES :	Lynette Mary McDowell (Plaintiff/Cross Defendant) Ivo Kelic (Defendant/Cross Claimant)
JUDGMENT OF:	Windeyer J at 1

COUNSEL :	Mr R Tregenza (Plaintiff/Cross Defendant) Mr C A Evatt with him Mr M K Rollinson (Defendant/Cross Claimant)
SOLICITORS:	Watson Stafford (Plaintiff/Cross Defendant) Teakle Ormsby George (Defendant/Cross Claimant)
CATCHWORDS:	CONTRACT between co-venturers for strata unit development - claim for breach - CONTRACTS REVIEW ACT - no basis for review
LEGISLATION CITED:	Contracts Review Act 1980 s9(1)(b) Real Property Act 1900 s74P
DECISION:	Paragraphs 54 to 57

1

THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

WINDEYER J

WEDNESDAY 2 AUGUST 2000

3893/98 LYNETTE MARY McDOWELL v IVO KELIC

JUDGMENT

1    HIS HONOUR: In these proceedings as originally commenced, the plaintiff, Mrs McDowell, sought an order for withdrawal of a caveat which had been entered by the defendant, Mr Kelic, against the titles to three blocks of land which comprised properties which were or had been numbers 181, 183 and 185 Sandal Crescent Carramar.

2    That caveat claimed an equitable interest as partner, pursuant to a deed dated 23 February 1995 between Mr Kelic and his wife, and a Mr Peter Kabalan and Mrs McDowell.

3    It is unlikely that interest claimed would have constituted a caveatable interest, but the proceedings for an order for the withdrawal of that caveat, heard by Young J on 29 September 1998, proceeded on the basis that the caveat claimed an interest in the land pursuant to a vendor's lien for unpaid monies. His Honour proceeded to deal with the matter on that basis.

4    In his judgment he accepted the equitable interest, but stated that as there was a venture between at least Mrs McDowell and Mr Kelic for the combination of their lands, the building of home units on those lands, and the sale of those units, that the unpaid vendor was not entitled to exercise a lien to interfere with the sale of units erected pursuant to the agreement, and he made an order for removal of the caveat.

5    It seems from his judgment, and it seems to me that it might have been possible for alternative security to be granted, but that is neither here nor there at this stage.

6    The caveat was removed. It seems that some delay was caused by the entry of the caveat in obtaining registration of the strata plan of subdivision, and that as a result of that certain financing which Mrs McDowell had arranged, was not able to proceed, so that some payments of interest which were due to the new financier in any event, were paid by a company which she controlled.

7 The only matter left to be dealt with under the amended summons is a claim by Mrs McDowell for compensation pursuant to s74P of the Real Property Act 1900.

8    Mr Kelic brought a cross-claim which, on the basis of a further amended cross-claim filed only on 21 July 2000, claimed declarations as to breach of contract, an inquiry as to damages for breach, and relief under the Contracts Review Act 1980. That cross-claim has formed the real gist of the proceedings which have been heard before me.

9    I should say that Mrs Kelic, the wife or former wife of the cross-claimant, was joined as a cross-defendant to the proceedings, but she has taken no part in them, and will abide by the order of the Court, subject to no order for costs being made against her, and I am proceeding on that basis. She was, however, a necessary party to be joined and to be given notice of the proceedings.

10    Mrs McDowell owned properties numbers 181 and 183 Sandal Crescent. Mr and Mrs Kelic owned property 185. A nephew, and I think a brother of Mrs McDowell (the Wenbans) owned properties 187 and 189 Sandal Crescent respectively.

11    There were discussions among the four owners as to a possible redevelopment of the four properties for the building and sale of home units. Ultimately the Wenbans decided not to proceed, although it was originally thought that at least so far as number 187 was concerned, it would be included in the development, which would then have been a three stage development for 36 units.

12    There were discussions between the McDowell, Kelic and Wenban interests as to this proposed development over 181 to 187. There was a document dated 22 January 1995 called Partnership and Contract Agreement, under which the parties appear to have been Mr and Mrs Kelic and Mrs McDowell and Mr Kabalan. The arrangement which at least was envisaged by that document, was that Mr and Mrs Kelic would receive a base price for their land of $210,000, plus 50 percent share of profit of six units.

13    The basis on which those figures were arrived at, was that it was agreed that a proper price for the land was $35,000 per what were described as ground floor units, which could be built on the land, it being agreed that the number of units on that basis was six. This brought about a purchase price for the land of $210,000. Probably what was meant was the number of units which could be built on the land area of 185.

14    The 50 percent share of the profit of six units was directed to a proper apportionment between the number of units applicable to number 185, as compared with the number of units which could be built on 181 and 183 combined, and presumably 187 separately. The original idea was to build 36 townhouses or units.

15    Mrs McDowell and Mr Kabalan agreed under another somewhat informal document to have a partnership, under which a company called Swallow High Investments, or a firm under that name was to be the developer. Nothing more need be said about that, because Mrs McDowell decided that Mr Kabalan was not an appropriate person with whom to proceed with this development, and she terminated the partnership. She says - and this is really not challenged - that she informed Mr and Mrs Kelic of that, and I accept that evidence.

16    The document of significance is a document called Deed of Agreement, which is dated 23 February 1995 between Mr and Mrs Kelic as the first partners, and Mr Kabalan and Mrs McDowell as the second partners. That is the agreement upon which Mr Kelic claimed in his caveat. It is really the agreement upon which these proceedings are based, as these proceedings are essentially proceedings for breach of that agreement. It is therefore impossible, in my view, for Mr Kelic to be able to say that is not a contract, because Mr Kabalan has disappeared from it. In fact, although some reference was made to this, that claim is not made.

17    Under that contract the Swallow High Investments partnership was to be the developer. The land of Mr and Mrs Kelic was to be sold to Kabalan and McDowell for $210,000, calculated on the basis that that land was able to accommodate six units, that they would be paid $210,000 for their land, plus 50 percent of any profit which may be made from the sale of the said units. It seems to me to be clear by that that is meant the six units applicable to their land.

18    It was provided that McDowell and Kabalan, as purchaser, would pay out the mortgage on the Kelic property, the amount which was paid in due course being $72,886.

19    It was further provided that the balance of the purchase price of $210,000 would be paid prior to any further distribution of money, from monies held from the development.

20    I should have added that under the first agreement dated 22 January 1995, clause 11 provided as follows; "All owners to be paid for properties on completion of sale of units." Clause 12 provided; "50 percent profit share to be divided between partners, eg one share each property, and 50 percent to developer as available."

21    The last provision is somewhat obscure, but it seems to me to mean that when monies were available, they would be distributed. The evidence shows that no monies have been available until about two months ago, and they are not really available now as Mrs McDowell still needs to make some additional arrangements.

22    There were other provisions in the agreement generally speaking of an administrative type, one of which is relied on by counsel for Mr Kelic, namely that the McDowell and Kabalan interests were to keep proper books of account, and to have them audited each year. It is accepted that has not been done.

23    This agreement was prepared by a solicitor, Mr Hamilton, who acted for everyone. He had not been the solicitor for any of the parties prior to this time, but he was approached by Mrs McDowell first. He is no longer in practice. His records, so far as they exist, have been furnished to the parties, and they are of little help.

24    There is a further document dated 1 February 1996 headed "Amendment Clause Kellich [sic]". This, according to Mrs McDowell, was prepared for her by her accountant. Whatever else can be said about it, little attention was given to it, as can be seen by its spelling. It provided, however, that settlement would take place on payment by the purchaser of the existing mortgage with the State Bank, and that the balance of the purchase price would be paid on completion and sale of 36 townhouses or units. It provided as security for the vendors, called in the document "Vindows", by caveat on the title of the property allowing the following:

1. First mortgage by the lender of the project.
2. Consent for amalgamation of five properties.
3. Consent for subdivision of property for strata title.
4. Consent to lodge development application and building application.

25    Mr and Mrs Kelic signed this document. They received no advice when they did so, but whatever else it did, it gave some justification for their placing the caveat which they placed on the title. It seems to me therefore that it is very difficult for Mrs McDowell to say that this was placed on the title without proper cause, albeit that its form might not have been appropriate, and albeit that it did not necessarily allow what is provided for by the document.

26    The building commenced in two stages. The first stage comprised units 11 to 24, and the second stage units 1 to 10. Both stages were built over all three blocks of land. In other words, the first stage was not applicable solely to either land of Mrs McDowell, or land of Mr and Mrs Kelic.

27    The transfer of the property from Kelic to McDowell did take place in accordance with the letter of 1 February 1996, the mortgage being paid out at that time. The effect of that was that a sum of approximately $137,100, or perhaps a little more, remained due for the balance of the purchase price. That amount has not yet been paid. There is no doubt that amount is due by Mrs McDowell to Mr and Mrs Kelic.

28    The whole of the arrangements for the development were left in the hands of Mrs McDowell, who formed a company for this purpose called McDowell Enterprises (NSW) Pty Ltd. There is little evidence that Mr and Mrs Kelic were aware of that, but they were certainly aware - and I accept were satisfied - that Mrs McDowell was taking over the development, Mr Kabalan having departed from the scene.

29    The units in both stages have now all been sold. It is not necessary to go into any detail on the somewhat strange arrangements made for the sale. Some of the sales were arranged on the basis of what was described in evidence as barter dollars. Some of the sales were therefore made to builders or suppliers who, in return, provided services up to the value of the sale price of the units, or if they did not, owed the balance of those amounts.

30    Mrs McDowell stated in evidence that so far as accounting was concerned, what she described as barter dollars were to be taken as real dollars, and all accounting would be done on that basis. I say that because some assets of the company are the value of work due by certain people in the form of services or materials. Those credits would not be able to be cashed for their full face value, but nevertheless are to be brought to account on the basis that if at some further stage some accounting between parties is necessary, the accounting is to be done on the basis that the barter figures are in fact true dollar figures.

31    The last unit which sold was number 2, the date being 31 May 2000. There are some discrepancies in the figures in Exhibit B, being the sales figures as stated by Mrs McDowell, which do not necessarily coincide with the figures in the books of account of the company. To some extent that is explained first by what could otherwise be regarded as excessive commissions paid to sales people, and secondly by attempts to show prices for units which were not prices actually obtained; and thirdly because four of the units were in fact sold to Mrs McDowell or her interests, two of which have not yet been paid for.

32    The evidence as to the arrangements that Mrs McDowell made for retaining units was not clear, but it does seem that for two of them she borrowed money and put those borrowed monies into the developers account. That has probably accounted for them, or at least the amounts borrowed. It is by no means clear that the other two units which she has appropriated to herself, should have been appropriated to her prior to the final accounts being made. But having said that, the position is that they were in her name in any event, and she did not need to do anything by way of a transfer document to take them to herself. I am not saying that there is some improper conduct in what she did as to this, except perhaps that she should not have taken them to herself as far as accounting was concerned at that stage.

33    The cross claim alleges various breaches of contract. First it is said that there is breach of all of the obligations on Mrs McDowell under the document dated 22 January 1995. On any basis, that document has been subsumed in the document of the next day, together with the document dated 1 February 1996. Those are the documents which are the contractual documents so far as this claim is concerned.

34    There are claims for breach of clauses 3, 4, 5A, 5C and most of the subclauses of clause 6 of that agreement. So far as clause 3 is concerned, that is the clause as to payment of $210,000 for the land. However, the clause provides that payment should be made when the agreement was concluded, and it has not yet been concluded.

35    Clause 5 relates to the title to the property, and the entitlement to lodge a caveat on the property to secure their interests. Once again, the Certificate of Title was to be held by the developers, pending the conclusion and sale of the development, but obviously it could not proceed without a mortgage being granted over it. There has been no conduct which is contrary to clause 5A or to clause 5B, which provided that a caveat could be lodged.

36    So far as clause 6 is concerned, whether or not there has been any breach of any of the subclauses, apart from (e), is really quite irrelevant. No damage has been shown to have flowed from any of them. Neither is there any breach shown of clauses 7 and 8. In fact, it is difficult to see how these breaches can have been alleged.

37    The real claim which has been made by Mr Kelic is that there was an expressed or implied term in the agreements that he would be repaid his investment, with interest, within two years. There was some evidence given by him as to one or two years. Mrs McDowell accepted that she had mentioned two or three years. That was what she expected. There is no contractual term which can be implied in the agreements as to this. No such term is necessary, and no such term was agreed.

38    The same applies to the question of interest. The only possible claim for interest was that in correspondence occurring at about the time when the proceedings were commenced for renewal of the caveat, an offer was made to pay interest. It could not have had anything to do with the arrangements which were made when the agreement was entered into and there was no agreed variation.

39    Although it is not claimed, as an implied term but, perhaps as a basis for relief under the Contracts Review Act, there was a claim by Mr Kelic that it had been stated that there would be a profit for each unit, which varied between $10,000, $15,000, $30,000 or $35,000. There is no doubt that Mrs McDowell said that she hoped to get that amount. She says that she hoped to get more. There was no term of the agreement that the cross-claimant would receive his share of that amount as his share of the sale of the six units.

40    I turn now to the claim under the Contracts Review Act. First, it is necessary to explain that Mr Kelic does not speak English well. It was clear that he genuinely had difficulty in understanding the English language, or at least difficulty answering questions in English in the witness box. He properly needed the services of a translator or interpreter, which he had.

41    On the other hand his wife, who gave evidence for the cross-defendant and was a cross-defendant herself, showed that she understood perfectly what was going on. His son, who also gave evidence for him, clearly understood everything, and was at times called upon to explain things to his father, which he did.

42    There can be no doubt that there were conversations under which Mr and Mrs Kelic were offered $210,000 for immediate transfer of their land. They were offered an alternative of a delayed payment, and a share of the profits. Mrs Kelic wished to take the former, her husband wished to take the latter. They agreed to take the latter. I do not think it could be thought there was anything untoward in these alternatives. In fact, on the evidence the sum of $210,000 for property 185 Sandal Street was a generous price, albeit, that in the apportionment Mrs McDowell got the same sort of benefit for the unit value of her land.

43    I turn now to the other matters. I have already said that the parties did obtain some legal advice, but from the same solicitor. This is not a case where they were entering into complicated arrangements. They were entering into a development under which they hoped to obtain reasonable profits, and under which - unless something went drastically wrong - they would obtain the value of their land. There was a risk to them in this latter course, because that land was being transferred to Mrs McDowell. On the other hand, they had their right to enter a caveat to protect their interests, the order for its removal being made it seems because they would not accept something which seemed to have been a reasonable alternative security, and because they could not by caveat stop the development - which they had agreed to participate in - from going ahead.

44 Mr Evatt placed some reliance on s9(1)(b) of the Contracts Review Act but that reliance was based on a misconstruction of the section.

45    So far as the other matters which can be looked at, and so far as the generality of the matters are concerned, I do not think that the cross-claimant has made out a case. It must be remembered that when the contract was entered into, he and his wife were together. Mrs McDowell was not necessarily required to ensure that Mr Kalic could understand perfectly everything that she said. He had his wife to help him.

46    There was no established material difference in the quality and bargaining power of the parties. Both owned properties. Both sides wished a development to proceed. Both entered into arrangements for a development. They did have an opportunity to negotiate. They could have taken the price for their land. They decided to take the risk of sharing profits, not of course expecting that there was any risk of there being any loss. As it stands at the moment, it seems that there will be a very small profit share going to Mr Kelic. Nothing like the amount which he hoped for or expected, but nevertheless it seems there will be no loss, and his share of the balance purchase monies will be paid to him.

47    I have considered all the matters which are set out in s9(2). I do not think that the cross-claimant has made out a case for relief under any of them. There is no evidence that the economic circumstances were different. Certainly the literacy of the parties was different so far as Mr Kelic was concerned, but that would not in itself be a reason for granting relief.

48    The contract may not have been entirely clear, but nevertheless its intention was quite apparent; namely that each side would put in its land, that the Kelics would get $35,000 per unit entitlement for their land, and that the profits would be divided proportionately to the number of units which the land could support. There seems to be nothing unfair or unequal about that.

49    Mr Evatt placed some reliance on clause 9(2)(j), but certainly there was no undue influence, undue pressure or unfair tactics exerted on the cross-claimant by Mrs McDowell. The claim therefore for relief under the Contract Review Act, must fail. The claim for damages must also fail.

50    I have already said that if the parties cannot agree, it may be necessary for an account at some stage, but one hopes that is not necessary, and that when the final account is made up the profits will be shared appropriately. In any event, it is perfectly clear that the first payment which must be made as soon as any funds are available, is the balance purchase price of over $137,000 owing to Mr and Mrs Kelic.

51 The last question which it is necessary for me to consider is the question of compensation, which the plaintiff claims pursuant to s74P of the Real Property Act. Under that section compensation can be awarded where a person, without reasonable cause, lodges a caveat, and refuses or fails to withdraw it after being requested to do so. I do not think that it has been shown that the caveat was lodged without reasonable cause. If the caveat is lodged with cause, then the right to compensation does not arise. That seems to me to be the end of the matter.

52    However, I should say that the payments which Mrs McDowell claims were made as a result of refusal to remove the caveat, were made by the developer company. While it may have incurred some loss as a result, it does not necessarily mean that Mrs McDowell incurred the loss. But in any event, as I have said, the claim for compensation fails.

53    The orders are that the plaintiff's claim in paragraph 2A of the amended summons be dismissed. The further amended cross-claim be dismissed. The exhibits can be returned.

(Both counsel indicated that they would be seeking costs.)

54    So far as the costs are concerned, Young J ordered the costs of the hearing before him be costs in the cause. That only means, as I understand it, that I can determine those costs. As far as the amended summons is concerned therefore, the plaintiff has succeeded in obtaining an order for withdrawal of the caveat, but has failed on the issue of compensation, which has not taken up a great deal of time, but nevertheless is an issue on which Mrs McDowell failed. The cross-claim has failed in its entirety, and therefore the cross-claimant would be required in normal cases to pay all the costs relevant to the cross-claim in those circumstances.

55    Rather than trying to adjust the matters, I think that the appropriate order is that the cross-claimant pay 85 percent of the plaintiff's costs of the entire proceedings, and I so order.

56    I order that the cross-claimant pay 85 percent of the costs of the plaintiff of the summons and the cross-claim. No order as to costs of the second cross-defendant.

Last Modified: 09/26/2000