Milatos v Clayton Utz
[2007] NTSC 44
•20 September 2007
Milatos & Anor v Clayton Utz [2007] NTSC 44
PARTIES:GEORGE MILATOS
COLLEEN MILATOS
v
CLAYTON UTZ
TITLE OF COURT: SUPREME COURT OF THE NORTHERN TERRITORY
JURISDICTION: SUPREME COURT OF THE NORTHERN TERRITORY exercising Territory jurisdiction
FILE NO:194/2002 (20219346)
DELIVERED: 20 September 2007
HEARING DATES: 31 October 2006 – 21 December 2006 and 5 March 2007 – 19 April 2007
WRITTEN SUBMISSIONS
RECEIVED:Plaintiffs: 13 June 2006
Defendant:12 June 2006
Plaintiffs in reply: 16 July 2007
Defendant in reply: 2 July 2007
JUDGMENT OF: THOMAS J
REPRESENTATION:
Counsel:
1st and 2nd Plaintiff: J Reeves QC and P McIntyre
Defendant:M Maurice QC and R Bruxner
Solicitors:
1st and 2nd Plaintiff: Geoff James
Defendant:Paul Maher
Judgment category classification: C
Judgment ID Number: tho200702
Number of pages: 249
IN THE SUPREME COURT
OF THE NORTHERN TERRITORY
OF AUSTRALIA
AT DARWINMilatos & Anor v Clayton Utz [2007] NTSC 44
No. 194 of 2002 (20219346)
BETWEEN:
GEORGE MILATOS
First Plaintiff
COLLEEN MILATOS
Second Plaintiff
AND:
CLAYTON UTZ
Defendant
CORAM: THOMAS J
REASONS FOR JUDGMENT
(Delivered 20 September 2007)
This is a claim by the plaintiffs against the defendant for damages. The plaintiffs assert that the defendant, who acted as their solicitor, failed to provide adequate legal advice concerning the purchase of a property, namely, Section 152 Hundred of Howard, now known as the Lake Bennett Wilderness Resort. The plaintiffs complain that the defendant failed to give adequate legal advice concerning the existence of certain recreational easements. In particular, the plaintiffs claim the defendant failed to advise that the recreational easements gave the easement holders the right to use the whole of Section 152 for recreational purposes and/or that the plaintiffs may not be able to construct buildings, or other improvements on Section 152, without first obtaining the consent of the easement holders and that it would be imprudent for them to proceed with the project at Lake Bennett.
The claim is made pursuant to the Consumer Affairs and Fair Trading Act 1990 (NT) for an alleged breach of s 42 of that Act and also pursuant to the Trade Practices Act 1974 (Cth) for an alleged breach of s 52 of that Act.
The plaintiffs further claim for breach of fiduciary duty. The plaintiffs assert Mr Riley, a partner with the defendant company, intentionally failed to make a full and frank disclosure in that he realised by 7 April 1998 that the easements were recreational easements affecting the whole of the subject land purchased by the plaintiffs and completely inconsistent with building on that land. The claim is based on the assertion that Mr Riley did not advise the plaintiffs of his discovery or tell them that the advice he had given earlier, as to the effect of the easements, was incorrect. Mr Riley did not suggest that in those circumstances the plaintiffs should seek independent legal advice.
The plaintiffs’ claim:
(1) Equitable relief and compensation; and
(2)Damages pursuant to s 91 and/or s 95 of the Consumer Affairs and Fair Trading Act and/or damages pursuant to s 82 and/or s 87 of the Trade Practices Act.
The Lake Bennett Wilderness Resort consists of a man made lake and surrounds, located approximately seven kilometres off the Stuart Highway 80 kilometres south of Darwin.
I shall commence with setting out some of the formal findings relevant to the litigation between the parties.
1. In the defence to the plaintiffs’ statement of claim, the defendant joined two third parties namely James Nairn and Company Pty Ltd as the first third party and the Northern Territory of Australia as the second third party. During the course of the hearing, the defendant settled its action with respect to each of the third parties.
2. On 25 January 2007, terms of settlement between the defendant, the first third party and the second third party, were filed. This concluded the proceedings between the defendant and the first third party.
3. On 30 March 2007, the court recorded a minute of consent orders between the defendant and the second third party which concluded the proceedings between the defendant and the second third party.
4. Thereafter the hearing proceeded solely between the plaintiffs and the defendant.
5. In March 1996 the property known as Lake Bennett was owned by Nazime Pty Ltd (ACN 009 634 137) (“Nazime”). The directors of this company were David Shoobridge and his wife Elizabeth Shoobridge.
6. On 10 May 1996, Anadyr Pty Ltd (ACN 009 624 462) (“Anadyr”) signed an option agreement to purchase the project property being Section 152 Hundred of Howard from Nazime. The property was subject to recreational easements in favour of the surrounding lots.
7. Anadyr was a company owned by George Milatos and his brother Michael Milatos. Pauline Milatos, Michael’s wife, became a director on 23 October 1998. At that time, George Milatos ceased to be a director, however, he still maintained 60% of the shares (Exhibit P6).
8. In October 1996 the option agreement was transferred to City Developments Pty Ltd (ACN 009 638 733) (“City Developments”).
9. City Developments was a company duly incorporated according to law.
10. A discretionary trust known as the “Lake Bennett Trust” (“the trust”) was established by Deed of Settlement executed on 2 October 1996 between Anadyr Pty Ltd as trustee and Raymond Oak Grimshaw as settlor.
Under and by virtue of the Deed, City Developments was a beneficiary and Mr George Milatos named as the principal of the trust.
By Deed of Variation dated 23 October 1996, the trust deed was varied so as to exclude City Developments as a beneficiary (Trust Deed and Variation are annexure ML3 to Mr Lewis’ report, Exhibit D214). Subsequent discussions took place and correspondence was exchanged between Ray Grimshaw, Guy Riley and George Milatos (copies of which can be found in Exhibit P5) making it clear that City Developments was now acting as trustee for the trust. The Lake Bennett Trust financial statements for the years 1996-2002 (inclusive) reflect City Developments acts as trustee for the trust (Exhibit P199).11. The plaintiffs were the persons who exercised all of the powers and duties of management of City Developments. They were its only directors at the relevant time.
12. Between March 1996 and May 2002 the plaintiffs, who were the directors of City Developments, worked to develop Lake Bennett as a tourist resort. This included arranging finance for further development, liaising with government authorities and various interested persons, building accommodation, upgrading the resort, marketing the resort as a tourist destination and selling the units built around the foreshore. The work that was carried out will be set out in more detail hereunder.
13. Australian Transportable Homes Pty Ltd (ACN 065 856 359) (“Australian Transportable Homes”) is an entity of which George Milatos was the managing director. It was established by George Milatos for the purpose of building houses at premises in Berrimah, which houses could be transported to remote communities and placed on site. Australian Transportable Homes ceased to operate in February 2002.
14. The plaintiffs had, at all relevant times, differing roles in the development of Lake Bennett. George Milatos, as director of Australian Transportable Homes, constructed buildings which were subsequently transported to Lake Bennett and placed on various lots around the foreshore. Mr Milatos was responsible for all the legal and financial dealings associated with the development of the property. Colleen Milatos (now Mrs Colleen Cambronero) managed the resort, assisted in furnishing and decorating the units once they were built and developed the gardens around the resort. As manager of the resort, Colleen Milatos built it up as a tourist attraction providing restaurant and other facilities to tourists and those who lived in the units or cabins adjacent to the resort or around the foreshore of the lake. Colleen Milatos marketed the resort and established networks with various tour operators.
15. Between 1996-97, Section 152 Hundred of Howard was subdivided into Section 245 the lake and Section 244 the surrounding foreshore. Registration of the subdivision occurred on 3 February 1997. The land was still subject to recreational easements in favour of the surrounding lots.
16. On 24 March 1997, contracts for sale of Sections 244 and 245 by Nazime to City Developments were exchanged. The purchase price was $630,000 with a mortgage back to Nazime. Settlement of this purchase was effected on 16 April 1997.
17. On 29 August 2001, the Court of Appeal of the Supreme Court of the Northern Territory, confirmed that the recreational easements over Section 152, now Sections 244 and 245, in favour of surrounding lots, were good in law.
18. By December 2001, City Developments was indebted to the ANZ Bank in the sum of approximately $2.6 million.
19. Between December 2000 and May 2002, the ANZ Bank communicated their concerns about the indebtedness to the Bank and sought the debt be either refinanced or repaid. Attempts were made by agents to find a buyer for Lake Bennett at the price of $2.5 million. No sale eventuated.
20. In April 2002 the Lake Bennett Wilderness Resort Pty Ltd was incorporated for the purpose of acquiring the resort business from City Developments. Michael Milatos, is a director of this company. Michael and Pauline Milatos are the two shareholders in the company.
21. In May 2002 Section 245 (the lake and the resort) was sold to Lake Bennett Wilderness Resort Pty Ltd for $500,000 with the monies remitted on 10 May 2002 as follows:
(i)$466,539.79 in reduction of “the trusts” ANZ Bank FDA accounts; and
(ii)$ 53,460.21 in reduction of “the trusts” bank overdraft.
22. As a result, the ANZ Bank released its mortgage security on the resort title, being Section 245, but retained its mortgage security over the unit title condominium development area, Section 244.
23. In November 2002, based upon the application filed in September 2002 by Coomalie Community Government Council (“Coomalie Council”), City Developments was placed into liquidation.
24. As at the date of liquidation, the total amount of the debts subject to proofs in the liquidation amounted to $2,947,306.
25. The defendant was at all relevant times a partnership of legal practitioners that carried on the professional practice of solicitors under the business name “Clayton Utz” registered pursuant to Business Name Registration 6221B and is named as defendant pursuant to s 27 of the Business Names Act 1996 (NT).
26. Nicholas Mitaros and Guy Andrew Riley were legal practitioners who were partners in the firm of Clayton Utz at the time of the acts and omissions alleged against them in the statement of claim.
History of Lake Bennett 1983 - 1996
On 15 February 1983, the then proprietor of the property known as Section 69 Hundred of Howard, subdivided the section into 21 parcels of land. This consisted of Section 152 containing an area of approximately 146 hectares including 65 hectares of water surface, being Lake Bennett, together with 81 hectares of dry land around the foreshore of the lake. The remaining 20 lots were designated Sections 91 to 110 inclusive. They ranged in size from 11 hectares to 44 hectares.
Three of these 20 lots were sold prior to 14 October 1987.
On 14 October 1987, the proprietor sold Section 152 and the remaining 17 lots to Nazime, a company owned and operated by David and Elizabeth Shoobridge.
Between 14 October 1987 and May 1996, Nazime occupied Section 152 for the purpose of carrying on the business of a commercial camp ground, a shop and similar enterprises. Lake Bennett was used by its customers as a recreational facility.
On 10 May 1996, Nazime entered into an option agreement with Anadyr to purchase Section 152 Hundred of Howard (Exhibit P5 Vol 3 pp43-52). By May 1996, Nazime had sold 11 of the surrounding lots (“the sold lots”) and retained lots 95, 97, 99, 100, 108 & 110 (“the retained lots”).
The Easements
As at May 1996, there were registered, in respect of Section 152 Hundred of Howard, and in favour of Sections 93, 94, 96, 101, 102, 103, 104, 105, 106, 107 and 108, easements styled “recreational easements”. There were a total of 11 sections which had the benefit of the recreational easements.
These recreational easements were in writing and registered on the title to Section 152. In substance they conferred on the sold lots rights to enter upon and use Section 152 for recreational purposes.
In early 1996, the plaintiffs began various enquiries as to the viability of purchasing and developing Section 152 (referred to as Lake Bennett) from Nazime. The proposed development to be established was a residential holiday village and resort.
By reason of the nature of the recreational easements and the provisions of the Real Property Act 1996 (NT), the Unit Titles Act 1976 (NT) and the Real Property (Unit Titles) Act 1976 (NT), there existed the following impediments to the development of Lake Bennett. These impediments were:
· The consent of the easement holders was a necessary legal pre-requisite to the construction of any buildings or other improvements on Section 152.
· The written consent of the easement holders was a necessary legal pre-requisite of registration of any further easements on the title to Section 152.
· The written consent of the easement holders was a necessary legal pre-requisite of any subdivision of Section 152 under general law.
· The written consent of the easement holders was a necessary legal pre-requisite of approval by the Attorney-General of any disclosure statement for any subdivision of, or of any part of, Section 152 by way of condominium development proposal under the Unit Titles Act.
· The written consent of the easement holders was a necessary legal pre-requisite of the registration on the title to Section 152, or on any part thereof, of such a disclosure statement.
· Following any such registration of an approved disclosure statement for a condominium development, the written consent of the easement holders was a necessary legal pre-requisite of the registration of a units plan authorised by any such disclosure statement.
· The written consent of the easement holders was a necessary legal pre-requisite of approval for, and registration of, any alteration or variation of any registered disclosure statement relating to, or to part of, Section 152.
· Constructing buildings or other improvements on Section 152, or part thereof, was a necessary legal pre-requisite of the plaintiffs being entitled to carry out a unit title subdivision on Section 152, or any part thereof.
· The written consent of the easement holders was a necessary legal pre-requisite of any subdivision of, or of any part of, Section 152 pursuant to the Unit Titles Act.
· No provision existed in law to enable any officer of government to dispense with any of the above required consents.
· By reason of each and all of the foregoing, any one or more of the easement holders possessed an effective power of veto on the whole, or any element, of the project exercisable and re-exercisable, at any stage of the progress of the project.
History of George and Colleen Milatos prior to 1996
George Milatos was born on 3 November 1951 at Kalymnos in Greece. In 1963 his father, who was a stonemason, left Kalymnos and came to Australia. George and other members of his family followed and arrived in Darwin about Christmas in 1964. Before coming to Australia, George had completed primary school, one year of high school and served for approximately four months as an apprentice painter.
On arriving in Darwin he attended night classes to learn English. At that time he was between 13 and 14 years of age. He worked as an apprentice painter. At the age of 17 he started his own business as a painter. He learnt to speak English by mixing with English speaking people. He does have some difficulties with the English language but is conversant in that language. His business developed and he became the largest painting contractor in Darwin. By 1970 he was already doing some small building jobs. In that year he won a job to build four units in Stuart Park and subsequently another four or five units in Alawa. He had launched his career as Milatos Constructions Pty Ltd (“Milatos Constructions”).
Exhibit P6A is a series of 139 photographs of projects undertaken by Milatos Constructions over the subsequent years. In the two years after he completed the units in Alawa he constructed about 40 private houses.
In 1971 Mr Milatos met his future wife Colleen. They married in 1973. The shares in Milatos Constructions were held 50% by him and 50% by his father. In 1983 he bought his father’s share of the company and his brother Michael Milatos came into the business. They continued together as Milatos Constructions until the early 1990s. In 1973 he incorporated a subsidiary into the company called Winnellie Joinery which built kitchens and wardrobes for their construction company. By 1974 nearly all of his business was government contracts. These included the pre-school at Moil, executive flats in Fannie Bay for the Reserve Bank, houses for the Commonwealth Housing Commission and the Department of Transport and Works. He also did work for private individuals including Savvas Motors on the corner of Daly and Smith Street.
By December 1994 the company had built between 200-300 houses. In the period immediately before the cyclone in December 1974, the company’s annual turnover was approximately $5-$7 million.
At the date of the cyclone in December 1974, Colleen was expecting their first child and was subsequently evacuated to Brisbane. From February 1975 to September 1975, Mr Milatos was involved in the construction and clean up work in Darwin. He built 40 houses in about 20 weeks. From that time, up to about 1980, he built between 100 and 200 homes every year. These were almost exclusively government contracts. In 1976 Mr Milatos had established a business called Territory Timber and Hardware. This business imported timber, which was mainly frames for elevated houses, that were on sold to Milatos Constructions and other builders. Mr Milatos sold his interest in Territory Timber and Hardware in 1979 to a Perth based business. In 1977 he commenced building the Nightcliff Sports Complex. This included a 16 lane indoor bowling alley, eight squash courts, a restaurant, a crèche facility, snack bar and offices. This is shown in photographs MP13-MP15 which forms part of Exhibit P6A. The facility opened in September/October 1977.
The second stage involved the first roller skating rink American style disco. In addition there were two health studios, a hairdressing salon and a sportsman’s bar. This stage opened about mid July 1978. This project cost approximately $2 million. Finance was obtained through Westpac and subsequently from Tricontinental which was associated with the State Bank of Victoria.
In 1979-80, Mr Milatos purchased a property next to the sports complex and built the Phoenix Hotel, a semi resort style hotel which opened in late 1980. A photograph of this project is MP9 in Exhibit P6A. The complex contained 60 rooms, a restaurant for 120 people, conference facilities for 70-80 people and associated other facilities. The whole project cost $1.7-$1.8 million. It was originally financed through the development corporation, a government initiated body, and then refinanced with Tricontinental. During this time Mr Milatos had also incorporated two other businesses, Winnellie Windows and Winnellie Steelworks. They were closed down in the early 1980s because it became cheaper to engage external subcontractors.
Other projects undertaken by Mr Milatos included the NT News premises in Mitchell Street (MP11) and the family residence in Allen Street, Fannie Bay (MP62). He continued to build government houses up until the mid 1980s when this work ceased. Between 1981-84, Mr Milatos built three major roller skating rinks in Perth. They were sold in 1984-85. Mr Milatos described some of the other building developments with which Milatos Constructions were involved during the early 1980s. These included staff quarters for Barclay Constructions, 20 houses in the Northlakes Estate which were leased out to the armed forces, over 400 units and townhouses for the Northern Territory Housing Commission in Nightcliff, Palmerston and Wanguri and quarters for airmen at the RAAF Base. Photographs MP67-MP79 depict various housing commission projects completed during the early 1980s.
In about July 1985 the company commenced building Enterprise House. The building consisted of 30 car parking bays, and above that two floors of approximately 1300 square metres per floor (MP16 and MP17). This project cost approximately $1.7 million. Again finance was obtained through Tricontinental (tp 322).
In 1986, Milatos Constructions was involved in building a cinema complex at Casuarina and commenced to build the Harbour View Plaza. The approximate cost of construction of the Harbour View Plaza was $10 million. It consisted of a multi storey building with an underground carpark and approximately 5000-6000 square metres of area for lease. The greater part of it was leased to the Northern Territory Government. It was completed in November 1987. This was their first high rise construction. Mr Milatos described some of the other projects he looked into including the Bayview Estate and a hotel in The Gardens. The latter project became very controversial and attracted protest meetings and other conflict situations, some of which Colleen Milatos was confronted with. Mr Milatos abandoned this project.
In 1989 Tricontinental and the parent company, The State Bank of Victoria, went into liquidation. Tricontinental called in their loan to Milatos Constructions. George and Colleen Milatos were involved in attempting to refinance the loan or alternatively to sell the building. Mr Milatos, and his solicitor Nicholas Mitaros, travelled overseas in an effort to raise money to salvage the project. These efforts were to no avail. Milatos Constructions was placed in liquidation in about mid 1992. George and Michael Milatos were forced to sell their personal homes and other assets to pay the debts. The two families were forced to share their parents home.
George Milatos borrowed money from his father and commenced building a property at Bayview. He was involved in building five town houses at Stoddart Drive, Bayview, two were sold and three were retained (MP95). Mr Milatos gave evidence of other building projects at Bayview that he constructed. Within a few months of this time Mr Milatos started up the company called Australian Transportable Homes. He established a yard at Berrimah where houses were constructed and subsequently transported to remote localities around Darwin, MP19 and MP26 are two photos which are examples of the buildings constructed by Australian Transportable Homes.
About 1994-95, Mr Milatos commenced looking at the possibility of developing a project at Manton Dam. He decided against this because of the many regulatory requirements that affected the property. Following this Mr Milatos turned to look at the potential for development at Lake Bennett.
During the early years of their marriage, Colleen Milatos was engaged in caring for their three sons. In 1987 Colleen Milatos obtained a certificate as a real estate agents representative. She obtained employment in this capacity. In about 1988-89 Colleen Milatos set up her own business under the name Commercial and General Realty. Following the merger with another business it later became known as Nova National Realty. The business operated from the ground floor of the Harbour View Plaza which had been constructed by Milatos Constructions. Colleen Milatos was very involved in the efforts to salvage the company, Milatos Constructions, following the collapse of their financiers.
Some years prior to this, approximately 1986-87, Colleen Milatos had taken their children on a camping trip to Lake Bennett. She had told her husband about her experience there. She was subsequently in favour of developing Lake Bennett, particularly as she believed there was no government involvement in the property and they could acquire freehold land. Details of later relevant events in their history, and their respective roles in the development of Lake Bennett, are given under the headings relating to the history of Lake Bennett.
History of Lake Bennett 1996
In January 1996 George Milatos was approached by David Shoobridge, who had a property known as Lake Bennett for sale. Mr Milatos visited Lake Bennett. He drove around and took a dinghy ride around the lake. He was informed by Mr Shoobridge that the road was public and there were 6 to 8 metre easements around either side of the road. Mr Shoobridge informed him the boundaries were between 5 to 100 metres from the waters edge. He advised Mr Milatos that he had given 11 people legal access to the lake and explained there were other properties that adjoined his property. Mr Shoobridge offered Mr Milatos Sections 95, 101, 103, 104, 106, 108, 110 and 152. Section 152 was later divided into Sections 245 and 244. Mr Milatos indicated that he was only interested in Section 152, the lake and its shores. Exhibit P4 contains a number of maps, diagrams and photographs. Document 3 is titled “Lake Bennett Topography”, the marks with yellow highlighter are dry land. The fourth document in that exhibit shows Lake Bennett, Section 244 is the land around the foreshore and Section 245 is the lake. Mr Shoobridge provided Mr Milatos with a number of documents concerning Lake Bennett which are Exhibit P7. This included the background to the location of Lake Bennett together with possible development, prior sales and details of Section 152 with existing improvement. Mr Milatos asked Mr Shoobridge for a 90 day option. Mr Shoobridge promised to get back to him if he agreed to give Mr Milatos an option.
Prior to seeking legal advice, Mr Milatos, on his own evidence, states he consulted Kevin Dodd at Earl James and Associates, licensed surveyors. Mr Milatos gave evidence that on 5 February 1996 he wrote to Mr Dodd regarding his plans for Lake Bennett as a residential and resort development (Exhibit D37). In that letter, Mr Milatos sought advice from Mr Dodd as to how he could best achieve his goal.
On 5 March 1996, Mr Dodd of Earl James & Associates wrote a letter to Mr Milatos in which he proffered advice on a number of matters. This letter is Exhibit D38. The most pertinent matters addressed by Mr Dodd concerning the proposed development of Lake Bennett, were as follows:
· That a number of adjoining sections have a registered recreational easement over Section 152 which contains the actual lake.
· These easements allow each of the sections to enjoy the use of the lake.
· That to make Nazime’s other properties more attractive it may be an advantage to also grant them recreational easements over Section 152.
Mr Dodd then outlined two possible options. He described the first and simplest option to involve carrying out a unit title subdivision on one or more of the properties owned by Nazime. He then referred to the construction of one and two bedroom units and the factors to take into consideration if this option were to proceed.
Option 2 involved using the Estate Development section (Part IVB) of the Unit Titles Act. He then explained the requirements if this option were to proceed. The letter concluded as follows (Exhibit D38 p3):
“Whichever option, or combination of both, you decide upon, all of the resultant lots or units will still have the right to use the lake by virtue of the recreational easements.
The number of units you eventually build would depend upon the number of unit titles you choose to create.
The two options we have outlined would both achieve your desired result. That is, to be able to break up the subject properties into more saleable parcels.
A combination of the two options gives you the mechanism to construct units, or sell parcels that have the potential to be unit titled.
The project certainly needs to be discussed in more detail when you have arrived at a decision on which course of action you wish to pursue.
When you have made that decision we can discuss the planning implications and the likely fees associated with each process.
Again, thank you for giving us the opportunity to participate in this project.”
In March 1996, Mr Milatos commissioned Craig Tarbottom who prepared schematic drawings of cabins Mr Milatos proposed to build around the foreshore (Exhibit P8).
On 25 March 1996, Mr Milatos consulted Nicholas Mitaros, then a managing partner in the legal firm of Clayton Utz. Mr Milatos gave evidence he took with him plans and computer drawings prepared by his architectural draftsman, Mr Tarbottom (Exhibit P8) and also the documents that Mr Shoobridge gave him (Exhibit P7). Mr Milatos gave Mr Mitaros an outline of his plans for the block, including his proposal to build small air-conditioned waterfront cabins as weekenders. He spoke of his ideas about building a resort type development with a golf course. Mr Milatos advised Mr Mitaros that his initial plans were to build 16 cabins on the northern side, if he was successful in selling these then he would build on the eastern side. Mr Milatos stated he wanted Mr Mitaros to prepare a 90 day option to allow the “due diligent checks” to be done and sort out all the legal issues. Mr Milatos advised Mr Mitaros he would be requiring him to later work on a sale agreement and to act for him on the conveyance of the various units. Mr Milatos did not specifically ask that a title search of the land be done. There was no discussion between them at this meeting concerning the recreational easements. The volumes that make up Exhibit P5 are the plaintiffs’ copy of the Clayton Utz file in this matter.
From the evidence of Mr Milatos and the Clayton Utz file, Mr Mitaros was to prepare an option to purchase agreement. This was to enable Mr Milatos to carry out a test of the market for cabins. Cabins were to be installed and offered for sale, with the cooperation of the vendor, Nazime. The option to purchase would be exercised if there was a favourable market response. Mr Mitaros was to prepare standard cabin sales contracts and do the conveyancing of cabins if the option was exercised. Provisions were also made for Mr Mitaros to stage a unit title development. In addition Mr Mitaros was to draw an investor-lender agreement to enable Mr Milatos to raise working capital loans.
On 26 March 1996, Mr Mitaros obtained a title search of Section 152. He did not order a search of the 11 recreational easements that were registered on the land. There is no evidence he read these easements. On the same date Mr Mitaros opened a file under the name “Milatos, George re Lake Bennett Proposal”.
Mr Mitaros prepared the option agreement which Mr Milatos collected from the receptionist at Clayton Utz on or about 8 April 1996. The nominated purchaser was Anadyr.
Volume 3 of Exhibit P5 includes copies of a number of discovered documents from the Clayton Utz file. Pages 1-3 is a file note headed “Milatos - 25.3.96. Lot 152 - Lake Title”. There are a number of notations including the following: “Total feasibility study to construct 100-150 bungalows strata titled units around waters edge of lake”. At the foot of page 1 and at the top of page 2 appears the following notation “plus 1 commercial block (eight hectare block-shop and sporting facilities) complete feasibility in 90 days”.
On 22 April 1996, Mr Milatos wrote a letter to Mr Shoobridge, copy of which is Exhibit P39. In this letter, Mr Milatos agrees to the “granting of legal recreational access to the other lots (95, 97, 99, 100, 108 and 110) as per your requirements …”. He further agreed to the subdivision of those lots on certain conditions. Mr Milatos stated that no payments of monthly interest would be made during the investigation period. Reference was then made to the purchase price of $630,000. Mr Milatos indicated that his company was not prepared to make full payment at the time of exercising the option to purchase. Mr Milatos then put forward various alternate proposals for payment of the purchase price that involved utilising financial assistance for the project from Mr Shoobridge. This letter was forwarded by Mr Milatos without input from Mr Mitaros. There is no evidence Mr Milatos consulted Mr Mitaros before forwarding the letter. There is a copy of this letter discovered on the plaintiffs’ copy of the Clayton Utz file (Exhibit P5 Vol 3 pp17-18).
On 23 April 1996, Mr Shoobridge replied to Mr Milatos’ letter of 22 April 1996, copy of which is at Exhibit P5 Vol 3 pp20-21. Mr Shoobridge confirmed a number of matters:
· Nazime grants to Anadyr the exclusive right of investigation into the project for a period of 120 days.
· In the event of Anadyr deciding to exercise its option during the investigation period, then certain arrangements for payment would apply which included an option to pay the full purchase price by a certain date or alternately with Nazime holding a first mortgage over the land with a time limit for payment in full and interest to be paid on the amount of the mortgage.
· There were other conditions relating to payment of the purchase price and the rights of Nazime to be able to continue to trade and an acknowledgement as to the speculative nature of the project.
On 7 May 1996, Morgan Buckley, as solicitors for Nazime, forwarded a letter to Clayton Utz, copy of which is at Exhibit P5 Vol 3 pp24-25. This letter confirms the purchase price for the Lake Bennett property as $630,000 and sets out how, and over what period, this amount should be paid. The final clause under the heading “Terms of the agreement” is as follows: (Exhibit P5 Vol 3 p25)
“6. Upon transfer of the title of the Lake Bennett Lot to Anadyr Pty Ltd, Anadyr Pty Ltd shall grant to Nazime Pty Ltd recreational easements in respect of each of the Lots at Lake Bennett of which Nazime Pty Ltd remains the owner in similar terms to other recreational easements currently registered over the Lake.”
Mr Milatos spoke by telephone with Mr Mitaros following receipt of this letter. In this telephone call Mr Milatos instructed Mr Mitaros to grant the easements to Nazime as promised. Mr Milatos’ main concern was that Mr Shoobridge, on behalf of Nazime, would not subdivide the lots to less than eight hectares in area. Mr Milatos gave evidence that at the time of this conversation, his understanding of the easements were that they gave access to the lake. Mr Mitaros did not explain to Mr Milatos exactly what the recreational easements meant.
During the course of the discussion between Mr Mitaros and Mr Milatos concerning the recreational easements, Mr Milatos asked Mr Mitaros “How can they hurt me?”. The advice given by Mr Mitaros was that the recreational easements could not substantially affect Mr Milatos or his development so long as they were restricted to benefiting properties in excess of eight hectares in area.
On 10 May 1996, the option agreement (document headed “Deed”), between Mr Shoobridge on behalf of Nazime and Mr Milatos on behalf of Anadyr, was exchanged. Copy of this deed appears at Exhibit P5 Vol 3 pp43-52. The recital to the deed included the following:
“Anadyr desires to investigate the financial viability of undertaking on the Lake Bennett lot an integrated weekend tourist concept which includes up to 150 strata titled bungalows and an associated commercial precinct (“the Development”).”
Provision 5F of that deed reads as follows:
“F. Upon transfer of the title of the Lake Bennett Lot to Anadyr Pty Ltd, Anadyr Pty Ltd shall grant to Nazime Pty Ltd recreational easements in respect of each of the Lots at Lake Bennett of which Nazime Pty Ltd remains the owner (provided such Lots are not less than 8 hectares in area) in similar terms to other recreational easements currently registered over the Lake.”
In this option agreement, there was a 230 day option period (as amended). The purchase price was to be $630,000. The purchase price was to be paid as follows (Exhibit P5 Vol 3 pp 44-45):
“(i)the amount owing to the Commonwealth Development Bank by Nazime Pty Ltd to be paid as monies become available from the sale of the first 30 strata titled bungalows constructed by Anadyr Pty Ltd;
(ii)the balance to be paid as monies become available from the sale of the second 30 strata titled bungalows constructed by Anadyr Pty Ltd.
Provided that notwithstanding anything contained in 5B(i) and (ii), the whole of the purchase price shall be paid to Nazime Pty Ltd in full on or before 2 years from the date of exercise of the option.”
The option contained a number of other provisions concerning the financial arrangements between Nazime and Anadyr including a clause which provided that Anadyr would grant a first mortgage over the land to Nazime once the loan to the Commonwealth Bank had been paid in full to provide security for the sum of $230,000. Nazime was allowed to continue to trade from the current facilities at Lake Bennett until such time as the development construction phase required closure of same.
Mr Milatos attended to the exchange of the option agreement himself. On 21 May 1996, he forwarded a letter to Mr Mitaros (Exhibit P5 Vol 3 pp53-54) advising him inter alia:
“We have exchanged contracts with Nazime Pty Ltd.
In addition we have finalised the layout of the commercial area, and identified the most suitable areas upon which we will construct the bungalows.
At present we are developing 6 different designs of floor plans, together with computer generated elevations and visuals of the whole project.
I have had some discussion today with John Carrierre re Strata Titling and Body Corporate issues. At this state (sic) the most sensible approach will be to create a separate title comprising the shop/ restaurant/sporting activity areas. This title, together with the proposed approximate 100 bungalow titles, will have the lake as a common property.
An exclusive invitation will be extended to 7 people, offering them the opportunity to purchase one of our larger bungalows for the sum of $100,000.00 each. In return they will receive unencumbered Strata Title upon completion of the unit, and a pledge of repayment of the whole $100,000.00 within 4 years. ie $50,000.00 by the end of the second year, and the balance of $50,000.00 by the end of year 4.
It is proposed that the money raised from these 7 extraordinary sales will be utilised to initially pay out Nazime’s existing debt to the Commonwealth Development Bank, and to gain control of the title. The surplus monies will be spent on the site works and services eg water, sewer, electricity, environmental necessities, landscaping etc for the first 30 sites.”
On 6 June 1996, Mr Mitaros forwarded a letter to Mr Milatos in which Mr Mitaros noted that Mr Milatos had arranged directly with Nazime for the execution and exchange of documentation in respect of the Lake Bennett proposal.
Enclosed with this letter was an account for services provided to the end of May 1996. This account included a disbursement in the sum of $27 for a land titles search. Copy of this letter and the account are at Exhibit P5 Vol 3 pp55-56.
At pp57-58 of Exhibit P5 Vol 3, is a copy of a letter from Mr Milatos to Mr Mitaros dated 6 June 1996 in which Mr Milatos offers Mr Mitaros an opportunity to become a private investor in the Lake Bennett development. Mr Milatos also outlined his plans to raise and expend the funds he received. He asked Mr Mitaros to draw up a contract of sale so they could start signing up purchasers and a contract document for those who choose to become initial investors.
In June 1996, Mr Milatos attended a meeting which included Kevin Dodd and Phil Timney. The strata title development proposed for Lake Bennett was discussed. It is Mr Milatos’ understanding that Mr Timney stated that the development did not require the consent of the easement holders as it did not block access to the lake.
On 11 June 1996, Mr Timney forwarded a fax addressed to “Mr George Mitaros” (presumably meaning Mr George Milatos) attaching copy of a letter from Mr Timney to Mr Dodd noting Mr Dodd’s advice that the Planning Authority had no problems with the proposed development (Exhibit D44). Mr Timney also stated that from a registration point of view he could see no difficulties with the proposal as put forward “subject of course to the normal consents”. He also noted the body corporate will need to make an application for re-subdivision relating to the creation of more units.
In his evidence under cross examination, Mr Milatos stated that the meeting referred to above, and the subsequent letter, had set his mind at rest in regards to the issue of needing the consent of other land owners to the development, and that he did not ask Mr Mitaros for advice on this issue.
On 4 July 1996, Mr Mitaros noted in the Clayton Utz file that he had received instructions from Mr Milatos regarding documentation for the investors providing working capital, that Mr Milatos needed 20 sales for it to go ahead and the requirement for a prudency clause (Exhibit P5 Vol 3 p61).
On 9 July 1996, Mr Milatos wrote to Mr Mitaros advising the names of four people who wished to proceed to contract on the $100,000 investment proposition (Exhibit P5 Vol 3 p64). Also on that date, Mr Mitaros prepared a draft agreement for the initial seven investors (Exhibit P5 Vol 3 p63).
On 18 July 1996, Mr Mitaros took instructions from Mr Milatos concerning a model standard contract of sale for the cabins. On the same date Mr Mitaros finalised a model standard contract of sale for the conveyance of cabins and provided this to Mr Milatos (Exhibit P5 Vol 3 pp79-80).
Late in July 1996, George and Colleen Milatos conducted an open day at Lake Bennett. Mr Mitaros attended the open day. He advised Mr Milatos he would not invest in the project. Mr Mitaros was asked to draw up deeds of loan agreement for those who had expressed interest in purchasing units. Seven orders were taken on that date.
On 1 August 1996, Mr Mitaros forwarded a letter to Mr Milatos noting that Mr Milatos had collected four of the loan deeds and also the standard contract for purchase of units at Lake Bennett by members of the general public. Enclosed was an account for professional services to the end of July 1996. Copy of the letter and statement of account are at Exhibit P5 Vol 3 pp120-121.
Mr Milatos gave evidence that by August 1996 at least four or five purchasers for the units had signed up. Mr Milatos gave further evidence he had been approached by Mr Shoobridge in August 1996 about selling an access easement to “one of the Scarton brothers for $5,000”. Mr Milatos met with Mr Shoobridge who provided him with a copy of the easement he was trying to sell. Mr Milatos instructed his secretary to forward this to Mr Mitaros and ask him whether there were any legal issues regarding this. The deed had a clause to be signed by Anadyr that reads as follows:
“Anadyr Pty Ltd being the holder of option to purchase Section 152 Hundred of Howard from Nazime Pty Ltd hereby consents to Nazime Pty Ltd proceeding with the grant of a recreational easement over Lake Bennett to Andre and Rinaldo Scarton, as detailed in the attached deed.”
Clause 1 of the conditions of the deed, refers to the owner of the land receiving the benefit of the easement (called the grantee) and all bona fide non paying guests of the grantee from time to time as authorised by him having the right to enter the land burdened by the easement for private recreational purposes (Exhibit P5 Vol 3 p133).
On 19 August 1996, Mr Milatos forwarded a facsimile to Mr Mitaros including the proposed deed between Nazime and Andre and Rinaldo Scarton (“the Scartons”) granting an easement and seeking Mr Mitaros’ advice (Exhibit P5 Vol 3 p129).
On 19 August 1996, Bishop Collins wrote a letter to Mr Milatos (Exhibit D45) on behalf of the Catholic Diocese who owned Section 107 at Lake Bennett. Bishop Collins raised concerns about the development at Lake Bennett and asked Mr Milatos to clarify the details of how he proposed to allow access between the units to the lake, for the benefit of the owners of blocks back from the lake.
On 20 August 1996, Mr Mitaros prepared a letter to Janet Terry of Morgan Buckley, solicitors for the Scartons. In this letter (Exhibit P5 Vol 3), Mr Mitaros stated as follows:
“We advise that whilst our client has no difficulty with the principle of Mr and Mrs Scarton (sic) having access to Lake Bennett for non-exclusive recreational purposes our client is however concerned that the formal registration of an easement at this time could impede its overall plans in respect of the proposed development. Accordingly our client is prepared to undertake to guarantee Mr and Mrs Scarton (sic) access to the Lake in the spirit of your draft Deed but requires the comfort at this stage of having the flexibility to require the access route to the Lake to be changed at a later date in light of our client’s development plans.”
On 2 September 1996, the Coomalie Council wrote to the manager of Nazime raising concerns about the development at Lake Bennett including the possible limiting of the guaranteed access to the lake (Exhibit D51).
Included in Exhibit D51 is a copy of a letter in reply by Mr Milatos dated 3 September 1996. In addressing the numerous concerns that had been raised, Mr Milatos stated inter alia:
“#2. The new development will only use approximately 30% or less of the Lake shore, leaving quite adequate access for the existing landowners. …”
Mr Milatos gave evidence concerning a meeting he had with the easement holders, the Coomalie Council and Mr Shoobridge. He stated that at this meeting, concerns were raised with him about the development blocking access to the lake. It is Mr Milatos’ evidence that at that meeting he agreed to give the easement holders a 10 metre easement corridor in front of each of their blocks of land to ensure they would continue to have access to the lake. Mr Milatos gave further evidence that two days later he informed Mr Mitaros by telephone of this meeting.
On 9 September 1996, Mr Milatos wrote to Mr Mitaros asking for advice about an interest expressed by Power and Water in Lake Bennett. The following day Mr Mitaros advised Mr Milatos verbally about the authority of Power and Water over the lake (Exhibit P5 Vol 3 pp136-144).
On 11 September 1996, Earl James & Associates lodged an application to the Minister, on behalf of Nazime and City Developments, for approval to subdivide Section 152 into two separate parcels. This was to create two separate parcels with individual titles respectively for:
1)the lake together with the resort site as one title to become known as Section 245; and
2) for the land comprising the site for the proposed unit title subdivision for holiday cabins to become known as Section 244.
On 12 September 1996, Mr Mitaros received instructions from Mr Milatos that Mr Milatos intended to exercise the option and was awaiting approval from the vendor’s bank.
On 14 September 1996, Mr Mitaros handed the Clayton Utz file in this matter over to Guy Riley who was then a solicitor and partner in the firm of Clayton Utz. Mr Riley had commenced working for Phillip and Mitaros in 1992. This firm later merged into Clayton Utz. Mr Riley’s work was mainly commercial, conveyancing, leases and business sales. He had not previously been involved in the registration of a units plan. When Mr Riley received the file from Mr Mitaros, he made an assumption that Mr Mitaros had already given Mr Milatos competent and proper advice about the easements.
On 17 September 1996, Mr Riley made a file note (Exhibit P5 Vol 4 p148) concerning financial arrangements to be made relevant to the option agreement and noting that Mr Milatos did not have finance confirmed but was looking to exercise the option.
On 18 September 1996, Mr Riley received a letter from Ray Grimshaw, accountant for Mr Milatos, advising of the establishment of a discretionary trust and stating the names of the entities in respect of the Lake Bennett development (Exhibit P5 Vol 4 pp149-150). Mr Riley subsequently prepared the trust deed in accordance with these instructions.
On 19 September 1996, Mr Milatos forwarded a letter to Bill Martin, one of the easement holders, a copy of which is Exhibit D52. In this letter he confirms his verbal promise made at the meeting of 3 September 1996 that:
“… in the event of any development taking place in the future in front of respective blocks, we guarantee that an area of land no less than 10m width will be left available in front of each block so that you may access Lake Bennett for personal recreational purposes.
This includes the right to use your canoes and non power boats on the Lake”.
On 7 October 1996, Mr Riley telephoned Pam Waudby, secretary to Mr Milatos (Exhibit P5 Vol 4 p155), seeking advice as to when the option was exercised. Mr Riley also had a telephone conversation with Mr Milatos (Exhibit P5 Vol 4 p154) regarding the exercise of the option. Mr Milatos advised Mr Riley that he had purported to exercise the option. Mr Riley discovered that Mr Milatos had served notice of the exercise of the option on Nazime’s bank and not on Nazime. Mr Riley advised Mr Milatos that was not a proper exercise of the option and that notice had to be given to Nazime. There was also discussion with Mr Milatos about the date of execution of the option as Mr Riley wanted to make sure that the trust deed was dated before the exercise of the option because they were buying the land in their capacity as trustee.
Mr Milatos gave evidence under cross examination that on 9 October 1996 he had a meeting at the Land Titles Office with Mr Timney, Mr Dodd, Ms Fleay and Mr Buckle. At this meeting Mr Milatos provided documents regarding the subdivision.
On 7 October 1996, Mr Milatos took possession of Lake Bennett. Work commenced on the services for 16 cabins. Mr Riley gave evidence that he was not aware that Mr Milatos had taken possession to the exclusion of Mr Shoobridge. He further stated that Mr Milatos did not ask him for advice relating to taking possession or preparing a licence agreement between Mr Milatos and Mr Shoobridge. Mr Milatos gave evidence in cross examination that Anadyr sold Enterprise House which it owned. The holding in Anadyr was split 60/40 between George and Michael Milatos. The whole of the proceeds of the sale of Enterprise House being $263,000 was put into Lake Bennett, including Michael Milatos’ share of the proceeds. This was done by way of an unwritten agreement between George and Michael Milatos.
In October 1996, Colleen Milatos commenced working in the gardens around the resort. She and George moved into a house about one month later to live at Lake Bennett. In 1997 buildings were renovated into a commercial centre.
On 16 October 1996, Mr Mitaros was due back in the office. Mr Riley handed the file back to Mr Mitaros but Mr Mitaros said that Mr Riley could keep the file. Mr Riley and Mr Mitaros did not have any other discussion about the history of the file at this time.
On 18 October 1996, Mr Riley spoke with Mr Milatos and Mr Grimshaw who both advised him “it is going to be City Developments not Anadyr”. Mr Grimshaw advised Mr Riley to “prepare a Deed getting rid of City Developments as a beneficiary. Because at present under the terms of the trust it is disqualified from acting as trustee. He will arrange for the appointment of the City Developments as trustee” – see Exhibit P5 Vol 4 pp157-158.
On 23 October 1996, Mr Riley wrote a letter to Mr Milatos with respect to the change of name from Anadyr to City Developments and gave advice concerning his understanding that the option had not been formally exercised, the liability for payment of stamp duty and the questionable validity of contracts when the vendor purporting to sell does not own the land (Exhibit P5 Vol 4 pp160-161). He further advised that one step that must be completed before the exercise of the option, was the change of trustee and before the trustee could be changed it was necessary to vary the terms of the Trust Deed to exclude City Developments as a beneficiary. Mr Riley then provided further advice about the ramifications of disclosing the Trust (Lake Bennett Trust) to prospective purchasers.
On 4 November 1996, Mr Shoobridge on behalf of Nazime wrote a letter to Mr Milatos, City Developments (Exhibit D77). This letter referred to discussions on 31 October 1996 regarding purchase arrangements of Lake Bennett under the deed of agreement dated 10 May 1996.
This letter set out the detailed arrangements to be entered into for payment of the purchase price, that Nazime would cease trading at Lake Bennett on 7 October 1996 to allow redevelopment to commence and concluded with the statement that the foregoing was subject to a further legal agreement being entered into.
On 14 November 1996, a development permit was issued with respect to Section 152 on behalf of the Minister for Lands, Planning and Environment. This permit noted that consent was granted pursuant to Section 52(1)(a)(i) of the Planning Act 1994 (NT) for the purpose of creating two lots, subject to the conditions in the schedule and for the reasons set out in the attached statement of reasons. The two lots referred to were Lot A the foreshore and Lot B the lake. Condition 6 in the Schedule of Conditions provided that (Exhibit D54):
“A recreation easement over Lot B in favour of Lot A is to be provided and existing recreation easements relating to Section 152 Hundred of Howard are to be preserved over both Lots A and B.”
Mr Milatos gave evidence that in November 1996 he told the Scartons he would not sell them the part of the lake directly in front of Sections 92 and 93. An interim development control order applied to the Lake Bennett area. Mr Mitaros referred Mr Milatos to Annette McKenzie (within Clayton Utz) to deal with this issue. Mr Milatos gave evidence that he dealt with Mr Riley concerning the option agreement and the re-signing of the option agreement. Mr Riley advised Mr Milatos that stamp duty was payable within 30 days of the option agreement being signed. Mr Milatos was not in a position to pay the stamp duty. Mr Riley provided Mr Milatos with assistance to delay signing of the option agreement. Subsequently Mr Riley wrote to the stamp duties office on behalf of Mr Milatos in an effort to avoid payment for a double transfer of property.
Mr Milatos gave evidence that in December 1996 the final option agreement was signed as extended by himself and Mr Shoobridge. He gave evidence under cross examination that he did not have the money to finance this and raised $300,000 from other investors to finance the project. Following the subdivision of Section 152 into two lots, Mr Milatos did have a discussion with Mr Riley concerning the easements, but only in relation to granting access to the lake.
On 8 November 1996, there are file notes on the Clayton Utz file (Exhibit P5 Vol 4 pp167-168) concerning problems that had arisen because of the interim development control orders and that there was nothing Mr Milatos could do about this.
During this time Mr Riley was preparing contracts for orders that had been taken for cabins at Lake Bennett.
Mr Milatos gave detailed evidence concerning his expenditure on the property in December 1996, which included eight cabins purchased from Australian Transportable Homes at a cost of $35,000-$45,000 per cabin. The cost of transportation and installation of footings was $5,000-$6,000 per building and other costs included landscaping, reticulation costs, agents’ commission and legal fees. By Christmas 1996, Mr Milatos had completed services for 16 cabins including sewerage, septic tanks, pumps, electrical reticulation, water and a service road which finally estimated at $9,000 per unit with a connection of approximately $2,000 per unit and incidentals including surveyor’s fees. By this time Mr Milatos, through his company City Developments, had also expended several hundred thousand dollars on Lake Bennett. He did not have security of title. The amount of $300,000 was raised from investors and the sum of $400,000 was from his own funds including money he received through the sale of Enterprise House by Anadyr.
On 12 December 1996, there was a grant of easement to the Scartons in respect of Section 92. This grant of easement to Section 92 was registered on 18 December 1996 (Exhibit P5 Vol 4). Mr Riley was not aware at this time that Mr Quinn, in the office of Clayton Utz, was acting on behalf of the Scartons.
On 17 December 1996, Mr Riley prepared a form of notice for the exercise of the option to purchase Section 152 as contained in the agreement dated 10 May 1996 (Exhibit P5 Vol 4). On the same date, City Developments gave to the vendor, Nazime, notice of exercising the option to purchase Section 152.
On 20 December 1996, a development permit issued by the Minister for Lands, Planning and Environment pursuant to s 52(1)(a)(i) of the Planning Act, for the purpose of building 90 holiday bungalows in eight stages on Lot A (which was to become Section 244) subject to the condition in the schedule and for the reasons set out in the statement of reasons (Exhibit D55). This permit was necessary to enable Mr Milatos to submit a disclosure statement under the Unit Titles Act to enable City Developments to carry out a condominium development of Section 244 to achieve the sale of cabins in stages under the Unit Titles Act. On the same date a disclosure statement was prepared by City Developments in the name of and executed by Nazime (Exhibit P55).
On 23 December 1996, Mr Dodd from Earl James & Associates, forwarded a facsimile to Mr Milatos concerning the reluctance of Coomalie Council to grant approval to the two lot subdivision because suitable access ways to the two properties have not been constructed. Mr Dodd suggested options to overcome the problem (Exhibit D76).
Mr Milatos completed construction of the first eight cabins and instructed his surveyor to apply for title.
On 30 December 1996, Mr Milatos replied to Mr Dodd advising that he had written to the Coomalie Council outlining certain guarantees and instructing Mr Dodd to lodge the subdivision plan with the Registrar-General, the plan for strata titling and the disclosure statement forthwith, on the basis that approval from the Commonwealth Development Bank would be forthcoming within the next few days (Exhibit D76).
History of Lake Bennett 1997
During December 1996 and January 1997, Mr Riley corresponded with the stamp duties office concerning stamp duty ramifications with respect to the Lake Bennett development (Exhibit P5 Vol 4 pp177-178, 180-182).
On 10 January 1997, there was a variation to the development permit issued on 20 December 1996 with an additional condition requiring compliance with the disclosure statement (Exhibit D55).
On 15 January 1997, Mr Dodd signed an application for a condominium development on Section 244.
On 23 January 1997, Mr Milatos’ surveyor completed and submitted for approval the proposed units plan 97/26 for the first eight cabins and the subsequent issue of titles.
On 30 January 1997, there was a further variation to the development permit DPM 96/0048B for the purpose of 80 holiday bungalows in 19 stages (Exhibit D55).
On 3 February 1997, the subdivision of Section 152 into Sections 244 and 245 was registered.
On 5 February 1997, Mr Dodd wrote to Mr Milatos advising him about “some of the possible shortfalls of taking the condominium development path” (Exhibit D53).
On 11 February 1997, Nazime granted recreational easement 369268 to Section 244 for the benefit of purchasers in unit plan 97/26 in substantially similar terms to the form of the original recreational easements in accordance with the subdivision approval.
On 17 February 1997, Mr Riley received a letter (Exhibit P5 Vol 4 p183) from Morgan Buckley, solicitors for Nazime. The letter enclosed a contract of sale for Sections 244 and 245 Lake Bennett. This letter noted that Mr Milatos had been in possession of Section 152 and had been carrying out development works for some considerable time. The letter noted Mr Milatos had been paying, by way of licence fee, the interest payments due on the loan Nazime had from the Commonwealth Development Bank. The letter advised that the contract for sale contained the provisions as set out in the letter from Mr Shoobridge to Mr Milatos dated 4 November 1996. Mr Riley gave evidence he believed the draft contract he was sent by Morgan Buckley contained a condition requiring the grant of the recreational easements to the vendor. Mr Riley agreed in cross examination that at this time he could have taken the whole thing back to the start but that the difficulty was that Mr Milatos was completely committed and he needed the settlement to go through as quickly as possible so that the money would come in.
On 20 February 1997, Mr Riley faxed the contract of sale to Mr Milatos who instructed Mr Riley to check his recreational rights and make sure that it was limited to Mr Shoobridge and his family. Mr Riley was not aware until later in February 1997 of the meeting Mr Milatos had held with the easement holders on 3 September 1996 or the proposal to grant 10 metre wide access strips to each of the easement holders.
On 21 February 1997, Mr Riley obtained a copy of one of the recreational easements. Mr Riley read it on 24 February 1997 and requested a copy of Waterworks Licence 363 referred to therein. Copy of the easement received is at Exhibit P5 Vol 4 pp193-194. It is the easement in respect of Section 103, registered easement Land Titles Office number 307087 and reads as follows at p194:
“Conditions
1. The owner of the land receiving the benefit of the easement (hereinafter called “the Purchaser”) and all persons from time to time authorised by him shall have the right to enter upon and use the land burdened by the easement (hereinafter called “the Vendor’s land”) for recreational purposes provided that the lake situated on the Vendor’s land (hereinafter called “the lake”) shall be used only for such recreational purposes as are permitted by the terms of the Waterworks Licence No. 363 issued under the control of the Waters Act reserving nevertheless to the Vendor its employees agents and all persons from time to time authorised by it in common with the Purchaser and all persons from time to time authorised by him and all other persons having the like right free and uninterrupted passage across and use of the Vendor’s land.
2. The Purchaser shall have the right to leave a boat on the said lake for use by the Purchaser and such persons as may be authorised by him.
3. The Purchaser for himself and his successors in title covenants with the Vendor and its successors in title that the Purchaser and his successors in title will not do or suffer anything to be done upon the Vendor’s land whereby the lake and its retaining wall may be damaged or polluted or the use of the lake either by the Vendor its employees agents and all persons from time to time authorised by it or by any other person with a like right to use the lake may be prejudicially interfered with.”
On 26 February 1997, Mr Riley forwarded a letter to Morgan Buckley (Exhibit P5 Vol 4 pp205-206) concerning the proposed contract for sale. He stated inter alia (p206):
“The recreation licence also needs further thought. Our client wants to be assured that the recreation licence is given for private purposes only. Were it not for the fact that the Vendor is a company we would ask that it be restricted to Mr Shoobridge and his immediate family and guests.
We understand that the original easements did not have a plan attached to them, although the purposes of those easements were to give the owners of the land receiving the benefit of the easements the right to use the lake and the right to gain access to the lake over that part of the grantor’s land between the grantee’s land and the lake.
Obviously, with the land being subdivided and sold off we are not in a position to guarantee your client unfettered access over section 245.
The easement will have to be given over the nearest common property.
Our client also wants to prevent the mooring of boats on the lake.
We also query the sections in special condition 2 that your client owns. Our searches from March 1996 indicated it had no interest in either section 98 or 107 but owned section 110.
Some arrangement will also need to be made for the discharge of the existing easements over the residential titles issued upon the subdivision of section 245. It would seem to the writer to be better to discharge them over 245 (and 244 as well where the grantee’s land is not adjacent to 244 and is not gaining access to the lake through 244) and granting new easements are defined corridors in front of the various sections as the development is completed and the access areas identified.”
There is no reference in this letter to the easements creating an impediment to building on the land at Lake Bennett.
Exhibit P5 Vol 4 pp203-204 contains Mr Riley’s notes of a conversation he had with Mr Milatos on 27 February 1997 concerning the impending settlement of the purchase of Lake Bennett and the sale of the first eight cabins for which contracts had been signed. There was a discussion about the contract of sale attached to the letter from Morgan Buckley. There is reference to the recreational easements and the granting of easements adjacent to the block of land (minimum 10 metres). There is no reference to any advice about the true effect of the easements or that they were an impediment to building on the land at Lake Bennett.
On 28 February 1997, Mr Riley had a meeting with Janet Terry of Morgan Buckley (Exhibit P5 Vol 4 p201). Mr Riley believed at this time that the easements were a potential problem because the rights which people enjoyed over the land were not specified to defined corridors and therefore any building development works upon those lands were arguably inconsistent with the rights of the easement holders. Mr Riley was under the misapprehension that the easement holders rights over the land areas were access rights and that they had the right to pass and repass freely over the land for the purpose of exercising their recreation rights over the lake. Mr Riley agreed in cross examination that his reading of the easements was wrong. His initial concern had been the complete lack of a plan specifying the easement area. His belief was that the easements could apply to the whole of the land which in turn led to his concern that any building on the land could incur the risk of impeding the access rights granted. Mr Riley gave evidence that he had a conversation with Mr Milatos and told him that the unspecified easements were inconsistent with Mr Milatos’ ability to develop the land. There is no file note on the Clayton Utz file concerning this conversation. The advice is not contained in a letter from Mr Riley to Mr Milatos and there is no record of such conversation in the time cost records. Mr Riley gave evidence he believed it was at this time Mr Milatos told him about the meeting with the easement holders and assured Mr Riley it was not a problem as Mr Milatos had agreed to give them 10 metre access strips.
Mr Riley did agree in cross examination that after he had read one of the easements he arranged to have Mr Milatos committed to a purchase where these easements presented a risk for the development that was to follow the purchase. Mr Riley gave evidence that at that time he felt Mr Milatos was culpable for actually commencing a development under an option agreement. Mr Riley agreed in cross examination that this was his approach all through 1997 and that this was the wrong approach. Throughout 1997, Mr Riley’s approach had been that Mr Milatos was foolish to have commenced building before the option was exercised. Mr Riley stated he considered he was managing a commercial risk. He agreed that because there was a legal risk it had the potential to impact upon the commercial aspect of the deal.
In February 1997, Colleen and George Milatos sold unit 3/51 Stoddart Drive, Bayview Haven to raise working capital for the Lake Bennett project and moved to live permanently at Lake Bennett. From this date, Colleen Milatos took over management of the resort supervising renovations and preparing for the opening of the resort. Mr Milatos stated in cross examination that the unit sold for $234,375. From this amount, $150,000 was paid to the ANZ Bank residential loan and the balance put into the Lake Bennett development.
Mr Milatos gave evidence that during January and February of 1997, Mr Dodd prepared the disclosure statement. Mr Milatos states during this time he commenced services for the resort building including sewerage installations, septic tanks, electrical reticulation, which cost approximately $150,000. He gave further evidence that he had discussions with Mr Riley concerning the easements registered on the title for Section 244. There was a meeting between Mr Riley, Mr Dodd and Mr Milatos.
On 3 March 1997, the units plan was registered by the Registrar-General for Section 244.
On 3 March 1997, Mr Milatos wrote to Mr Riley (Exhibit P5 Vol 4 p207). In this letter the first three paragraphs read as follows:
“As you know there are 15 easements registered against Title 152, the Lake.
These easements are general personal recreational easements and as we thought, are over the whole of the land of 152. At the same time these easements do not impede or prevent any development.
The Titles Office agrees that this is messy and prefers to find a solution. The best solution it appears is to issue a 10m easement over Sections 244 and 245 somewhere in front of each of those 15 lots to whom recreational easements have been previously granted”.
The letter goes on to refer to the meeting Mr Milatos had with the easement holders in September 1996. At that meeting Mr Milatos had promised to give them all a 10 metre personal recreational easement in front of each of their blocks of land. Mr Milatos developed that proposal further in this letter and sought Mr Riley’s advice about the legal terms that should be used in seeking an extinguishment of the present easement and granting a new private easement of 10 metres in front of each block. He then made reference in the letter to his inclination to proceed to obtain the first eight titles immediately from the Land Titles Office, proceed to settlement with the purchasers and deal with each individual purchaser who may raise the issue of the easement registered on their title.
On 3 March 1997, Mr Milatos forwarded a facsimile to Esanda Finance (“Esanda”) proposing that Esanda take over the mortgage on Section 244 (Exhibit D60). He attached a copy of his letter to Mr Riley of the same date.
On 3 March 1997, there was a meeting between Mr Milatos, Mr Riley and Mr Dodd. Mr Riley had earlier spoken with Ms Waudby who advised Mr Riley that because of Mr Milatos’ difficult financial circumstances, settlements had to go through as quickly as possible. A file note of this meeting prepared by Mr Riley is at Exhibit P5 Vol 4 pp209-210. The file note records there was a discussion between them about the easements and notes the agreed solution. Mr Riley was to prepare a letter to the various easement holders proposing an exchange of their existing easements for a more specific easement delineating, a 10 metre access strip in each case. Mr Riley gave evidence that at this meeting the purpose was to give advice to Mr Milatos that these easements exist and the effect of them, that they should have been dealt with before the exercise of the option and that Mr Milatos should have been told about them before. Mr Riley gave evidence under cross examination that throughout 1997 he still believed it was his client’s foolishness in developing the land before acquiring titles to the property rather than any omission on the part of the lawyers that was the cause of the problem.
Under cross examination Mr Riley agrees that there is no mention in his file note of 3 March 1997 that he advised Mr Milatos of the threat to development of the land or indeed any constraints on building on the land. Mr Riley agreed that he realised that Mr Milatos had exercised the option and he had been given an opportunity to get out of the contract attached to the option by the vendor’s solicitors. Mr Riley gave evidence that he had carefully explained all of this to Mr Milatos at the meeting on 3 March 1997 and that Mr Milatos had instructed him to go ahead as he subsequently did. Mr Riley agrees there is no reference to this advice in the file note of 3 March 1997. Nor was there any letter to Mr Milatos stating this advice.
Mr Riley gave evidence that it was obvious to him from their meeting on 3 March 1997 that Mr Mitaros had not given any advice to Mr Milatos about the easements. Mr Milatos’ knowledge of the easements appeared to stem from his discussions with the easement holders and Mr Shoobridge.
Mr Riley agreed that at that time, Clause 1.3 in the cabin contracts (Exhibit P5 Vol 3 p118) would have enabled City Developments a way out of the contract as it was made conditional upon the issue of titles. It is Mr Riley’s evidence that his concern at the time was whether or not Mr Milatos was bound by the other contract, not the cabin contracts.
Following the registration of the units plan of subdivision on 3 March 1997, Mr Riley had a conversation with Mr Milatos regarding some of the individual sales of units.
On 5 March 1997, Mr Riley drafted two letters, one to the owners adjacent to Section 244 (Exhibit P5 Vol 4 pp212-213) and one to the owners adjacent to Section 245 (Exhibit P5 Vol 4 pp214-215).
The first draft letter explained the need to specify where the owners could cross over Sections 244 and 245 to get to the lake, as the present easements did not define this. Enclosed were documents to be signed by the land owners. These included an extinguishment of their present easement, a replacement easement and a second easement to grant the land owner a right of access over eight 10 metre corridors across Section 244. The concluding two paragraphs read as follows (Exhibit P5 Vol 4 p213):
“Your rights in respect of the Lake remain unchanged. All these documents do is define the areas in which you, as an owner, may gain access to the Lake.
There is some urgency involved in this exercise as we need to define the access areas so that your easement does not appear on the titles to the new residential allotments”.
The second draft was in similar terms with appropriate adjustment for the owners of property adjacent to Section 245 (Exhibit P5 Vol 4 pp214-215). Mr Riley agreed in cross examination that the whole focus of these letters was about access, there was no mention of any restraint to the development.
A facsimile from Mr Milatos’ secretary dated, 5 March 1997, was forwarded to Mr Riley indicating the draft letters were fine, sending a list of easement holders and arranging to pick up the letters by 9.00am the following day (Exhibit P5 Vol 4 pp217-219). These letters were dated 6 March 1997. Copies of the letter which were forwarded to some of the easement holders, appear at Exhibit P5 Vol 4 pp221-226. Conditions appear at pp227-228. The conditions were attached to the letters that were sent.
Two replies to these letters were received on 11 March 1997 and appear at pp268-273. The Catholic Church rejected the proposal and a reply on behalf of Mr Nash sought to have an amendment to the position of the right of way. On 11 March 1997, Mr Riley made a note in the file (Exhibit P5 Vol 4 p267) about a discussion with Mr Milatos about these two letters. There was no note recognising or advising that the recreational easements were an impediment to building.
On 6 March 1997, Mr Milatos wrote to Mr Riley listing the first seven units to be sold. Mr Riley was to act for him on the conveyances. Mr Milatos stressed the urgency for settlement. Mr Riley gave evidence that Mr Milatos was desperate for money at this time.
During the course of the next few days, Mr Riley had contact with a number of the easement holders and also with the solicitors for the vendor concerning the contract of sale.
Mr Riley gave evidence that on 19 March 1997 he first sighted the executed copy of the option deed and the notice of the exercise of the option.
On 20 March 1997, Cridlands forwarded a letter to Mr Riley on behalf of their clients, Andre and Rinaldo Scarton, regarding Sections 92 and 93 Hundred of Howard (Lake Bennett). This letter was in response to the letter from Clayton Utz dated 6 March 1997. Copy of this letter appears at Exhibit P5 Vol 4 pp291-293. The letter rejects the proposal put forward by Clayton Utz in respect of the easements and stated that the Scartons intended to assert their rights to use the area to the full extent permitted under the existing registered easements. This letter makes very clear the broad extent of the easements. Paragraphs 2-4 of the letter read as follows:
“As you will be aware, in 1993 a recreation easement (registered number 283686) was granted over Section 152 (which comprised the whole of Lake Bennett and its surrounds) to benefit, inter alia, our clients allotment being Section 93. In 1996 a further easement in substantially the same terms was granted (registered number 366439) to benefit our clients’ allotment being Section 92.
The easements clearly grant to our clients free, full and unrestricted access to any and all parts of Section 152.
Your client has now subdivided Section 152 into two separate parcels, Section 244 and 245. Section 245 comprises the lake area, and Section 244 has been further subdivided by the registration of Units Plan No. 97/26 upon which your client has commenced construction of a number of condominiums. The registered easements in favour of our clients are noted over the title to and burden Sections 244 and 245. The easement for Section 93 has been inadvertently omitted from the title for Section 244 but the easement is clearly noted on the Units Plan, and we are in the process of having the omission remedied”.
The letter then proceeds to express concerns about lack of notice and consultation in respect of the development of the property and the Registrar-General permitting registration of the subdivision plan and units plan contrary to the provisions of the Real Property Act and the Unit Titles Act. Two paragraphs of the letter (Exhibit P5 Vol 4 pp292-293) read as follows:
“Neither your client nor any purchaser of properties within the subdivision have any right to block off or otherwise restrict our clients from using any part of that area for any recreational purpose they see fit. In this regard we are instructed that the erection of the structures on section 244 substantially impinges on our clients’ ability to exercise their rights under the registered easements.
Your client is hereby on notice that any further development works in the vicinity are undertaken at its risk and our client reserves its rights to the fullest extent permitted by law in respect of both action in respect of the existing development and any future or further development occurring.”
Mr Milatos gave evidence that he spoke with Mr Riley who assured him that the easements would not limit, control, stop or prevent development on the land. Mr Milatos further stated that Mr Riley informed him that as long as Mr Milatos did not block the easement holders’ access to the lake he had nothing to worry about. His evidence is that Mr Riley told him the letter from Cridlands did not require a response and that no legal action should be taken as the easements were only about access.
Mr Riley, in his evidence, substantially confirmed this was the advice he had given to Mr Milatos. He agreed in cross examination that he should have picked up on the fact they were asserting recreation rights over the land and he had failed to do this. He agreed that the contents of this letter was “the highest level of threat to the development”. Mr Riley’s evidence is that he did not understand it this way as he still thought nothing had changed from his earlier belief. Mr Riley agreed that this was another point at which Mr Milatos could have reconsidered entering the contract and proceeding with the development. Mr Riley stated it is his belief the outcome would have been no different. Mr Riley continued to negotiate with the solicitors for Nazime with respect to the proposed contract of sale which was to replace the option agreement.
Mr Riley agreed in cross examination that Mr Milatos should have been given advice at the very outset that the easements prevented Mr Milatos building on the land.
On 24 March 1997, City Developments exchanged contracts with Nazime for the purchase of Sections 244 and 245 for $630,000. Mr Riley agreed to the final form of the contract. A copy of the contract is included in Exhibit P5 Vol 4. It does not have a page number but appears to have been inserted between p304 and p308. Mr Riley attended on the exchange of contracts with the solicitor for the vendor. Mr Riley had also personally attended upon Colleen Milatos to sign the contract of sale. He had recommended to George and Colleen Milatos that they sign the contract.
I am not persuaded the ANZ Bank debt no longer exists as against the plaintiffs, for the following reasons:
· Mr Reginald Harrison is an associate director with the ANZ Bank in its division known as Property and Construction Finance, at 530 Collins Street, Melbourne. Mr Harrison has deposed in an affidavit sworn 16 March 2007 (Exhibit P210) that in the years 1996 to 2001, the ANZ Bank made a series of loans to City Developments. In his affidavit he states the company has not repaid the balance of the aggregate loan and the ANZ Bank has, at all times since the advance of the loan, levied and charged interest on the loan which is accruing monthly.
· In par 9 of his affidavit, Mr Harrison states that as at 12 March 2007, the principal sum of the balance and the accumulated interest levied and charged on that principal sum was $2,970,636.76. A copy of the spread sheet being the ANZ Bank’s record of the company’s four loan accounts is annexed to the affidavit.
· In par 10 of his affidavit, Mr Harrison states that from 12 March 2007 interest will continue to accrue on the balance outstanding at the daily rate of $862.71 per day calculated at the rate of the ANZ Bank’s reference rate plus a margin of 1.5%.
· Mr Harrison further deposes to the fact that the debts referred to in his affidavit, were the subject of a written agreement between the ANZ Bank and George and Colleen Milatos made on 14 October 2002. A copy of this deed, details of which have already been referred to, is annexed to the affidavit of Mr Harrison.
· Mr Harrison gave evidence (tp 2145) that there had been no agreement by the ANZ Bank to forgive the debt in early 2006 or since then. He confirmed that the debt exists as per his proof in the affidavit.
· In Clause 2.4.2 of the Deed of Release (Exhibit P12) the debt is confirmed. See also clause 5 of the Deed of Release (Exhibit P12).
I agree with the submission made by Mr Reeves QC on behalf of the plaintiffs, that the debt could not be varied by an “offer” made in a report from the liquidator to the creditors and not confirmed in writing and signed by the ANZ Bank and the plaintiffs. I also accept the submission made on behalf of the plaintiffs that the ANZ Bank gave a proxy to the liquidator to vote on behalf of the ANZ Bank creditors at the meeting. It did not extend to authorising Mr Finch to enter into some agreement on its behalf.
The defendant did not call Mr Finch, the liquidator who is the person the defendant maintains was instrumental in making this agreement on behalf of the ANZ Bank, to give evidence. There was no evidence that Mr Finch was not available to give evidence. This must give rise to an inference that Mr Finch would not have assisted the defendant’s case on this aspect - Jones v Dunkel (supra).
I accept that the plaintiffs have been released from their personal guarantees with respect to the loan to City Developments. However, under the Deed of Release (Exhibit P12) they still have obligations to the ANZ Bank to pursue the ANZ Bank’s debt in these proceedings.
I do not read the clauses in par 2 of the Deed of Release with the narrow interpretation given to it by the defendant, i.e. that it was only ever contemplated that it would be City Developments who would pursue a cause of action. The clauses are drawn in very broad terms to encompass a number of possibilities as to who would pursue the action and who would be the defendant. It is not confined to City Developments being the only entity to pursue a cause of action.
I have construed clause 2.2.3 as placing an obligation on both the plaintiffs and City Developments.
I agree with the submission made by Mr Reeves QC that the defendant’s obligation to the plaintiffs is to pay the amount of the debt as ordered by the Court. Thereafter the Court should leave it to the plaintiffs, and the ANZ Bank, to determine how the clause operates.
There is no evidence before me as to whether or not there was any negligence on the part of the legal advisers to the ANZ Bank. It does, on the face of it, appear somewhat amazing that the ANZ Bank would lend such substantial sums of money for the purpose of building and developing on land that was subject to recreational easements. However that is not a matter that requires resolution in these proceedings.
I reject the argument on behalf of the defendant that the ANZ Bank debt was not caused by the defendant. It is a direct result of the plaintiffs’ decision to commence building and to purchase the land, based on the defendant’s breach.
I would allow the claim made by the plaintiffs in respect of the debt to the ANZ Bank.
It is the submission by Mr Maurice QC on behalf of the defendant, that the ANZ Bank debt is entirely offset by the plaintiffs equitable interest in the resort. There is no evidence the plaintiffs have an equitable interest in the resort. There is a private agreement between George and Michael Milatos that George may be able to purchase the Lake Bennett property from his brother Michael, provided George paid Michael what Michael had spent on it. This does not create any interests at law or in equity.
Michael Milatos stated in evidence (tp 1487) that he had told George Milatos that due to the fact he had to borrow 100% on the resort, that if the matter did not clear within a reasonable time he would have to put the resort on the market and attempt to sell it. The private arrangement between the brothers that George Milatos can buy the resort back if he pays his brother the amount Michael Milatos has spent on it, does not give rise to an agreement because there is no consideration passing and no intention to create legal relations. Neither does it give rise to a trust because there has been no declaration of trust in writing - see The Law of Property Act 2000 (NT) s 10(1)(b). There is no evidence of an equitable interest because it has not been established that either of the plaintiffs have acted to their detriment based upon the arrangement.
There is in any event no evidence of the value of the equitable interest even if it did exist.
I have concluded that the plaintiffs are entitled to recover City Developments debt to the ANZ Bank.
(g) Debts of the Unsecured Creditors
The total amount of the unsecured creditors of City Developments amount to $324,909.80 excluding the plaintiffs’ loans and the fees claimed by Clayton Utz. The summary of creditors dated 13 March 2007 is Exhibit P200. The amount stated on Exhibit P200 is further reduced by $100,000 being the debt to Nazime that was repaid by the ANZ Bank from the proceeds of sale of Unit 200 in June 2006.
Mr Reeves QC, counsel for the plaintiffs, seeks an order that this amount be paid to the plaintiffs on condition they pay it to the liquidator or be paid directly to the liquidator for payment to the unsecured creditors on three bases:
“a.To discharge the debts of CD so that it may be removed from liquidation and thereby restored to its former position (see above);
b.To assist to restore their damaged reputation and credit standing (see above); and
c.To allow them to meet the moral obligation they feel as the principles behind CD to meet the debts of those creditors”.
Mr Milatos gave evidence he felt a moral obligation to pay these creditors.
I agree with the submission made by Mr Maurice QC for the defendant that the plaintiffs have not put forward any authority for the proposition that a shareholder or director of an insolvent company is entitled to obtain an order against a third person, whose conduct has caused or contributed to the company’s insolvency requiring that person to pay the debts of the company whether on the basis of a perceived “moral” duty or not. There are other procedures that can be pursued by the company.
I am not persuaded the plaintiffs have a sustainable claim for these debts of unsecured creditors of City Developments.
(h) Liquidators Fees
The plaintiffs claim the total remuneration payable to the liquidator in the sum of $61,690. This also is a debt payable out of the assets of City Developments. For the same reasons applicable to the claim for unsecured creditors, I would not allow this claim.
(i) Fees paid to Clayton Utz
I agree with the submission made by Mr Maurice QC on behalf of the defendant, that these fees were payable by City Developments and involved disbursements and fees in respect of conveyancing work done on the sale of various units as well as the advice given with respect to the purchase of Section 152 at Lake Bennett. It would not be appropriate for the defendant to pursue a claim for costs relevant to the purchase of Section 152 Lake Bennett or relevant to the issue of the easements. I agree it is a matter for the liquidator to decide how much of this account is an enforceable debt against the company. It is not appropriate for this Court to make the orders sought by the plaintiffs.
(j) Pre-judgment interest on various awards
I accept the principle that the plaintiffs are entitled to pre-judgment interest calculated at ordinary commercial rates. Section 84(1) of the Supreme Court Act 1979 (NT) reads as follows:
“In any proceeding in respect of a cause of action that arises after the commencement of this Act the Court may order that there shall be included in the sum for which judgment is given interest at such rate as it thinks fit on the whole or any part of that sum for the whole or any part of the period between the date when the cause of action arose and the date of the judgment.”
I agree with the submission made by Mr Maurice QC that the only real evidence on this issue is that given by Mr Lonergan in Annexure “N” to his report (Exhibit D227). Annexure “N” is the Reserve Bank of Australia - Retail Deposit and Investment Rates between September 1996 to June 2006, as well as the Australian Bureau of Statistics data relating to interest rates for cash management trusts in that period.
In Jones v South British Insurance Co Ltd (1984) 53 ALR 408, the Federal Court of Australia was considering an appeal from the Supreme Court of the Northern Territory in relation to the rate of interest applied to an award for damages. The Court was considering the provision of the Supreme Court Act prior to s 84 and held that it was nevertheless an indication of the legislatures intention that the rate of interest should not be constrained by the rate fixed for judgment debts.
It was held by the Court that the interest awarded should have been calculated at a prevailing commercial rate, rather than at a rate which merely bore some relation to a commercial rate. At the date of the decision, which was 13 April 1984, it was held that 8% was less than the commercial rate of interest applicable at the time. The Court of Appeal substituted interest on the award of damages in the amount of 10% for the first period and 12% for the subsequent period.
In the matter before this Court, and relying on the evidence of Mr Lonergan (Exhibit D227), I would accept the appropriate commercial rate for the period should be 5.6%.
I note that in the recent decision of Renehan v Leeuwin Ocean Adventure Foundation Ltd & Anor [2006] NTSC 4, Mildren J accepted an amount of 5.64% in respect of pre-judgment interest for a similar period.
For these reasons I would make an order for pre-judgment interest at the rate of 5.6%.
(k) Exemplary Damages
The plaintiffs claim exemplary damages for what it terms the defendant’s wrongful and reprehensible conduct through the period since 1998, including conduct of these proceedings. It is submitted on behalf of the plaintiffs that it will deter others from similar conduct in the future and will ameliorate the sense of outrage held by the plaintiffs.
The plaintiffs did not include a claim for exemplary damages in their Amended Statement of Claim. Order 13.07(3) of the Supreme Court Rules 1987 (NT) provides as follows:
“(3) A claim for exemplary damages shall be specifically pleaded together with the facts on which the party pleading relies.”
There has been no application made to further amend the Statement of Claim and any such application at this time would be unlikely to succeed.
The defendant did not conduct its case on the basis of any claim for exemplary damages.
In Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298, the NSW Court of Appeal was asked to consider a claim for exemplary damages for breach of fiduciary duty. The judge at first instance had awarded exemplary damages in favour of an employer against an employee who breached an express term of his employment contract by secretly working for the benefit of his own business in competition with his employer.
This award was overturned by the majority of the Court of Appeal on the grounds that the NSW Supreme Court had no power to make a punitive monetary award for breach of fiduciary duty where that duty arises in the context of a contractual relationship. In the course of his judgment, Heydon JA further stated at [470] that:
“… There is no power in the law of New South Wales to award exemplary damages for equitable wrongs …..”
Exemplary damages are not available for a breach of s 52 of the Trade Practices Act, Marks and Ors v GIO Australia Holdings Limited and Ors (1998) 196 CLR 494 Gaudron J at [9]:
“Before turning to the argument, it is convenient to note two matters which are clear from the terms of ss 82 and 87. The first is that for a person to obtain relief under those sections he or she must have suffered loss or damage or, in the case of s 87, be likely to suffer loss or damage. The second is that there is no punitive aspect to these provisions, they being concerned solely to provide for recovery of “the amount of the loss or damage [suffered]” (s 82) or to “compensate” for or “prevent or reduce” loss or damage: s 87.”
Accordingly, I do not propose to make an award for exemplary damages.
Taxation issues
The plaintiffs submit that they are entitled to be compensated for any additional income tax or Capital Gains Tax assessed.
The plaintiffs acknowledge in their submissions that it is unclear at this time what, if any, components of the plaintiffs’ award may be subject to additional income tax, or additional Capital Gains Tax, what amount of that additional taxation will be and in whose hands it will be taxable.
The plaintiffs seek a declaration that the defendant indemnify the plaintiffs for any additional income tax or Capital Gains Tax assessed on the award and any legal costs, on a solicitor and own client basis, associated with the determination of the additional taxation - see Rabelais Pty Ltd v Cameron & Ors (1995) 95 ATC 4552.
Hodgson J in Rabelais Pty Ltd v Cameron & Ors (supra) stated at 4553:
“If and insofar as there is income tax or capital gains tax loss caused in this general way, it seems to me that it would be recoverable as an item of damages. It is apparent from what I have said, however, that it would not be possible for me to make any assessment of that loss. It is desirable that all aspects of damages be disposed of in one hearing, but because there is the possibility of substantial loss, I would be prepared in this case to reserve leave to the plaintiff to apply for additional damages referable to income tax or capital gains tax considerations.”
In Namol Pty Ltd & Anor v AW Baulderstone Pty Ltd & Ors [1993] 93 ATC 5101, Davies J in the Federal Court in Sydney refused to make an allowance for Capital Gains Tax or a conditional allowance. Similarly, in the matter before this Court there is no evidence as to what, if any, Capital Gains Tax or income tax would be payable. For example the order made for an award under the heading “(c) Wasted time and effort on the Lake Bennett project” is based on calculations made by Mr Holmes who specifically noted his calculations were before tax. Taxation, if payable on those amounts, is presumably the plaintiffs’ responsibility. I am not able to discern what, if any, Capital Gains Tax would be payable or what, if any, tax would be payable on the other awards of damages. I am not persuaded it is appropriate to make the declaration as sought by the plaintiffs as I am not satisfied the award of damages would be subject to Capital Gains Tax “or that it would accord with the principles upon which the assessment of damages proceeds to make any adjustment in respect thereof”, Davis J in Namol Pty Ltd & Anor v AW Baulderstone Pty Ltd & Ors (supra) at 5104.
Alternately, the plaintiffs request that any award for damages be “grossed up” to compensate the plaintiffs for the additional income tax assessed - Tuite v Exelby (1992) 93 ATC 4293. Shepherdson J did increase the award to allow for Capital Gains Tax. This award was not sustained on appeal, the respondents abandoned their claim - see Exelby & Ors v Tuite & Anor [1994] QCA 506. I am not persuaded it would be appropriate to gross up the award of damages to allow for taxation.
Accordingly, the plaintiffs’ application for a declaration or alternately a “grossing up of the damages” to allow for taxation is refused.
The limitations issue
Under par 164 of the Amended Defence, the defendant raises a variety of limitation defences:
“164. Further and alternatively:
(a)deleted
(b)the plaintiffs’ cause of action for breach of fiduciary duty accrued more than three years before the commencement of the within proceeding and, by analogy with s 12 of the Limitation Act (NT), is not maintainable;
(c)such of the plaintiffs causes of action under section 82 or section 87 of the TPA as accrued more than three years before 26 July 2001 are extinguished by virtue of section 82(2) of that Act as in force prior to that date; and
(d)such of the plaintiffs causes of action under section 91 or section 95 of the Consumer Affairs and Fair Trading Act as accrued more than three years before the commencement of this proceeding are not maintainable by virtue of section 91(2) of that Act.”
It is the submission by Mr Maurice QC, on behalf of the defendant, that all of the causes of action upon which the plaintiffs rely in this proceeding relate to conduct more than three years before action was commenced in December 2002.
A limitation period is established by s 82(2) of the Trade Practices Act. The relevant provisions of s 82(2) reads as follows:
“An action under subsection (1) may be commenced at any time within 6 years after the day on which the cause of action that relates to the conduct accrued.”
In this matter, the limitation period commences under the provisions of the Trade Practices Act from the date the plaintiffs actual personal losses first accrued - see Wardley Australia Ltd v State of Western Australia (1992) 175 CLR 514 at 527. The date that occurred was when City Developments was placed in liquidation, that date being 21 November 2002. These proceedings were commenced on 23 December 2002. Whether the Limitation Act 1981 (NT) is applied, or the Trade Practices Act s 82 is applied, the proceedings were commenced well within time.
The onus of establishing that the plaintiffs’ claims under s 82 of the Trade Practices Act are statute barred, is upon the defendant - Murphy & Anor v Overton Investments Pty Ltd (2004) 216 CLR 388 at [56].
The plaintiffs claim there is no limitation period with respect to the breach of fiduciary duty.
The submission on behalf of the defendant is that equity follows the law by analogy (s 21 Limitations Act) - see also Meagher, Gummow and Lehane’s Equity Doctrines and Remedies, 4th edition, Butterworths Australia, 2002 at p 1015 par 34-075. Section 12 of the Limitation Act, limits the time for bringing claims in torts and contract to three years from the date on which the cause of action first accrues to the plaintiffs. Section 13 imposes a similar time limit on actions for account. It is the defendant’s position in respect of the 1996 breach of fiduciary duty, the Option A “lost opportunity claims” and the Option B “lost opportunity claims”, that these claims are statute barred.
With respect to the breach of fiduciary duty being what has been referred to as the “technical breach”, Mr Maurice QC submits this claim is statute barred because the defendant advised the plaintiffs about this breach by letter dated 4 June 1999 (Exhibit P5 Vol 6 p1141). This breach relates to the fact that the defendant was in conflict when another practitioner at the firm of Clayton Utz had, unbeknown to Mr Riley, acted for the Scartons when they acquired their land and access easement from Mr and Mrs Shoobridge. I do not understand the plaintiffs to be pursuing any claim in respect of any such breach, so that the three year time limit from 4 June 1999, is irrelevant. The plaintiffs are pursing a claim for breach of fiduciary duty in respect of Mr Riley’s failure to advise the plaintiffs as to the real effect of the easements after 7 April 1998.
It is the defendant’s position that the claim in respect of the three Bayview properties is statute barred. For reasons already stated, I have not allowed this claim.
With respect to the unpaid labour component of the Option A claim, it is the submission for the defence that this claim is statute barred as the relevant date would be, at the latest March 1997, and no such claim was made within three years of that date. I do not accept this submission. I have found that the date when the plaintiffs’ personal losses first accrued was when City Developments went into liquidation on 21 November 2002.
With respect to the Option B claim, I have already set out reasons why I have preferred Option A combined with Option C. Therefore, the issue of a limitation period with respect to Option B is not relevant.
The defendant has throughout their submissions maintained that the losses which accrued on 21 November 2002 when City Developments went into liquidation, were losses that were caused by the imprudent decisions made by the plaintiffs several years earlier. I have dealt with this submission earlier in these reasons for judgment.
Whilst the defendant disputes a finding that the losses did occur on 21 November 2002, they accept that if this is the finding then the claim for them is not affected by the Limitation Act.
If I am wrong, with respect to the arguments raised by the defendant on the issue of limitations, I would grant an extension of time to the plaintiffs to overcome the possibility of any claim being statute barred.
In the circumstances, this Court would grant an extension of time to the date when the proceedings issued on 23 December 2002. This is on the basis that the ascertaining of the material fact was the date of liquidation of City Developments which was 21 November 2002.
In the alternative, I agree with the submission made on behalf of the plaintiffs, that the conduct of the defendant, which was intended to string out the period of time before the plaintiffs issued any proceedings, would entitle the plaintiffs to an extension of time. I refer in particular to the memorandum of Mr Riley to Mr Mitaros dated 9 June 2000 (Exhibit P5 Vol 6 p1201) which read, inter alia:
“… the longer we muck around arguing about it, the more likely the Limitations Act is going to prevent George from taking any action against us in any event.”
Mr Riley did acknowledge in his evidence that he now regretted this statement.
In addition to this, the plaintiffs were suffering a lack of funds in respect of pursing legal action and the more imperative need (as they perceived it at the time) to pursue the easement litigation. Litigation they should not have had to pursue and, presumably, would not have pursued had they been clearly advised by Mr Riley on or after 7 April 1998 as to the real effect of the easements. These matters all contributed to the delay.
For these reasons, I would grant an extension of time with respect to the claim to overcome any limitation period.
Summary of Findings
The plaintiffs claim damages from the defendant under s 82 and/or s 87 of the Trade Practices Act and s 91 and/or s 95 of the Consumer Affairs and Fair Trading Act for an alleged breach of s 52 of the Trade Practices Act and s 42 Consumer Affairs and Fair Trading Act respectively. There is a further claim for damages arising from a claim by the plaintiffs that the defendant breached their fiduciary duty to the plaintiffs.
I have found that George Milatos consulted Nicholas Mitaros, who was then a partner in the firm of Clayton Utz, in March 1996. Mr Milatos requested a due diligence search in respect of their proposed purchase of Section 152 Hundred of Howard, now known as the Lake Bennett Wilderness Resort, and advised of his intentions to build cabins on the foreshore and develop the resort.
In March 1996, the property was owned by Nazime Pty Ltd and was subject to recreational easements in favour of the surrounding blocks. These recreational easements were completely inconsistent with any building or development on the property the plaintiffs were seeking to purchase.
Mr Mitaros prepared an option to purchase which he provided to Mr Milatos. Mr Mitaros did not advise the plaintiffs that the property was affected by recreational easements which were completely inconsistent with building on or developing the property. The plaintiffs commenced building to test the market for cabin sales. The plaintiffs, George and Colleen Milatos, proceeded to exercise the option through their company City Developments Pty Ltd. The buildings were provided by a company named Australian Transportable Homes owned by George Milatos. This company built transportable homes at its premises in Berrimah and transported these homes to other localities. The option to purchase was subsequently amended. Eventually a contract of sale was prepared. The plaintiffs have given evidence, which I accept, that had they been advised that the recreational easements were inconsistent with their rights to build and develop the land, they would not have purchased the property. I found that the failure, on the part of the defendant, to advise the plaintiffs about the effect of the recreational easements, amounted to misleading or deceptive conduct within the meaning of s 52 of the Trade Practices Act. The defendant committed a breach of s 52 of the Trade Practices Act for which the plaintiffs are entitled to damages under s 82 of the Trade Practices Act.
In or about September 1996, Mr Mitaros handed over the plaintiffs’ file to Guy Riley, who was another partner in the defendant’s firm. Mr Riley assumed that Mr Mitaros had undertaken the necessary due diligence searches. Mr Riley was aware that easements existed but believed that the easements, which were referred to, only provided for access to the lake. This was the tenor of the advice he gave to Mr Milatos.
The defendant acted for the plaintiffs on the exchange of contracts which occurred on 27 March 1997. A week before contracts were exchanged, solicitors for one of the easement holders, wrote to the defendant advising of their client’s intention to assert their rights to use the area to the full extent permitted under the existing easement. This letter stated inter alia:
“The easements clearly grant to our clients free, full and unrestricted access to any and all parts of Section 152”.
The purchase of Section 152 could have been halted at this point and either the easement situation resolved with the vendors or the sale aborted. Neither of these things occurred. Mr Riley assured Mr Milatos he had nothing to worry about as long as his development on the land did not stop or prevent the easement holders access to the lake.
On 16 April 1997, the settlement of the sale of Lake Bennett from Nazime Pty Ltd to City Developments Pty Ltd was effected. The sale price was $630,000 subject to a mortgage back to Nazime Pty Ltd for part of the purchase price. Mr Milatos continued to build cabins on the foreshore. Mr Riley acted on the sale of these cabins and provided legal advice on a range of aspects relating to the property now known as Lake Bennett Wilderness Resort. Other loans were organised to enable the purchase of the property to be completed and for further development of the property. Section 152 was split into Section 244 the foreshore and Section 245 which contained the lake and the resort.
On 7 April 1998, there is a file note on the Clayton Utz file, to the effect that Mr Riley had come to the realisation that the easements were much broader than easements for access, they were in fact recreational easements which were inconsistent with any building on, or development of the property. Mr Riley further noted that it was now obvious Mr Milatos had not been advised about the real effect of the easements when he consulted Mr Mitaros and that Mr Riley had then falsely assumed checks had been done.
By April 1998, Mr Milatos had already built and sold a number of cabins around the foreshore of the lake (Section 244) and was developing the resort (Section 245). Mr Riley did not clearly advise Mr Milatos, that as distinct from his earlier advice about the effect of the easements, he had come to the realisation that they were in fact recreational easements that were completely inconsistent with building on the land. Mr Riley did not advise Mr Milatos that the plaintiffs may have a cause of action against the defendant or that the plaintiffs should seek independent legal advice as to their situation before proceeding further. Mr Milatos continued building and developing the land into 1999. By failing to provide advice to the plaintiffs about the change in the defendant’s understanding of the easements, this placed them in conflict with the interests of the plaintiffs, the defendant was in breach of their fiduciary duty.
In August 1999, the plaintiffs decided to consult other solicitors and transferred their matters to another firm of solicitors. The plaintiffs undertook a Supreme Court challenge to the validity of the easements which action they lost. A decision of the Court of Appeal of the Supreme Court of the Northern Territory delivered on 29 August 2001 confirmed the easements were good in law.
Late in 2000, the marital relationship between the plaintiffs broke down, the couple separated and subsequently divorced. Both plaintiffs have since remarried. Colleen Milatos is now known as Colleen Cambronero.
The easements created a problem because the rights of the easement holders were inconsistent with any building or development. The recreational easements were also a problem in the sense that titles to the subdivided properties could not issue without the consent of the easement holders, which consent was not forthcoming. The development of the resort was thwarted until the passing of the Lake Bennett (Land Title) Act 2005 (NT), which came into force on 9 March 2005. The Act resolved the issues with respect to the easements and enabled development to continue.
In the meantime, the company which had purchased the property, namely City Developments Pty Ltd, of which the plaintiffs were the sole directors, went into liquidation on 21 November 2002. The debts of the company exceeded $2.9 million. In May 2002, Michael Milatos, the brother of George Milatos, purchased the resort (Section 245) from City Developments Pty Ltd after extensive efforts to sell it on the open market had failed. The purchase was in the name of Lake Bennett Wilderness Resort Pty Ltd whose sole directors are Michael and Pauline Milatos.
In May 2002, George Milatos was employed by his brother Michael through his company to manage the resort. George Milatos was paid a salary and other benefits. He also received financial assistance from Michael to expand the resort.
In 2006, Michael Milatos purchased Unit 200 at Lake Bennett from City Developments Pty Ltd (in liquidation) at the request of the ANZ Bank. Since that time, George Milatos has been building cabins on the 15 lots that make up Unit 200 and receives a builder’s margin for these constructions.
The plaintiffs each worked extremely hard in developing the property at Lake Bennett between 1996 and 2002. George Milatos continued building cabins around the foreshore and marketing them. He also worked to build up the resort. Colleen Milatos built up the resort, attending to the gardens and physical appearance of the resort, establishing and running a restaurant as well as managing and marketing the resort. Her efforts were recognised by the presentation of a number of prestigious awards including a Brolga Award for Tourism Excellence for the resort. This award was presented in 2002. In December 2002, Colleen Milatos left Lake Bennett.
I have concluded the plaintiffs are entitled to damages pursuant to s 82 of the Trade Practices Act for breach of s 52 of that Act. The award of damages includes damages for breach of fiduciary duty, being the defendant’s failure to provide the appropriate advice, after coming to the realisation noted on 7 April 1998 that their previous advice had been incorrect. In addition to this, the defendant failed to advise the plaintiffs there was a conflict of interest and that the plaintiffs should seek independent legal advice.
I have made an award of damages under the following heads of damage:
1)the plaintiffs’ lost investment in City Developments Pty Ltd together with pre-judgment interest.
2)damages for wasted time and effort for both George and Colleen Milatos on the Lake Bennett project between 1996 and 2002 together with pre-judgment interest.
3) the plaintiffs’ debt to the ANZ Bank with interest accruing daily.
Claims under other heads of damage have not succeeded. I have rejected the claim for exemplary damages, for payment to the unsecured creditors of City Developments Pty Ltd, payment of fees paid to Clayton Utz and payment of the liquidator’s fees. I have also rejected the claim for loss of reputation and credit standing. I concluded that the plaintiffs were not entitled to the claim for lost opportunity to conduct business as a builder/developer.
I have found that George Milatos is not entitled to a claim for lost opportunity of capital appreciation in properties. I did not accept the evidence of George Milatos that had he not gone to Lake Bennett he would have returned to Darwin and embarked on a successful program of building units and townhouses. I have also found that through other circumstances, namely his brother Michael Milatos’ financial support and the passing of the Lake Bennett (Land Title) Act, George Milatos is in a better position now than if he had pursued any other so called opportunities to conduct business as a builder/developer. At present, George Milatos is paid a salary to manage the resort and receives other benefits. He also receives fees as a builder constructing homes on the parcels of land that make up Unit 200 at Lake Bennett. Unit 200 is owned by M & P Pty Ltd whose sole directors are Michael and Pauline Milatos. George Milatos has the opportunity, under his brother’s financial guidance, to build Lake Bennett into the first class resort he has for so long strived to achieve.
Damages
(1) Lost investment by both plaintiffs in City
Developments Pty Ltd $ 696,434.00
(2) Pre-judgment interest on lost investment
in City Developments Pty Ltd calculated at 5.6%
from 21 November 2002 to date of judgment
5.6% x $696,434.00 x 4.8 $ 187,201.45
(3) George Milatos wasted time and effort at
Lake BennettMarch 1996 to May 2002 $ 510,000.00
(4)Pre-judgment interest on George Milatos’
wasted time and effortat Lake Bennett
March 1996 to May 2002 calculated at 5.6%
from 21 November 2002 to date of judgment
5.6% x $510,000.00 x 4.8 $ 137,088.00
(5) Colleen Milatos wasted time and effort at
Lake Bennett1996-December 2002 $ 199,813.00
(6)Pre-judgment interest on Colleen Milatos
wasted time and effortat Lake Bennett
1996 to December 2002 calculated at 5.6%
from 21 November 2002 to date of judgment
5.6% x $199,813.00 x 4.8 $ 53,709.74
(7) The ANZ Bank debt $2,970,636.76
(8)Interest accruing on the ANZ Bank debt
at the rate of $862.71 a day from 12 March
2007 to date of judgment192 days x $862.71 $ 165,640.32
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Total$4,920,523.27
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I enter judgment for the plaintiffs in the sum of four million nine hundred and twenty thousand five hundred and twenty three dollars twenty seven cents ($4,920,523.27).
I grant leave to the parties to apply on the question of costs.
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