Sagar Pty Ltd v HPT 4 Services Pty Ltd
[2024] QDC 227
•18 December 2024
DISTRICT COURT OF QUEENSLAND
CITATION: Sagar Pty Ltd & another v HPT 4 Services Pty Ltd & others [2024] QDC 227 PARTIES: SAGAR PTY LTD ACN 010 543 941 AS TRUSTEE OF
THE SAGAR TRUST(first plaintiff) And SITABA PTY LTD ACN 620 414 404 AS TRUSTEE OF
THE SITABA TRUST(second plaintiff) v HPT 4 SERVICES PTY LTD ACN 142 707 113 AS TRUSTEE FOR THE HIDEROSE INVESTMENT TRUST
(first defendant) And P&T MCAVOY SUPERANNUATION PTY LTD ACN
127 690 706 AS TRUSTEE OF THE MCAVOY
SUPERANNUATION FUND(second defendant) And BERRINBA HOLDINGS PTY LTD PTY LTD ACN 620
384 616 AS TRUSTEE OF THE BERRINBA TRUST(third defendant) And PAUL ANTHONY MCAVOY (fourth Defendant) FILE NO: 1027/22 DIVISION: Civil PROCEEDING: Claim ORIGINATING District Court COURT: DELIVERED ON: 18 December 2024 DELIVERED AT: Brisbane HEARING DATE: 16, 17, 18 and 19 April 2024, and 13 May 2024 JUDGE: Porter KC DCJ
ORDER: 1. The Court will hear the parties as to the form of orders, including as to costs and interest.
CATCHWORDS:
ESTOPPEL – ESTOPPEL BY DEED OR CONVENTION – ESTOPPEL BY CONVENTION – PARTICULAR CASES –
where the plaintiff companies and the fourth defendant, through the other defendants, together participated in three
substantial property development ventures – where the plaintiffs query various sums paid from the venture funds by the fourth defendant – where the terms of the venture agreements provided for the manner in which the ventures were to be managed – where the plaintiffs contend the payments were unlawful because they were not authorised in accordance with such formal approval processes – where all parties acted on the basis of day to day management by the fourth defendant – whether the parties’ conduct gives rise to an estoppel by convention such that the plaintiffs’ reliance on
non-compliance of those formal provisions would be
unconscionableEQUITY – GENERAL PRINCIPLES – FIDUCIARY OBLIGATIONS – FIDUCIARY DUTY – DISCLOSURE -
where there is specific evidence about disclosure of each payment to the plaintiffs at around the time that they were
made – whether, and to what extent, the prospect of a claim being made by the fourth defendant for payment for work done to secure an AFL for the two Southlink ventures was disclosed prior to that time
CONTRACTS – CONSTRUCTION AND INTEPRETATION OF CONTRACTS – where the venture agreements contained express terms of good faith –where the
payments were for work which assisted completion of the ventures – whether the defendants breached those terms by causing payments for work done by the defendants or related
partiesPROCEDURE – CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS – PLEADINGS – GENERALLY – where the plaintiffs contend that the fourth defendant’s
evidence as to the work covered by certain Tax Invoices was outside the scope of the defendants’ pleaded case – where the statement of claim alleges that the First Payment was “a referral commission” – where the defence alleges that the First Payment was not a referral commission as alleged by the plaintiff but was for the exertions of the fourth defendant – whether the defendant’s evidence falls outside the scope of the defendants’ pleaded case
COUNSEL: A Morris KC and I Erskine for the plaintiffs M Jones KC for the defendants SOLICITORS: Ellem Warren Napa Lawyers for the plaintiffs Cowen Schwarz Marschke Lawyers for the defendants
Contents
SUMMARY ............................................................................................................................ 5
THE FACTS ........................................................................................................................... 6
The principal parties.......................................................................................................... 6
The genesis of the Southlink ventures .............................................................................. 6
The Southlink 20 UHA ...................................................................................................... 8
The Southlink 10 Deed..................................................................................................... 12
The Chep AFL: Southlink 20 .......................................................................................... 14
The First Payment: Southlink 20.................................................................................... 15
The Second Payment: Southlink 10................................................................................ 17
The construction phase: Southlink ventures ................................................................. 20
Genesis of Wembley Road venture ................................................................................. 20
Planning the Wembley Rd venture ................................................................................ 21
The Wembley Rd JVA ..................................................................................................... 23
Tax Invoice 1081: the Third Payment ............................................................................ 27
Finance for Wembley Rd................................................................................................. 29
The commissions for Wembley Rd: the Fourth and Fifth payments .......................... 30
The principals fall out ...................................................................................................... 34
THE PRINCIPAL WITNESSES ........................................................................................ 36
General observations ....................................................................................................... 36
| The | Patels .......................................................................................................................... 37 |
Mrs Patel ....................................................................................................................... 37
Mr Patel ......................................................................................................................... 39
| Mr | McAvoy....................................................................................................................... 40 |
Mr McAvoy’s character ................................................................................................ 40
Mr McAvoy’s inconsistencies ....................................................................................... 41
Conclusion ..................................................................................................................... 41
CONDUCT OF THE VENTURES..................................................................................... 41
Findings as to management of the ventures .................................................................. 41
Fiduciary duty and good faith ........................................................................................ 43
THE SOUTHLINK PAYMENTS ...................................................................................... 46
The pleading issue ............................................................................................................ 46
Prior disclosure? .............................................................................................................. 48
Analysis of the First Payment ......................................................................................... 50
Analysis of Second Payment ........................................................................................... 53
| Conclusion | ........................................................................................................................ 57 |
THE WEMBLEY STREET PAYMENTS......................................................................... 57
The September feasibility and the NAB funding table ................................................. 57
The Third Payment .......................................................................................................... 60
The Fourth and Fifth payments ..................................................................................... 61
| Conclusion | ........................................................................................................................ 63 |
SUMMARY
[1] Dr Anand Patel (Mr Patel) and Dr Mahdu Patel (Mrs Patel) are a married couple who have had long careers as general practitioners.[1] From about 2014, through the plaintiff companies, they participated in three substantial property development ventures, conveniently described as Southlink 20, Southlink 10 and Wembley Road.
[1] I mean no disrespect in not using the title Dr for the Drs Patel, but the title Dr Patel did not distinguish
[2] The fourth defendant (Mr McAvoy) is an experienced commercial real estate agent and property developer. Through the other defendants, he participated in each venture. Through their respective corporate entities, Mr McAvoy and the Patels carried out the three ventures, broadly on the basis of equal shares in the net profit of each venture. All three ventures were successful.
[3] Towards the end of the last venture, Wembley Road, trust began to break down between the parties, with the Patels querying various sums paid from venture funds at the direction of Mr McAvoy. Ultimately, their complaints were confined to five payments[2]:
[2] There is a sixth payment which is raised, but the amount is minimal and Mr McAvoy does not dispute the
(a) One payment of $92,400 made on Tax Invoice 990, paid to the first defendant (HPT4) in relation to the Southlink 20 venture on 1 February 2017 (the First Payment); (b) One payment of $66,000 made on Tax Invoice 1007, paid to HPT4 in relation to the Southlink 10 venture on 24 July 2017 (the Second Payment); and (c) Three payments made in the Wembley Road venture, being: (i) A payment of $103,400 made on Tax Invoice 1081 to HPT4 on 10 December 2018 (the Third Payment);
(ii) A payment of $98,921.24 made to King & Co, (a commercial real estate agent related to Mr McAvoy) on a tax invoice issued by that company on 10 April 2019 (the Fourth Payment); and
(iii) A payment of $98,327.24 made in two instalments to Savills (a commercial real estate agent unrelated to Mr McAvoy), on two tax invoices totalling that sum issued by Savills with the Second Payment, being made on 15 April 2019 (together, the Fifth Payment).
[4] The plaintiffs seek to recover half of each of those payments, in broad terms, on the basis that their complaint is limited to the impact of those contested payments on the
plaintiffs’ share of profit from each venture.
[5] For the reasons that follow, the plaintiffs’ claims are dismissed.
THE FACTS
[6] Before addressing the contested factual issues, it is convenient to set out the uncontentious facts. As is often the case, it is the uncontentious contemporaneous documents, looked at in choronologial order, which provide much assistance in resolving conflicts on the evidence.
The principal parties
[7] Dr Madhu Patel was born in India. She studied medicine in India. She moved to Australia in 1968. She is about 81 years old. She is proficient in Gujurati, Hindi and English. She is a GP and has practiced in Australia since 1971. Mr Patel was born in India. He moved to Australia in 1955. At the time of the trial, he was 86 years old. He is also a GP and has practiced since 1967. He studied at the University of Queensland. He speaks English, Gujrati and Hindi with proficiency. The Patels have been married for over 50 years.
[8] In 1985, the Patels embarked on a joint venture by which the venturers purchased industrial premises at Hemmant containing multiple tenancies. The Patels managed the Hemmant premises. Mrs Patel managed the financial side, including receiving rent and maintaining the bank accounts. Mr Patel was responsible for finding tenants for the Hemmant property, including Electrolux, a long-term tenant. The Hemmant Property was sold in about 2011. By that time, the Patels had accrued some years of experience in both the financial and leasing aspects of industrial and commercial property.
[9] Mr McAvoy has been a licensed real estate agent in Queensland, working in industrial real estate, for some 37 years; 35 of those years having been spent with King & Co Property Consultants (King & Co). King & Co specialise in industrial property sales, leasing and property management. Mr McAvoy is one of the founding partners of King & Co. Mr McAvoy has been involved as a property agent in sales, leasing and management of industrial property, and has been a developer and investor in many such projects. He has had numerous partners in connection with numerous properties and projects, mostly industrial. Mr McAvoy was, and is, well acquainted with industry practices in leasing for large industrial properties and with the commissions, incentives, and other payments charged in respect of the sale, leasing and management of industrial property in Queensland. I accept that he has the experience to give evidence about those market practices and standards.
The genesis of the Southlink ventures
[10] Mr McAvoy owned land at Hemmant and probably got to know Mr Patel through
that connection. Mr Patel also became Mrs McAvoy’s treating doctor. A friendship
developed. The two men discussed property development and the families began to socialise. In about 2010, Mr Patel sought advice from Mr McAvoy on the issues which led to the sale of the Hemmant property. After the sale, Mr Patel also discussed alternative investments with Mr McAvoy. At one point, Mr McAvoy advised against overseas property investment. A level of trust existed between the two men. It is not surprising that, following the sale of the Hemmant property, the idea of the Patels carrying out a venture with Mr McAvoy eventually come up.
[11] The events which led to the Patels and Mr McAvoy becoming joint venturers[3] in the Southlink ventures was not much examined. However, it provides useful context for the contentious issues which later arise.
[3] I am conscious that the ventures were carried out through corporate vehicles, but the corporate venturers were
[12] In 2014, Mr McAvoy, through another company controlled by him, owned the site at 10 Southlink. The site at 20 Southlink was owned by a third party. In the first half of that year, there were discussions between Mr McAvoy and the Patels, the result of which was that they agreed to carry out industrial property developments on both 10 and 20 Southlink. The discussions must have been detailed, because on 16 August
2024, a document headed “Proposed Outline of Joint Venture Terms” was created
(the 2014 Proposal).[4] It covers both the Southlink 10 and Southlink 20 ventures. The
2014 Proposal recites the various entities then involved as follows:Paul McAvoy, a director of P&T McAvoy Superannuation Pty Ltd and the Patels have had discussions with a view to entering into a joint venture to develop Lot 1 now and to acquire Lot 2 now and develop Lot 2 after Lot 1 has been leased.
Lot 2 would be acquired equally by HPT 4 Services Pty Ltd ACN 142 707 113 as trustee for
the Hiderose Investment Trust (“HPT 4”) and the Patel’s nominated entity (“Patel”).
The purpose of the joint venture is for the parties to jointly develop Lot 1 (initially) and Lot
2 and jointly share in the income and expenses that derive from the developments.[4] TB doc. 34 p. 238.
[13] Under the heading “Lot 1” (which concerns Southlink 10) it provided:
LOT 1
HPT 1 owns Lot 1 (9369m2) valued at 3.1M.
HPT 1 and Patel will construct a building on Lot 1 at a cost of $4M.
Patel would contribute $3,550,000.00 in cash comprising $3.1M to match HPT 1’s equity in
the land and $450,000.00 to contribute to the shortfall.
HPT 1 would contribute to $450,000.00.
Construction of Lot 1 Building
The town planning approval for the Lot 1 Building would be obtained as soon as possible.
On receipt of approvals, construction of the Lot 1 building (including the full easement concrete area) would commence.
The building price for the Lot 1 building would be locked in for the maximum period.
[14] Under the heading “Lot 2” (which concerns Southlink 20) it provided:
LOT 2
A&B owns Lot 2 (9993m2).
HPT 4 and Patel would purchase Lot 2 in equal shares on the following terms:
(a)
Purchase price $2,498,250.00 plus GST of $249,825 (which equates to $250 per square metre plus GST);
(b) Deposit: $100,000.00 on formation of the Contract; (c) Date for Completion: 60 days from the date of the Contract. The stamp duty and associated costs would total approximately $153,000.
The parties would look to secure 60% debt funding.
The approximate cash shortfall to fund acquisition of land and associated costs would be
$1,152,300 (excluding GST) or $1,402,125 (including GST).
HPT 4 would contribute $701,062 (incl GST).
Patel would contribute $701,062 (incl GST).
The GST on the purchase price to be claimed back would be $249,825.
Construction of Lot 2 Building
Construction of a building on Lot 2 would commence upon leasing of the Lot 1 building or sooner if agreed by both parties.
A town planning approval has already been obtained for Lot 2 (sufficient currency for construction timetable to be verified).
[15] Under the heading “Other Matters” it relevantly provided:
This Proposal is subject to the parties entering into a Joint Venture Agreement to be prepared by GM Lawyers with input from Cooper Grace Ward and Anthony Wetmore & Co. The documentation would then be submitted to the Patels. The Patels would then, at that point in time, arrange for their own legal review of the documentation before execution.
26.8.14
[16] The 2014 Proposal contemplates from the very start that both of the Southlink ventures would be carried out. The Southlink 20 venture proceeded more quickly than Southlink 10.
The Southlink 20 UHA
[17] Southlink 20 was the first project formally to be documented. It appears that the land was acquired in September 2014, for $2.5m (which was probably the motivation for documenting the venture at that time). The joint venture was structured as a unit trust. The trustee was not a party to the proceedings, nor did either party rely on the unit
trust deed. Rather, reliance was placed by the plaintiffs on a unit holders’ agreement.
[18] On 8 September 2014 the first plaintiff (Sagar), on behalf of the Patels, and the first
defendant (HPT4), on behalf of Mr McAvoy, as “Investors”, entered into a Unit
Holders Agreement in relation to the unit trust (the Southlink 20 UHA).
[19] The Southlink 20 UHA relevantly provided[5]:
[5] TB doc. 3, pg 78.
(a) By the Recitals: RECITALS
A. The Investors wish to conduct a joint venture so as to develop the Property and have established the Trust for the purpose of developing the Property. B. The units in the Trust will initially be held as follows:
Investor No. of Units HPT 4 750,000 units Sagar 750,000 units C. The purpose of this Agreement is for the parties to record their agreement in relation to the operation of the business to be carried on by the Trust, the control, management and funding of the Trust and the Investor’s rights and
obligations as Investors in the Trust.
(b) By the definitions in clause 1: Annual Program means a program for carrying on the Business during a financial year which consists of:
(a) Business, details planning for acquisition of the Property if not already
acquired, including a timeline for attending to steps in the Annual
Program, draft development plans, finance arrangements (including
when Units are to be issued or Unit Holder Loans are required, anda business plan setting out in detail the proposed plan to carry on the profits (if required), marketing plans and other activities for carrying out the Project; and
(b) the Budget.
Budget[6] means a budget setting out in detail the cost of construction and
expenses to be incurred in carrying out the Project, and projected income of the[6] See TB 116.Trust for the financial year.
Effective Date means the 8th day of September 2014.
Project means the Development and all incidental activities conducted by or on behalf of the Trust.
Project Expenses means all the costs and expenses incurred, paid or payable by
the Trust in accordance with the provisions of this Agreement or incurred, paid
or payable by the Investors under this Agreement, in connection with the Project,including:
(a)
the costs and expenses incurred in connection with obtaining the Approvals, including the costs in preparing all necessary drawings, plans and specifications;
(b)
all interest and other fees and charges payable to the Financier in connection with the Project;
(c) the costs of preparing the Property for Development; (d)
any application fees, contributions or other amounts paid to any Authority in connection with the Approvals;
(e)
payments to the Manager under the Development Management Agreement;
(f)
any legal Costs in relation to the preparation of this Agreement and all legal Costs required to give effect to the Objectives (including the preparation of documents for the lease or sale of the Property);
(g)
any commissions, fees and expenses payable in connection with the Project, including in connection with the marketing of the Project and the sale or lease of the Property.
(h) any duty payable in relation to this Agreement; (i) any insurance premiums incurred in accordance with this Agreement;
(j)
any rates, taxes (including Property tax) and other outgoings payable in respect of the Property; and
(k) any other amounts payable to consultants in connection with the Project.
(c) By clause 3, “Project”:
3.1 Timing Unless otherwise agreed in writing by the Investors, the Development will commence on the last to occur of the following:
(a)
the leasing of the building to be constructed on the adjacent land situated at 10 Southlink Street, Parkinson;
(b)
the Investors appointing a manager to develop the Property in accordance with clause 8.1(a);
(c) the Investors agreeing on an Initial Annual Program; or (d)
the Investors agreeing on the further Units to be issued to fund the Development.
…
3.6 Investors’ commitments Each Investor agrees and undertakes:
(a) to cooperate and use its best endeavours to ensure that the Trust successfully carries on the Business; (b) not to use the Truste’s or another Investor’s Confidential Information in a way which damages or is likely to damage the Trust or any other Investor;
(c)
not to delay unreasonably any action, approval, direction, determination or decision required of the Investor; and
(d)
to give approvals and make decisions required of the Investor in the best interest of the Trust and the carrying on of the Business as a commercial venture.
3.7 Relationship of the Investors This agreement does not create a relationship of employment, trust, agency
or partnership or any other form of fiduciary relationship between the
Investors. Each of the Investors is responsible for its own obligationsarising under this Agreement and none of them is liable for the other’s obligations. 3.8 Good faith Each Investor shall act in good faith towards the other Investor including
being just and faithful in all dealings with the other Investors relating to the
Business.[underlining added]
(d) By clause 4, for the appointment of a Management Committee, “unless otherwise agreed”. The Management Committee was to be
comprised of one person from each Investor. It was empowered to make all decisions consistent with carrying out the Project. It required the Management Committee to appoint an accountant. Its decisions were expressly required to be unanimous for, relevantly[7]:
[7] See cl 4.5.
(i) approval or variation of the Annual Program; (ii) any expenditure not in the Budget costing more than $20,000; (iii) any departure from the Budget of more than 5%; and (iv) nominating signatories for bank accounts of the Trust. (e) By clause 6:
6 Profits 6.1 Appointment of Profit Subject to the terms of any agreement with a Financier the parties agree that the profit of the Trust being all revenue (including any rental received for the duration of the Project and the amount received upon realisation of the Property or any part of the Property or Product) less all expenses (including Project Expenses) will be apportioned between the parties in proportion to their Unit Holdings in the Trust.
6.2 Distribution of Net Receipts The parties agree that the net receipts of the Trust will be distributed as follows:
(a) payment of any GST; and (b) payment of any leasing agent commissions, sales agents commissions and selling fees; and (c) repayment of amounts owing by the Trust to the Financier on the terms agreed with the Financier as the case may be; and (d) payment of the Manager’s fees under the Development Management Agreement; and
(e) payment of other Project Expenses; (f) payment of any Unit Holder Loans and any interest; and (g)
payment of any distributions to the parties in proportion to their Unit Holdings in the Trust.
(f) By clause 7, for the Annual Program to be prepared and adopted by the Management Committee. (g) By clause 8: 8 Manager
8.1 Appointment and payment of Manager
(a)
The Investors will appoint an experienced manager to manage the Development.
(b)
The Investors shall pay the Manager the Development Fee set out in Item 4 of the Schedule.
8.2 Appointment of Real Estate Agents The Investors acknowledge and agree that:
(a)
The Manager may appoint an entity that is a Related Body Corporate or Related Entity of HPT 4 to market, sell and consult generally in relation to any of the Product; and
(b)
That appointee may be paid a fee and/or a commission on the Property lease rental or sale price or both,
unless and until the Management Committee directs otherwise.
[20] There are few particulars in evidence of the chronology of the carrying out of the Southlink 20 venture, seemingly because the plaintiffs have no complaint about the carrying out of the construction of the building, nor the resultant success of the venture, other than in relation to the First Payment.
The Southlink 10 Deed
[21] The next event in the Southlink ventures was the documentation of the Southlink 10
venture. The Southlink 10 property was owned by HPT1, another of Mr McAvoy’s
entities. The parties adopted a co-ownership structure for conduct of the Southlink 10 venture, which contemplated HPT1 transferring the land, ultimately, to the second defendant (P&T McAvoy) and Sagar, as co-owners.
[22] On 7 January 2016, some 18 months after the 2014 Proposal, those parties entered a co-ownership deed (the Southlink 10 Deed).[8] The Southlink 10 Deed relevantly provided[9]:
[8] I could identify no explanation for that timing.[9] TB doc. 10.
(a) Under the heading “Background”: BACKGROUND
A. The Parties will jointly own the Property in the Co-Ownership Shares. B. The parties wish to develop the Property and wish to record the terms of their agreement with respect to the Development of the Property and its disposal in this deed. (b) By clause 1.1, headed “Definitions”:
Co-ownership shares (a) McAvoy – 50%
(b) Sagar – 50%
Development the building the parties will construct on the Property at
a cost of approximately $4,000,000Principal
(a) For McAvoy - Paul McAvoy (b) For Sagar - Anand Patel
(c) By clause 2:
2. PERIOD OF OWNERSHIP The parties agree that it is their general intention to hold the Property for an indefinite period.
(d) By clause 3
3. CONTRIBUTIONS TO DEVELOPMENT The parties agree that:
(a)
The costs of the Development are to be borne by the parties in the Co-Ownership Shares; and
(b)
All other expenses associated with the Development are to be borne by the parties in the Co-Ownership Shares.
(e) By clause 4: 4. INCOME AND EXPENDITURE AND ASSET MANAGEMENT
4.1 The parties agree that all income earned in respect of the Property
including rent will be shared in the Co-Ownership Shares.4.2 All expenses incurred in respect of the Property including rates,
land tax, insurance, real estate agents commission and
management charges and other expenses associates with the
maintenance of the Property will be borne by the Parties in the
Co-Ownership Shares.4.3 All decisions with respect to the incurrence of expenditure for the
Property including maintenance decisions such as repainting,
refurbishment, repairs and maintenance will be joint decisions.
[23] The Southlink 10 Deed is notable for its lack of specific provision for the management and operation of the development phase of the venture, other than the
provision for equal sharing of “costs of the Development” and “expenses associated with the Development”. A distinction is drawn between “costs of the Development”
in clause 3, and income and expenditure “and asset management” in clause 4, which
suggests clause 4 is not concerned with the development stage. In contrast with the UHA, the Southlink 10 Deed has no detailed provision for management of the development it contemplates.
The Chep AFL: Southlink 20
[24] The next event was entry by Chep into a deed of agreement for lease for the Southlink 20 venture.
[25] On 25 January 2017, Chep Pallecon Solutions Pty Ltd and the trustee for the Southlink 20 venture entered into an agreement for lease (the Chep AFL). The Chep AFL committed Chep, a well-established national business, to a 10-year lease with options. Net rental in the first year was $420,000 plus GST. It included detailed specifications for a warehouse to be constructed. It also provided for the time for construction. It required the warehouse to reach practical completion, broadly, a year after the execution of the Chep AFL, and provided for a liquidated damages clause to apply, subject to a provision for extensions of time.
[26] The Chep AFL was the foundation for the success of Southlink 20. It provided the scope for the building to be constructed, allowed a construction price to be obtained, and provided the assurance of a secure tenant into the future for the building. Although it was not addressed in evidence, it is almost certain that the Chep AFL was necessary to obtaining construction finance. It is likely that a construction contract was negotiated, at least in principle, before the Chep AFL was signed (cost of construction is obviously a key issue in determining the rental stream necessary for a profitable development).
[27] Construction appears to have been underway by January 2017. A great deal of work must have been done between September 2014 and January 2017. That work would have included the designing of the warehouse and necessary development approvals, finding a builder and negotiating the building contract, arranging finance, locating potential tenants, and negotiating the Chep AFL. The Patels give negligible evidence about who did this work, when, and how. Their evidence is that they were excluded from day-to-day management of the affairs of the venture, and that Mr McAvoy was the guiding mind of the venture.
Mr McAvoy’s witness statement deals with the issue, as follows[10]:
[10] Exh 10, para [23].Mr McAvoy cannot recall the exact work that was performed, though it included generally discussing, corresponding and liaising with:
(a) prospective tenants and real estate agents that did not pursue a lease; (b) Chep property officers regarding the key terms of the lease (as to the term, rent, outgoings, bank guarantee, incentives, lessee’s and lessor’s works and tenant’s
specific requirements);
(c)
solicitors, accountants; the project manager and builder (including in relation to planning and building approvals) from inception to practical completion. Mr
McAvoy’s borther, Mark McAvoy, is a lawyer who assisted Mr McAvoy and the
Patels from time to time while on other occasions, external lawyers were engaged.
The Patels also had their own lawyers but did not raise any concerns about MarkMcAvoy’s involvement; and
(d) prospective financiers and the project’s ultimate financier.
[29] A project manager was retained for both Southlink developments through a company called MS Projects. The contract with MS Projects was not in evidence, nor was the scope of its retainer.
The First Payment: Southlink 20
[30] The narrative now arrives at the First Payment. On about 27 January 2017, two days after the Chep AFL, Mr McAvoy instructed Ms Brolan, his administrative assistant and bookkeeper, to prepare a tax invoice to the trustee of the unit trust. She did so. The tax invoice was dated 1 February 2017 (Tax Invoice 990). It was in the following form[11]:
[11] Exh 3, pg 117. This is the only copy of Tax Invoice 990 which I could locate. It is plainly not the original
It is convenient here to explain Ms Brolan’s role. Ms Brolan was Mr McAvoy’s
principal administrative support in all his projects from 1997 to June 2022. Mr McAvoy said that, over time, he had developed the practice in his numerous ventures of:
(a) Collating information on income and expenses and sending them to Ms Brolan; (b) Ms Brolan then had a standing instruction to produce cashflow spreadsheets and information packs to be sent to business partners, usually monthly; and (c) Ms Brolan also issued management accounts, usually quarterly. [32] Ms Brolan did not address this evidence. Her witness statement focused on the
invoices in dispute. She said she only acted on Mr McAvoy’s instructions and carried
out those instructions. I accept that is correct.
[33] The question arises as to whether Tax Invoice 990 was ever sent to the Patels. The evidence stands against that proposition. There is no direct evidence that it was ever dispatched, nor does anyone give evidence that occurred. However, it was referred to in a monthly cashflow document sent by Ms Brolan to Mrs Patel by email on 29 January 2017.
[34] The exchange leading up to that email is of interest. It began with an email on 27 January in which Ms Brolan told Mrs Patel that cash contributions of $10,000 each were required every week in February. Mrs Patel responded with a request for clarification on contributions. Ms Brolan responded on 29 January 2017, attaching the forecast cashflow showing various contributions and referring Mrs Patel to Mr McAvoy with any questions.[12] The attached cashflow was in the form of a spreadsheet. It had a line item on 8 February 2017 (a prospective payment date)[13]:
[12] TB38 and 39, pages 339 to 342.
[13] TB39, pg 342.
HPT4 Services - Chep Pallecon leasing fee – Inv 990 -$92,400
It appears this was a cashflow of the kind Mr McAvoy described, but it appears to have been sent in response to a query from Mrs Patel. There are other oddities. It appears that Tax Invoice 990 had been issued by 29 January 2017, at the latest. The date on the tender version is 1 February 2017. Given Ms Brolan had to issue and enter the invoice by 29 January, that date must be wrong. I have gone through this to show how difficult it is now for the witnesses accurately to recall points of detail in relation to the carrying out of projects which happened years ago.
[35] Mr McAvoy (on behalf of HPT4) caused the trustee to pay Tax Invoice 990 to HPT4, from the Westpac bank account for Southlink 20, as recorded on Tax Invoice 990: $60,000 on 28 February 2017, and $32,400 on 10 March 2017.
The Second Payment: Southlink 10
[36] Hot on the heels of the Chep AFL came the Flexible Packing Solution agreement for lease (the Flexible AFL) for Southlink 10. On 10 March 2017, the co-owners entered into the Flexible AFL with Flexible Packaging Solutions Pty Ltd. It was in similar form to the Chep AFL. The lease was for eight years at rental of $400,000 per annum with one five-year option. It also required the co-owners to build a building to the specifications in the Flexible AFL. It required practical completion within eight months of the date of execution.
[37] As with Southlink 20, a good deal of work of the kind in [28] above must have been done between September 2014 and March 2017. As with Southlink 20, it appears that MS Projects were retained for at least some of this time, to do some of that work.
[38] Mr McAvoy said that he did the work of negotiation which led to the Flexible AFL[14]:
[14] Exh 10, paras 38 to 40.38. The Patels signed the lease and expressed no interest in negotiating its terms. Mr McAvoy did all of the work concerning the negotiation and entry into that lease.
…Having regard to his professional experience, Mr McAvoy considers the property
to have been worth about $5 million to $6.5 million upon entry into the lease.
39. Mr McAvoy recalls that he had been in discussions with representataives of FPS for approximately 12 to 18 months prior to signing the lease, together with other prospective tenants.
40. Mr McAvoy recalls that JLL had committed FPS to another site which did not proceed. Mr McAvoy considers it to be industry practice that lessors sometimes pay multiple commissions and incentives in order to secure tenants; for example, where one agency has a tenant looking for a potential site and another is acting for the lessor in seeking to find a tenant.
[39] On about 24 July 2017, Ms Brolan raised an invoice from HPT4 to the co-owners of
Southlink 10 on Mr McAvoy’s instructions (Tax Invoice 1007). It provided[15]:
[15] TB12, pg 129.
[40] Ms Brolan immediately sent a revised cashflow forecast for Southlink 10 for August 2017 to Mrs Patel. An earlier cashflow forecast for August had been sent on 6 July 2017, which did not refer to Tax Invoice 1007. It is consistent with a fairly diligent approach to notifying cashflow needs, and to openness as to the nature of the sums payable, that a revised cashflow was produced quickly. The email exchange is instructional.
[41] On 24 July 2017 at 1:04pm, Ms Brolan sent an email to Mrs Patel, and copies to Mr McAvoy, stating[16]:
[16] TB46, pg 439. 17 TB4, pg 445.
Hi Madhu,
Just a reminder to please deposit $320,000 by this Wednesday 26/7/17 [as had been requested in the 6 July 2017 email]
The attached cashflow has been updated with:
• ATO June 2017 BAS refund of $61,137 allocated to 28/7/17 • McAvoy Supn Fund loan of $320,000.00 paid to day 24/7/17 • HTP4 Services Tax Inv 1007 paid today 24/7/17 (copy attached)
No further owner’s funds are required to cover Tax Inv No 1007 as the BAS refund is
adequate.
[42] The email had Tax Invoice 1007 attached, and included lines item in the cashflow attached, as described in the dot points. As can be seen from its text, Tax Invoice 1007 describes clearly what it concerned in language that Mrs Patel would have understood. She knew about the Flexible AFL and could have been in no doubt that the subject of the claim was commission for HPT4 for securing that AFL.
[43] Mrs Patel responded on 24 July 2017 at 8:28pm with the following queries17:
Hi Ruth
I can not understand inv. 1007. What it is for?.Ruth,
Please excuse me for not understanding the spread sheet. I can not see the money
i tfred to this a/c by internet tfr on 19/3/2017 and 20/3/2017 and the cheque as well.Does itreflect it in bank statement?
What is MS project inv 317 claim. Because I don’t check the the statement so I have
forgotten the password to get into the bank a/c.
You can see that i am taking interest. I hope you don’t mind.
Madhu
[44] Ms Brolan responded, in turn, on 25 July at 6:44am[18]:
[18] Ibid.Hi Madhu
To answer your queries:
Tax Inv 1007 is commission owing to Paul McAvoy for the leasing of the property to FPS Pty Ltd. Paul McAvoy gave instructions yesterday to pay this invoice. Please contact Paul McAvoy direct if you need more details on this payment.
The cashflow reconciles to the bank statement and includes the money you transferred on 19/3/17 and 20/3/17 (otherwise it would not reconcile to the bank statement). The extract attached is from the 23/6/17 therefore it does not show the transactions in March.
MS Projects Tax Inv 317 is their monthly fee to project manage the construction works on site.
Please do not hesitate to contact me if you have any other queries. I don’t mind.
Regards
Ruth
[45] Tax Invoice 1007 was attached to that email, along with a revised cashflow.
It is worth noting Mrs Patel’s comment that she is “taking an interest”. That
contemporaneous observation is a more reliable indicator of the Patels’ attitude to
involvement in the ventures than later comments made when a dispute had arisen. The comment was made in what was an extremely busy period in the Southlink ventures, right in the middle of peak construction for both buildings (see paragraph [49], below).
[47] The precise chronology in relation to the payment is important because the plaintiffs rely on a submission that Mr McAvoy caused the invoice to be paid before it was provided to the Patels. While that is literally correct, it needs to be put in context.
[48] As of 24 July 2017, the Southlink 10 bank account[19] was some $13,000 in credit. On 24 July 2017, Mr McAvoy caused P&T McAvoy to deposit the contribution required from the co-owners for August 2017. The payment of Tax Invoice 1007 was then made from that account. Notably, then, as a matter of substance, the invoice was paid almost entirely from funds notionally[20] contributed by P&T McAvoy. Sagar therefore had a choice, at least in theory, whether to contribute the whole of the August contribution, or to reduce it for the tax invoice, if they chose to challenge it
[19] TB 126[20] I do not suggest that the funds were held in trust, nor that tracing principles apply.
as a “cost of the Development” or “expenses associated with the Development” under
clause 3 of the Southlink 10 Deed. The Patels did not challenge it, they did not take up the invitation to query the tax invoice with Mr McAvoy, and they paid their contribution in full, despite having the disclosure made on 24 July 2017.
The construction phase: Southlink ventures
[49] The two ventures must then have proceeded together, with the two warehouses being built on the adjoining sites at about the same time, with Southlink 10 aiming for practical completion by November 2017, and Southlink 20 by January 2018. The buildings were substantial, with estimated building costs of about $4m each. That represented a very substantial workload for those guiding the affairs of the two ventures over the calendar year 2017. The Patels did none of that work.
Genesis of Wembley Road venture
[50] The principal witnesses agree that the idea of the Wembley Road venture arose during 2017. It must have arisen in the first half of the year, most probably after the two agreements for lease were signed for the Southlink ventures.
[51] Mr McAvoy says that the initiative for a further venture came from the Patels. The Patels swear (in virtually identical terms[21]) that the idea arose with Mr Mark Scammells at a meeting at the Southlink sites, and that then they and Mr McAvoy went to inspect the Wembley Road site, and there they decided to proceed with a further venture. Either way, the principals agreed to pursue a joint venture on the Wembley Road site.
[21] Compare Mr Patel’s affidavit (Exh 6) paras 95 to 98 and Mrs Patel’s affidavit (Exh 3) at paras 53 to 56.[52] This agreement was most likely reached, at least in principle, by July 2017 at the latest, because the second plaintiff (Sitaba) was incorporated on 12 July 2017 and carried out the Wembley Road venture for the Patels. It can be inferred from the circumstances, before and after, that the agreement between the principals must have been to pursue a repeat of the Southlink developments: buy the land, find a long- term tenant, obtain an agreement for lease, and then construct a building to the specifications of the tenant.[22]
[22] Mr McAvoy at para. 49; Mrs Patel at para 56; and Mr Patel at para 98.[53] The Wembley Road venture was agreed, in principle, in the following context:
(a) The Southlink ventures became bankable developments on the signing of the two agreements for lease by March 2017; (b) Those ventures were carried out successfully over the balance of the year, while the Wembley Road venture was in its informal stage; and (c) The Patels had done nothing to secure either of the agreements for lease for the Southlink ventures (and, as will be seen, did nothing to secure a pre- commitment for the Wembley Road project). [54] I refer to agreement as ‘in principle’ because there is no evidence of any
documentation of the venture until September 2018. This reflects a high level of trust between the Patels and Mr McAvoy in early 2018, which is objectively explicable by the success of the Southlink ventures, and which would have reached its apogee at about that time, with completion of the warehouses and commencement of the leases.
[55] The Wembley Road site was purchased by Sitaba and the third defendant (Berrinba) as tenants in common in equal shares on 19 January 2018. There was no co- ownership deed executed.
Planning the Wembley Rd venture
[56] Prior to, and after, acquisition of the Wembley Road land, Mr McAvoy said that he and King & Co (usually Mark Scammells or Peter Roberts) had discussions with several potential tenants over the period from September 2017 to July 2018. King & Co also produced a leasing proposal document for provision to potential tenants.
Regardless of the reservations I have about Mr McAvoy’s evidence, I accept that
evidence. These are the usual activities one would expect in the process of trying to secure an agreement for lease on good terms with a quality tenant. Negotiations with the ultimate tenant, QLM, began in about July 2018. QLM had its own agent to negotiate to obtain a tenancy for QLM. They worked with Savills.
[57] The arrangement between QLM and Savills might appear unusual to those outside the commercial property market. Mr Stenson, the State Director for Savills, gave evidence about the practices in the market. He explained that sophisticated tenants in the commercial property market frequently brief their own agents to source premises, particularly where the tenant has specific needs which require professional assistance to meet from the market. He explained that there are two arrangements
whereby potential tenants obtain that assistance. The first is called the “tenant representation” arrangement, where the agent is appointed by the tenant formally and is paid by the tenant. The second is the “preferred agency” arrangement, where the agent ‘acts on behalf of the landlord and gets paid its commission by the landlord, but within a controlled brief.’ That arrangement is a little difficult to categorise from
an orthodox agency law perspective.
[58] As Mr Stenson explained it, the tenant chooses the preferred controlling agency that secures and filters all offers to the tenant. The tenant provides the instructions that are included in the controlled brief. In that sense the controlling agency acts on the
tenant’s instructions. However, the controlling agency is ultimately appointed as
agent for the (successful) landlord and paid by that landlord. Looking at the retainer agreement in this case[23], it appears to me that the principal difference between the
[23] Exh 5, pp 1 to 7.two arrangements is that, in the latter case, the landlord pays the tenant’s controlling
agent, not the tenant. Otherwise, Savills appeared to act as agent of the tenant.
[59] On about 16 August 2018, Mr Stenson caused a Form 6 to be prepared in relation to the Wembley Rd property and sent to King & Co. The Form 6 identified the clients as Berrinba and Sitaba, each identified care of King & Co. Mr Stenson said he
understood King & Co to be the landlords’ agent, and that he would not have
contacted the principals of King & Co directly in those circumstances. The Form 6
provided for commission of 20% plus GST of the first year’s total rent. It is
reasonable to infer that it was provided because King & Co had been successful in its bid on behalf of the venturers for the QLM tenancy. That King & Co had been successful is reflected in the fact that an informal AFL was signed a couple of weeks later. Regardless of the dispute as to whether Sitaba was obliged to pay a commission
to King & Co, there is no reason to doubt Mr Stenson’s evidence that he dealt with
King & Co and believed them to be representing the potential landlords, Sitaba and
Berrinba.[60] On 3 September 2018, an agreement for lease in informal form was signed by QLM and by Mr Scammells on behalf of Berrinba and Sitaba (the informal AFL). The terms are largely the same as in the subsequent formal deed of agreement for lease executed on 12 November 2018 (the QLM AFL), discussed below. The principal terms were rental of about $470,000 gross per annum on a 10-year lease with one five year option. Like the Southlink ventures, it required the joint venturers to construct the premises for QLM. Again, the timeframe for completion of that work was fairly tight, with practical completion required by 1 July 2019.
[61] It can be safely inferred that most of the other key matters essential to viability of the Wembley Road venture were resolved by 3 September 2018. For example, reasonably reliable building cost information must have already been assembled, along with, at least an in-principle agreement with a builder for timing of the work.
[62] The timing of the informal AFL is the most likely explanation for the failure of the principals to sign a formal document in relation to the Wembley Road venture until 7 September 2018. Like the venture documents for Southlink 10 and 20, the formal document appears to have been prepared in response to a milestone in the venture, and at a time where the shape of the project and its likely viability had become clear: see [63] below.
[63] The extent of the work done in planning the project by 7 September 2018 is reflected
in the feasibility document headed “Business Case for Building Development” dated
6 September 2018 (the September Feasibilty). The figures in the September Feasibility on the income side correspond with the figures provided for under the informal AFL and the later QLM AFL, along with timing and figures for construction cost and fitout for QLM. The September Feasibility deals with each of the remaining contentious payments. The entries relevant to those payments are underlined, below[24]:
[24]
The Wembley Rd JVA
[64] On 7 September 2018, Berrinba and Sitaba, as “Participants”, executed a Joint
Venture Agreement (the Wembley Rd JVA). It relevantly provided[25]:
[25] TB14.
(a) By the Recitals:
A. The Participants have entered into the Land Contract to purchase the Land. B.
The Participants have agreed to join together and associate themselves in a joint venture to carry out the purchase of the Land and the Project described in this Agreement.
C. The terms of the Joint Venture are set out in this Agreement.
(b) By clause 1.1, “Definitions”: Costs includes costs, charges and expenses, including those incurred in connection with advisers.
Project means:
(a) acquiring the Land; and (b) any one or more of:
(i) the development of the Land as a first class industrial estate; (ii) subdividing the Land into lots; (iii)
constructing buildings on the Land as a single parcel or as subdivided or otherwise; and
(iv)
selling the Land as subdivided lots or as a single parcel or otherwise.
Project Expenses
means all the Costs incurred, paid or payable by the with the Project, including but not limited to:
(a) all interest and other fees and charges payable to any financier in connection with the Project; (b) the Cost of preparing the Land for development and all development costs (if any), including all amounts payable under any construction contract or development agreement; (c) all Costs incurred in obtaining the Approvals, including the Costs in preparing all necessary drawings, plans and specifications, application fees or other amounts paid to any Authority; (d) all legal Costs in relation to the preparation and execution of this Agreement and all legal Costs required to give effect to the Joint Venture. (e) all commissions, fees and expenses payable in connection with the Project, including in connection with the marketing of the Project and the sale and leasing of the Land or any part of the Land or any building on the Land. …
(c) By clause 2, headed “Formation of Joint Venture”, relevantly:
2.1 Association and purpose
(k)
As and from the date of this Agreement, the Participants join together and associate themselves as an unincorporated joint venture for the purpose of:
(i) carrying out the Project; and (ii)
carrying out all other activities contemplated by this Agreement
with a view to deriving the optimum return for the Participants.
(b)
The Participants agree that it is their general intention to hold the Land for an indefinite period.
…
2.11 No partnership or agency Nothing contained or implied in this Agreement is intended to create a partnership between the Participants or, except as otherwise provided in this Agreement, establish any Participant as an agent or representative of any other Participant.
Excepts as otherwise provided in this Agreement, a Participant has no authority to bind any other Participant, or to act for, or to incur any obligation or assume any responsibility on behalf of, any other Participant or the Joint Venture.
2.12 Good faith but not as fiduciaries Each Participant agrees to act in good faith towards the other
Participantincluding:
(a)
being just and faithful in all activities and dealings with the other Participant; and
(b)
attending diligently to the conduct of all activities in relation to the Joint Venture in which the Participant is involved; and
(c)
accounting promptly for all funds, including negotiable instruments, received by it on behalf of, or relating to, the Joint Venture.
The obligation to act in good faith does not create any fiduciary rights or obligations at law between the Participants.
2.13 Joint Venture limited to stated purposes The Joint Venture is limited to the purposes set out in clause 2.1 (“Association and purpose”) and is not to be extended by implication or otherwise.
(d) By clause 3, headed “Authority to Conduct the Joint Venture”:
3.2 Decision Making of Participants
(a)
The Participants acknowledge and agree that all decisions with respect to the business and affairs of the Joint Venture and the incurrence of expenditure pursuant to the Project shall be joint decisions.
(b)
Each Participant convenants and agrees with each other Participant not to engage (whether alone or in association with others) in any activity in respect of the Project except as provided or authorised by each other Participant.
3.3 Dispute Resolution and Deadlock (Equal Participating Interests)
(a) Dispute Participants as to:
…
(vi) the making of any expenditure or incurring any obligation in excess of $50,000.00 in respect of the Joint Venture;
… (x) incurring any obligation or taking any other action with respect to the Project which could reasonably be expected to have a material effect on either party’s business or affairs or which could reasonably be considered to be out of the ordinary course of the business of the Joint Venture, and such dispute or difference remains unresolved for a period of twenty-one (21) days after on Participant has served notice on the
other Participant of the dispute or difference (“Dispute”) and:
(i) neither Participant is in default under clause 7; and
(ii) neither party is Insolvent; and
(iii) each Participant has a Participating Interest equal to 50%,
then the procedure set out in clause 3.3(b) to clause 3.3(h) shall
apply.
(e) By clause 5.1:
5.1 The Participants shall make Contributions in proportion to their Participating
Interests sufficient to carry out the Project (including the acquisition of the
Land) and to meet any Project Expenses.
(f) By clause 6.6:
6.6 Project Proceeds, Profits and Liabilities
(a) Any and all proceeds and profits from the Project and the Joint Venture will be applied in the following order: (i) payment of any GST; and
(ii) payment of any sales or leasing agent’s commission or fees;
and
(iii) repayment of amounts owing by the Joint Venture to any financier on the terms agreed with the financier; and
(iv) payment of other Project Expenses; and
(v) payment to Participants in the proportion of their Participating Interests of any balance of the proceeds and profits.
(b)
All liabilities and Costs incurred in relation to the Joint Venture (including the Project Expenses) will be borne by the Participants in proportion to their respective Participating Interests as at the date they are incurred, and are to be paid for by Contributions from the Participants.
(g) By clause 7.1:
7.1 A Participant defaults if:
(a)
it commits a material breach of any term of this Agreement and fails, within 14 days after receipt of a notice from the non-defaulting Participant requiring the defaulting Participant to rectify the breach, to rectify the breach; or
(b) it becomes Insolvent, (“Defaulting Participant”) but the Participant will cease to be in default if the default is remedied as
provided in clause 7.2.
Tax Invoice 1081: the Third Payment
[65] The QLM AFL was executed on 12 November 2018. It was in substantially the same terms as the informal AFL, though the date (subject to adjustment) for practical completion was two months later, being 31 August 2019. Just prior to the date of execution, Ms Brolan issued Tax Invoice 1081 on behalf of HPT4, dated 9 November 2018. Tax Invoice 1081 was in the following terms[26]:
[26] TB15 page 157.
There is no clean copy which does not include the red annotation “Superseded” or
the handwritten notes, which were plainly added later, after the tax invoice was
reissued. Tax Invoice 1081 was reissued on about 16 April 2019: see [87] below.[67] By contrast with the Southlink tax invoices, it is common ground that Tax Invoice 1081 was given to the Patels by Mr McAvoy in person on 9 November 2018. That is common ground, most likely because of the contemporaneous note of that event, which is one of the few such notes relating to discussions and meetings between the principals. That note appears in an email from Mrs Patel to Ms Brolan sent on 10 November 2018 at 3:23pm (a Friday)[27]:
[27] TB61, pg 508.Hi Ruth
Paul has given me invoice yest. To deposit $51,700 for commission, when we went to his house. I will deposit this amount. Paul said he is going to deposit the same amount. What happens then ? I know i paid more to purchase this land. My figure is $383,112.94. I forgot
to mention this to Paul yesrerday [sic].
Regards Madhu
[68] Notably, that email does not challenge the tax invoice on any basis relating to what it was for, or whether it was payable and on what basis. It raises, rather, a concern about the balance of contributions to the development costs. As is typical of Ms Brolan when Mrs Patel raised a matter of substance direct with her, she referred Mrs Patel to Mr McAvoy. There is no evidence of any further query from Mrs Patel.
[69] As noted above, the QLM AFL was dated 12 November 2018, though the evidence does not disclose when each party signed the document. One might reasonably infer
that it was signed by the Patels on the Friday that they went to Mr McAvoy’s home and received the tax invoice. That would explain Mrs Patel’s lack of concern in her
email in paragraph [67], above, about why HPT4 was claiming a commission calculated by reference to the QLM AFL; though, as will be seen, I find that Tax Invoice 1081 related to other work entirely.
Mr McAvoy’s property agent consultancy, King & Co, had been involved in the
negotiation of the informal AFL and the QLM AFL through Mr Mark Scammells from the start. No Form 6 was ever executed between King & Co and the joint venturers.
Finance for Wembley Rd
[71] Finance was necessary for the Wembley Rd venture. Mr McAvoy says that Mr Scammells negotiated with various banks for finance and ultimately secured finance from NAB. There is no reason to doubt that evidence. Plainly, someone had to do that work.
[72] On 11 March 2019, an offer of funding for some $8 million was made by the NAB in writing. The offer was to both venturers, Berrinba and Sitaba. The documents are detailed, as one might expect for such a large facility. They included a document headed “Property-Funding Table” (the funding table). That document provided[28]:
[28] TB69, pg 711.
[73] The funding table was signed by the Patels and Mr McAvoy. Presumably, work got underway to construct the QLM building at around that time, given the relatively short construction period.
The commissions for Wembley Rd: the Fourth and Fifth payments
[74] We now come to the King & Co and Savills tax invoices (which led to the Fourth and Fifth payments).
[75] On 11 April 2019 at 9:30am, Mr Mark Scammells sent an email to Ms Brolan (copied to Mr McAvoy), as Group Property Director of King & Co, with this short message:
‘Leasing commission invoices for the next claim as per the NAB funding table’. The
email attached a copy of the funding table in paragraph [72] above. (The “next claim”
is likely a reference to a claim for funding under the construction facilitity. The invoices likely would be necessary inclusions in a draw down claim on the construction funding to satisfy the bank of progress in the works.)
[76] The attachments also included Tax Invoice 4650 from King & Co (the Fourth Payment) which provided[29]:
[29] TB72 pg 718
[77] The attachments also included the two Savills tax invoices, each for $44,964.20 (excl. GST) (together, the Fifth Payment). The two Savills tax invoices were in the same form, subject to one difference. The common content was as follows[30]:
[30] TB72 pg 716 and 717.
[78] Both invoices were dated 31 October 2018, just prior to the execution of the QLM AFL, but one had a due date of 14 November 2018 (presumably, the expected signing date of the QLM AFL), and the other of 1 June 2019 (perhaps linked to some other expected milestone).
[79] On 11 April 2019 at 9:45am, the email, with all attachements, was forwarded by Ms
Brolan to Mr Scammells, and copied to Mr McAvoy and Mrs Patel. Ms Brolan’s
email added a CBA account payment statement for the payment. She wrote the
message[31]:[31] TB74, pg 729 and 730.As instructed by Paul McAvoy, the attached King & Co Tax Inv 4650 for their commission has been paid today-EFT receipt attached.
[80] On 11 April 2019 at 1:43 pm, Mrs Patel responded to all recipients by email, as follows:
Hi Paul and Mark
The document, Mark, you gave me states that Leasing fee is $89,388.00 but tax invoice states $89,928.40.
Can you please clarify..
Commbiz statement, i do not not understand, can Ruth or Mark help me to understand.
Mark, property – Funding table, what is consultant/professional fee we have to pay and i like
to know who we are paying and what is their job?
Mark , when you are managing the project then what is the need for consultant?
I don’t understand ‘incentive’ fee that is stated is $416,000.00. Is it we need to do something
extra in the blding?
I am sorry to ask you all these questions because I want to understand where we are spending the money
Regards Mahdu
[81] The reference in the email to the the document Mr Scammells gave Mrs Patel must be the September Feasibility. The amount for the leasing fee is the same as the figure Mrs Patel quotes: see [63] above. That cannot be a co-incidence. And it is consistent
with the terms of Mr Scammells’ response, below. Further, Mrs Patel’s reference to
the funding table must be to the NAB funding table included with the email and
signed by her in March 2019.
There were two responses to Mrs Patel’s email. The first came from Mr Scammells,
quickly, the same afternoon[32]:
[32] TB74 pg 728. 33 TB75, pg 732.
Hi Madhu
1. Leasing Fee – good pick up Madhu , you are correct , there is a minor error , it should be
Rent $446,942 x 20% = $89,388.40 as per my spreadsheet (but it has been calculated
$449,642 x 20% = $89,828.40) – I will have corrected
2. Consultant Fee – provision to enable the JV to cover some of Paul’s time for managing the
project on behalf of the JV
3. Incentive - $416k – this is just a “provision” for something we may have to provide (ie.
Works/ fitout/ rent free etc) for a tenant for T2
Thanks Madhu
[83] The second came from Ms Brolan, on 16 April 201933:
Hi Madhu
With respect to the ‘Consultant Fee for $100,000’ on the attached Funding Table, Paul told
me this morning that this relates to the fees that have already been paid HPT4 Services Pty
Ltd. No further fees will be charged by HPT4 Services Pty Ltd.
Regards
Ruth
[84] There is also no evidence of any further query or response by Mrs Patel to the explanations given by Mr Scammells and Ms Brolan about the sums she queried.
[85] At the same time, the following email was sent by Ms Brolan to Mr McAvoy[34]:
[34] TB77, pg 744.
Paul
Attached is the HPT4 invoice for $94k net for Berrinba/Sitaba.
To make it align with the funding table (2nd attachment) to claim against
Consultants/Professional Fees (as the total allocated against the Leasing Fee is taken up with
King & Co and Savills), I will change your invoice to read ‘Consulting fee for successful
lease negotiations’ unless advised otherwise.
Maybe Mark’s consulting fee paid yesterday can be claimed against ‘Project Manager’ –
even though it was a consulting fee to finalise the NAB finance.
Regards
Ruth
[86] The genesis of that email was disputed. Ms Brolan’s witness summary said that the
instruction came from Mr Scammells. Mr McAvoy gave evidence that he would have instructed Ms Brolan to make the change. Either way, he gave evidence that the
description in Tax Invoice 1081 as “commission” was a mistake by him, corrected
so that it aligned with the September Feasibility and the NAB funding table. Ms
Brolan’s recollection is consistent with (and probably reliant on) a copy of Tax
Invoice 1081, with a note that MS Projects gave the instruction. That is, frankly, more likely, because Mr Scammells appears to have been closer to the detail of the September Feasibility and the funding table on a day-to-day basis, compared to Mr McAvoy.
[87] In any event, Tax Invoice 1081 was re-issued in the following revised form[35]:
[35] TB15, pg 158.
[88] There is no evidence that the revised version was sent to Mrs Patel.
The principals fall out
[89] As noted above, the due date for practical completion of the QLM building was 31 August 2019. The construction work reached practical completion on 3 September 2019. The first hint of complaint by the Patels over the whole period of their dealings with Mr McAvoy is in an email sent, coincidentally, at 5:13pm on the very day that
practical completion was reached. It was sent from Mrs Patel’s email to Mr
Scammells in the following terms[36]:
[36] TB82 pg 766 to 767.Dear Mark,
Hope all is well. Alok has asked for some clarification of invoices sent from Savills’. I
believe the agent will is going to call you the verify that Alok has authority.
Please provide the agent authority to deal with Alok on this matter.
Regards,
Alok
Mr Scammells responded the next morning by instructing Mr Stenson to “feel free
to discuss anything with Alok Patel”.
[91] The query raised related only to the Savills tax invoices. On 12 September 2017,
Alok Patel emailed Mr Scammells seeking the joint venturers’ submission to Savills
for QLM, the King & Co Form 6 for Savills, and any other documentation. This was seemingly just one of several queries sent by Alok Patel seeking, inter alia, an
explanation of the “process/journey” for the Wembley Rd venture. It led to a plenary
response from Mr Scammells on 13 September 2019. Mr Scammells relevantly
observed[37]:[37] TB84, pg 777.…
After the site was acquired (remembering I found the site and negotiated the acquisition from
GPT ), and prior to the QLM deal there were four (4) other potential deals that I did a
consideral amount of work on (but didn’t get paid for). For each proposal, plans were drawn,
costed in detail, feasibility analysis completed, multiple meetings and presentations.
1. Enirgi – see attached
2. Truckline – see attached
3. Senegence – see attached.
4. Ligentia – see attached.
5. QLM – see attached.
After the Agreement to Lease was reached with QLM we lodged the plans for DA (the plans attached to the Agreement for Lease).
Form 6 – Alok, respectfully, we are a private business, trying to get things done. You were
actually in attendance at Manly when we signed off on the attached feasibility before the
project started , at the meeting was you, Madhu, Anand, Peter Roberts and myself. Madhu
and Anand specifically asked me for a hard copy of this feasibility and it was provided. This
feasibility clearly articulated all project costs/payments etc. Since then the project has beendelivered on time and under budget. My focus at the time was to get the deal done and get
the project started , not running around getting form 6’s signed by the JV partners, who I
have always felt were fully supportive of my work (until now).
[92] The dispute over the Savills accounts resulted in a delay in the payment of the second account. To that extent the complaint by the Patels was effective. Mr McAvoy paid
Berrinba’s share of the total liability to Savills on 26 September 2019, but the balance
was not paid at that time.[38]
[38] TB94, pg 818.[93] There followed a period of tension between the Patels and Mr McAvoy. The Patels alleged that their attempts to obtain information about the affairs of the venture were, at times, met with tense and terse responses from Mr McAvoy. However, their complaints did result in a change to the way the bank accounts for the ventures were operated, with both parties required to sign. Prior to this change, Mr McAvoy was able to operate all the accounts for all three joint ventures. There was no evidence as to whether only Mr McAvoy could unilaterally operate the accounts, or whether the Patels had equivalent rights.[39] Regardless, until the dispute in late 2019, Mr McAvoy unilaterally gave instructions for payments from the joint venture account, and the Patels did not. The change seemingly occurred in late 2019. It did not have much substantive effect on the progress of the Wembley Rd venture, as it had reached practical completion by that date.[40]
[39] Though it appears only Mr McAvoy and Ms Brolan had signing rights for the NAB construction loan for[40] TB96, pg 828.
[94] There is no evidence that the Patels were actively excluded from obtaining information about any joint venture account. It is admitted that the cheque accounts (from which payments were seemingly made) for Southlink 10 and Wembley Rd could have been accessed by the Patels, if they chose to do so at any time.[41]
[41] Exh. 2.[95] After much delay, the remainder of the second Savills tax invoice was paid by the joint venturers in October 2020.
[96] The principals ultimately severed their joint affairs on the basis, broadly, that the Patels took full ownership of the Wembley Rd venture and Mr McAvoy took full ownership of the Southlink ventures.
THE PRINCIPAL WITNESSES
General observations
[97] The events canvassed at trial occurred over a period reaching back to 2014. Even the most recent contested events in relation to the Wembley Rd payments occurred some 6 years ago. Further, all three ventures were conducted on the most informal basis as between the principals, regardless of the strict requirements of the venture agreements. No records of meetings and decisions were kept. The principal witnesses were involved, over that time, in three large developments which shared a similar pattern, with the potential for confused recollections between ventures.
[98] In those circumstances, evidence given by witnesses which is not based on, or assisted by, contemporaneous documents is necessarily being recalled years afterwards and is inevitably influenced by the dispute, which emerged in late 2019
and has been the parties’ focus ever since. Even the best effort to recall events
accurately by a careful and diligent witness would be likely to be affected by reconstruction, confusion in relation to similar events in different projects, important details forgotten, and current interests in the litigation. It would have to be treated with care. As will be seen, neither the Patels nor Mr McAvoy are careful and diligent witnesses.
[99] As is frequently the case, the contemporaneous documents prepared at the time of the events in question provide the most reliable assistance to what occurred and when, and provide a useful, sometimes compelling, context against which contentious recollections can be assessed.
The Patels
Mrs Patel
[100] Mrs Patel was a very poor witness.
First, she consistently failed to answer questions directly in cross examination, preferring to give unresponsive answers which advanced her version. When challenged on evidence which suggested she was involved in considering payments
made from time to time, her response – which was to the effect that she and her husband left everything to Mr McAvoy and trusted him entirely – had a mantra-like
quality.
Second, Mrs Patel often presented as if she was a slow and dithery older person. Sometimes she had exhibited difficulty in following even the simplest requests from Mr Jones KC for the defendants to turn up particular pages of the trial bundle, or look at particular parts of a document. She seemed to have difficulty understanding even clear and simple questions. She is an educated person, who is still practising as a general practitioner in a medical practice. She has had considerable commercial experience. Her email correspondence is direct, and clear and, at times, quite incisive. There were also flashes of a more hardheaded and focussed person in the course of her evidence. In my opinion, her persona in the witness box was disingenuous and deliberately evasive.
Third, Mrs Patel’s evidence consistently exaggerated the nature of her dependence
on, and fear of Mr McAvoy, in a transparently self-serving manner. The clearest example was her statement that there was an “aura of fear”.[42] She conceded,
[42] Exh. 3 para. 70 and TS 1-117-118.eventually, that there was no basis for any such aura even, on her evidence, until a telephone conversation in September 2019. However, her witness statement plainly
communicated that this “aura of fear” surrounded Mr McAvoy through the whole of
their dealings. That part of her witness statement was intended to paint a false picture
of her relations with Mr McAvoy.
Fourth, Mrs Patel’s evidence on the key issue of her awareness and understanding
of the September Feasibility and the NAB funding table was inconsistent with the contemporaneous documents. She did not deal with either document in her witness summary, despite their centrality to the contention that the Patels were not told about the Wembley Rd payments. Her performance, when cross examined about her knowledge of the September Feasibility, was so evasive and un-cooperative as to be completely unconvincing, and and left me suspicious that she was deliberately concealing her knowledge of the document.[43] That suspicion tends to be confirmed by the exchanges relating to the King & Co invoice in paragraphs [79] to [81] above.
[43] TS1-88.Mrs Patel’s email supports the following inferences:
(a)
As at 11 April 2019, Mrs Patel had ready access to the September Feasibility;
(b)
She understood the September Feasibility sufficiently that she could quickly identify (within hours) that the King & Co tax invoice related to a line item with the sum $89,338;
(c)
She must have understood the relevant line item to be the Agent leasing fee item, as it mentioned King & Co;
(d)
Having observed that, she had no concerns other than the apparent overcharging by the princely sum of $540; and
(e)
She either knew of the prospect of King & Co charging a leasing fee in advance, or was completely unconcerned about that matter when it came to her attention.
[105] Her evidence about the funding table was also not credible.[44] It was difficult to
[44] TS1-97 to 101; TS1-137 to 139.discern exactly what Mrs Patel’s final position was on the proposition that she
received the funding table and had it explained. She first denied she had received it, then seemed to think better of it enough to say it was given to the Patels at a meeting,
but not explained. When challenged on the “Consultant/professional fees” line item
in the Funding Tabley, she said Mr McAvoy had said that line item and the line item for pre-commited leasing fee, were included to deceive the bank, and were designed to put create some spare funding to meet unexpected costs.[45] That evidence was
[45] TS1-99 to 100.
highly improbable, at least as to the liaiblities for the agents’ fees (whether
recoverable, or not) because those fees were known and had been quantified in September Feasibility months earlier, and Mr McAvoy intended them to be paid, as occurred.
[175] In addition, I have found that Mr McAvoy disclosed the prospect of the charge for the Southlink 20 project to Mr Patel in the Johnson Road discussion.
[176] I find that the Patels were informed about the First Payment and, in fact, approved it, such approval being demonstrated by their failure to challenge it and their payment of the capital contributions necessary to meet Tax Invoice 990.
[177] I would add that even if the Patels subjectively did not know and approve of the First Payment because they chose not to read or consider documents provided to them, or did not take an interest, I do not think that would avail them. Questions of disclosure and approval need to be considered objectively, not least because of the obligation under clause 2.12(b) of the Southlink 20 UHA. It might be that Mrs Patel did not
“take an interest” around this time. But if the First Payment was disclosed and the
Patels acted in a manner which communicated approval, they cannot avoid that consequence by later saying they paid no attention to what they were doing.
Second, the plaintiffs contend that the First Payment was in breach of the Southlink 20 UHA because it was not dealt with in accordance with the formal mechanisms for project management in that agreement. I have already found that they cannot be heard to rely on those formal arrangements, given the convention adopted by the parties. It would be unconscionable to try to do so after having stood by and accepted the
benefit of Mr McAvoy’s efforts in the circumstances, as I have found them.
Third, the plaintiffs submit that the First Payment was a breach of the express term of good faith in clause 2.12 of the Southlink 20 UHA. I disagree:
(a) As I find the facts, Mr McAvoy’s work (done seemingly on behalf of HPT4) was fundamental to the success of the Southlink 20 venture. Without the successful negotiation of the Chep AFL, the venture could not have
succeeded as it did. Not only did that work “not entail unreasonable interference with the enjoyment of the benefit conferred” by the express
terms, but it was also one of the principal events which facilitated the benefit
conferred by the express terms;
(b) Whatever might have been the position in respect of good faith, if the Patels had not been aware of the First Payment and approved of it, as I have found, it is impossible to characterise the making of that payment as being in breach of that obligation, where they did. [180] I observe that even if the Patels had not known of and approved the First Payment,
it would be ironic if they took the benefit of Mr McAvoy’s enterprise and then sought
to deny a reasonable payment for that work once the venture had been successfully
completed. It is hard to see how this is consistent with Sagar’s contractual duty to act
in good faith towards HPT4.
Fourth, the plaintiffs submit that the First Payment involved a breach of fiduciary duty. I disagree. I refer to the analysis in paragraphs [135] to [144] above. That
analysis reveals that the plaintiffs’ submissions do not sustain the broad fiduciary
duty they contend for, and such a duty would be inconsistent with the express
provisions of the Southlink 20 UHA. The plaintiffs’ real case is one of a duty to
account for transactions. There is no basis to conclude that the defendants failed in
that duty.
Fifth, the plaintiffs submit that HPT4 did not hold the relevant real estate agent’s
licence, nor was there a Form 6 appointment document under the Property Occupations Act 2014 (Qld) in place. Both factual propositions are correct. The plaintiffs do not persuasively explain, however, why this entitles the plaintiffs to judgment. I agree with the submissions of Mr Jones KC for the defendants in answer
to that issue: see 182 to 184 of the defendants’ trial submissions.
[183] For those reasons, I find that the plaintiffs have not established an entitlement to damages or equitable compensation arising out of the First Payment. The claim in that regard is dismissed.
It is therefore unnecessary to consider the defendants’ arguments as to reflective loss
and causation.
Analysis of Second Payment
[185] In my view, the evidence strongly supports the conclusion that Mrs Patel knew of and agreed in that Second Payment. I agree with the submissions made by the defendants in their analysis of the circumstances of the Second Payment, as follows (footnotes omitted)[57]:
[57] Defendant’s Closing Submissions at paras. 94 to 99.
94.
There was nothing secret about that invoice. It was delivered together with a request for a very substantial sum of money. It was brought into dazzling daylight by that circumstance.
95. The expense was referred to in the attached “updated” cashflow forecast for the date 24 July 2017.
96. Later that evening, by TB-47, Dr Madhu Patel stated “Anand will deposit the cheque tomorrow. I have already written the cheque”.
97. However, reflecting her interest in the detail of the financial affairs, and her ability to ask questions and receive prompt responses, Dr Madhu Patel later that night queried Inv 1007 by TB-48. Ms Brolan replied very early the same morning with the very clear explanation:
Tax Inv No 1007 is commission owing to Paul McAvoy for the leasing of the property to FPS Pty Ltd.
98. As it is clear from the evidence, despite the Patels’ false protestations to the contrary, that they
in fact had no difficulties with the amounts being charged and paid by HPT 4 (as there was not in fact any plan to save up complaints until later and no complaints were made), it follows that the Patels must have understood and accepted that explanation.
99. TB-11 is the bank statement showing the deposit was made on 25 July 2017, necessarily after
Ms Brolan’s early morning explanation in response to Dr Madhu Patel’s query. It is not
plausible that the $320,000 would have been deposited without complaint upon receipt of that
explanation if the Patels had a difficulty with the payment.
Mrs Patel’s evidence at trial about the email exchange about the Second Payment is
also relevant. When asked about the clear explanation of the Second Payment in the
email at paragraph 97 of the defendants’ submissions above, she said she did not
understand that the Second Payment was for finding FPS at the time, because there was another invoice for JLL, and she could not understand why. If that was so, why not ask? Further, Mrs Patel also gave inconsistent evidence about her discussions (or lack thereof) with Mr McAvoy about the Second Payment.[58] I accept it is likely that she was aware of the JLL invoice at the time; but either Mrs Patel understood why the two payments were made or she was entirely unconcerned about the matter, being content for the Second Payment to be made because of the very beneficial result Mr McAvoy had participated in bringing about by securing the FPS AFL.
[58] Compare TS1-87.32 and Mrs Patel’s WSD at para. 97
[187] That Mrs Patel knew of and approved the Second Payment provides an answer to the
many of the plaintiffs’ submissions. However, there are some further points to be
considered.
First, there is no suggestion that Mr McAvoy failed in his duty to provide an accurate account of all payments made.
Second, the plaintiffs allege that the Second Payment was made in breach of the provisions for management in the Southlink 10 deed. I disagree:
(a) The provisions to that effect were minimal in the Southlink 10 Deed; (b) To the extent reliance is placed on the lack of compliance with formalities, the conventional estoppel provides an answer; and (c) To the extent reliance is placed on the substantive need for approval, approval had been given, at least impliedly.
Third, the plaintiffs contend that the Second Payment was in breach of fiduciary duty, or of equivalent duties implied into the Southlink 10 deed, and that there was
insufficient disclosure to meet equity’s requirements. There are a number of
difficulties with that argument.
[191] The first issue which arises is that the suggested implication of a term imposing fiduciary obligations. No proper factual basis was pleaded for such an implication, and none could be made. It was not necessary to imply such a term to give business efficacy to the Southlink 10 deed.
[192] The second issue which arises is whether the circumstances were such as to give rise to fiduciary obligations as between the parties, corporate and personal. The fiduciary obligations are pleaded as arising from the joint enterprise contemplated by the
Southlink 10 Deed and Mr McAvoy’s role in operating the joint account.
[193] I do not accept that the parties to the Southlink 10 venture owed each other fiduciary duties in respect of their conduct in relation to the Southlink 10 venture:
(a)
There is nothing about the relationship between the parties which of itself automatically attracts fiduciary obligations. Rather, the parties are arms- length commercial parties engaged in carrying out a development; and
(b)
Further, the principals were carrying out, at the same time, an almost identical project (Southlink 20) in which they expressly excluded fiduciary duties. Why would equity intervene in the Southlink 10 project, in those circumstances?
[194] And as I have explained above, if there was no fiduciary obligation between the parties, inter se, then it is difficult to see how fiduciary obligations arose from Mr
McAvoy’s operation of the Southlink 10 venture account.
[195] There is also a difficulty in the identification of the party who owed the fiduciary duty. The premise of the case as pleaded is that the fiduciary duty was owed by PTMS to Sagar. I cannot see any basis to conclude that it was PTMS which did the acts complained of. They were done by Mr McAvoy personally, and by HPT4. The pleading seeks, alternatively, to make McAvoy and HPT4 liable as being knowingly
concerned in PTMS’s breaches. That does not assist if PTMS did not breach its duty.
[196] However, let it be assumed that fiduciary duties did arise between Mr McAvoy and Mr Patel (or their corporate emanations) which bound them in their acts in relation
to the Southlink 10 venture. The plaintiffs’ principal allegation was that by
facilitating HPT4 receiving the commission, Mr McAvoy has breached the fiduciary duty not to receive a secret benefit from his position. However, the result of my findings is that there was nothing secret about it.
[197] The principles applicable to determining if fully informed consent has been obtained for a benefit received by a fiduciary are sufficiently articulated at paragraphs 127 to
132 of the plaintiffs’ trial submissions. I accept the law as articulated there. Applying
those principles, whatever the scope of disclosure required by Mr McAvoy to Mr Patel or Sagar of a benefit received, that scope of disclosure was met in the circumstances as I have found them to be.
[198] The Patels knew:
(a) Exactly what the Second Payment related to, not least because they signed the FPS AFL about the same time; (b) Understood the basis upon which the Second Payment was calculated; (c) Knew that the FPS AFL was the key to a successful development; (d) Knew that they had done nothing to bring about that result and that Mr McAvoy had the skills and contacts to do so; and (e) Mrs Patel was aware of the related JLL claim for commission at the time, and either understood the reason for that claim or deliberately decided not to inquire further, despite it being open to do so, because of the advantages flowing from the FPS AFL. [199] Given those considerations, I do not accept that Mr McAvoy had a duty to require the Patels to obtain independent advice to inform their consideration. No such obligation was suggested by the plaintiffs, as I understood it. But in any event, in the circumstances as I have found them, the Patels were in a good position to assess whether to accept the Second Payment from their experience in the industry.
[200] Nor do I consider that full disclosure required Mr McAvoy to disclose the requirements for formal appointment as an agent were not met in respect of HPT4. The Patels had ample experience in the commercial and industrial leasing field. They knew of those formal requirements. To permit them to rely on lack of disclosure of a matter they well understood would itself be unconscionable.
[201] It can be accepted that Mr McAvoy probably did not think he had to disclose the Second Payment, nor that he had a duty to do so. But in the circumstances, including the knowledge and experience of the Patels, the facts as they occurred resulted in sufficient disclosure.
[202] If there is any caveat on this conclusion, it is the lack of evidence of detailed disclosure of the circumstances leading to the making of two payments; one to HPT4, and the other to JLL. Mr McAvoy gave evidence that the basis of the two payments arose out of the practice in the commercial leasing industry for commissions to be
paid both to the owner/landlord’s agent, and an agent appointed as a tenant’s agent
for the successful tenant. I accept such arrangements are common in the industry (and see the evidence of Mr Stenson [57]to [59] above). Commission on standard industry rates for two agents would have been more than the total commission paid to HPT4 and JLL, though the total was more than just one commission.
[203] It is arguable that, if HPT4 or Mr McAvoy owed a fiduciary duty, fully informed consent would have required Mr McAvoy to explain the matters in the previous paragraph to the Patels. It could therefore be open on that analysis to conclude that HPT4 permitted its duty to the Sagar to come into conflict with its interest in recovering Tax Invoice 1007 and did not obtain the fully informed consent of Sagar to that conflict.
[204] However, I do not consider that that would give rise to a remedy to Sagar, in any event. Each of Mr and Mrs Patel articulated their complaint from time to time that the payments which they challenged were disputed because they had not been invited properly to give their consent to the payment. They did not say, nor was it pleaded, that they would not have consented to the payments, if asked. Sagar does not seek to set aside the transaction with HPT4. Rather it seeks equitable compensation.
[205] The difficulty with this claim is that if the Patels had been invited to consider the Southlink 10 payment, even with the further information which arguably was called for, I find that they would have consented to the payment. This conclusion does not arise just from their evidence that their complaint about the payments was a lack of consultation. It also arises from matters of context (and these observations apply equally to the Southlink 20 payment). They are:
(a)
The payments were related to securing the AFL in each case, which delivered a very substantial benefit to both ventures;
(b)
The payments were modest in the scheme of the costs and likely profits in each venture;
(c)
The Patels had done nothing to contribute to that outcome while, to their knowledge, Mr McAvoy had done so; and
(d) The Patels undoubtedly saw their self interest in leaving matters in Mr McAvoy’s hands for day-to-day operations, and they would have been keen
to encourage him to continue to support the ventures with his own efforts.
[206] Whatever the scope of causation as an element of establishing an entitlement to equitable compensation, it would not be made out on the above facts. Further, in the circumstances I have described, equity would be disinclined to assist the Patels where their own conduct in challenging the payments ex post facto, after all the benefits
from Mr McAvoy’s efforts had been received and banked by them, was arguably
unconscientious.
Conclusion
[207] The plaintiffs’ claims in respect of the Soutlink 20 and Southlink 10 payments fail.
THE WEMBLEY STREET PAYMENTS
The September feasibility and the NAB funding table
[208] There was a good deal of attention paid at trial to communications passing between the parties at around the time of the making of the three Wembley Road payments.
However, in my view, the plaintiffs’ claims in respect of these payments must be
considered by focussing first on the September Feasibility.
[209] As at early September 2018, the Wembley Road venture had been developed to the point where, subject to successful performance of the obligations under the informal AFL by both parties, it presented as a profitable venture.
[210] The version of the September Feasibility, tendered by consent, is dated 7 September 2018. It is highly unlikely that this was the only version of this document produced, with earlier versions likely being created as data to populate the fields that came to hand. In any event, a version dated 7 September 2018 was produced. The question is whether and to what extent it was provided and explained to the Patels.
[211] Mr McAvoy says this document was explained in a meeting with the Patels.[59] Mrs Patel did not deal with the suggested meeting in her witness summary and said in cross examination that she did not remember it.[60] Mr Patel recalled the document, but said it was not discussed.[61]
[59] Mr Mavoy’s witness summary at paras 62 to 64 and TS3-76 to 77.[60] TS1-88.
[61] TS2-76.[212] I find that a meeting did occur on or before 7 September 2018 at which the September Feasibility was discussed with the Patels. That conclusion is compelling in the circumstances where:
(a)
The venture had reached the stage where it was ready to go in the form contemplated by the informal AFL, and required a final decision by the venturers to undertake the venture; and
(b)
The venture involved very considerable equity and debt funding. It is highly improbable that the Patels would undertake such obligations without understanding the venture and level of commitment required. This conclusion is reinforced by the fact that Mr McAvoy did need the Patels to be involved if the Wembley Road venture was to be successfully carried out, not least because they owned the site.
I found Mrs Patel’s evidence about this meeting to be as evasive and as unpersuasive
as the rest of her evidence. I disregard Mr Patel’s evidence that the document was
not discussed, for reasons I have already given as to his general reliability, plus the
inherent improbability of that evidence.[214] Of course, that does not mean that the document was discussed in detail and every
line item analysed. I am not persuaded just by Mr McAvoy’s direct evidence that he
specifically discussed the consultancy fee. So, what was the extent of the discussion?
[215] It is difficult to reconstruct that with confidence, years later. However, what is arguably more important than trying to infer the content of any conversation is the text of the September Feasibility. I make the following findings in that regard:
(a)
First, by the time of the September meeting, it must already have been decided by Mr McAvoy that the price of the informal AFL would likely be the commissions to be charged by King & Co and Savills. So much is clear from the second two underlined line items (see [63] above);
(b)
Second, the King & Co and Savills commissions were clearly identified as such on the September Feasibility. A person with the experience of the Patels in commercial leasing and with their familiarity with the overall
venture would have understood that those fees were agent’s commission
fees simply by reading the document; and
(c) Third, the Patels would have expected that a commission would be payable to at least one agent for securing the informal AFL, and there is an explanation for the second (Savills) commission shown in the document which, while brief, explains why it is payable. [216] I also find that the September Feasibility was given to the Patels and discussed with
them. The Patels were generally content to leave the ventures in Mr McAvoy’s
hands, as he was producing successful and valuable ventures. This confidence was probably at its peak in September 2018 when the Southlink ventures were going to be successfully completed. Further, it is highly likely that Mr McAvoy kept the Patels informed from time to time of the development of the Wembley Road venture, not least because he strikes me as a person who would enjoy informing others of his success. So, by September 2018, the Patels likely had an overview of the venture. Most likely, the discussion on or about 7 September 2018 involved an initial summary of the venture and then questions, if any, from the Patels. That might or might not have involved more explanation of the commission items.
[217] However, even if that was the extent of the discussion, I do not think it assists the Patels. The commissions were disclosed, their purpose evident on the face of the document in the context of the events known to the Patels at the time. The September Feasibility was not a difficult document to understand for experienced business people. If the Patels chose not to inquire further, or at all, they cannot rely on that years later to allege that the costs were not disclosed to them, nor that they did not approve them by accepting the September Feasibility and deciding to go ahead with the venture. The plaintiffs submitted that the document did not support such a reading because the estimated expenditure related to the entire Wembley Road venture, rather than to just the QLM tenancy.[62] I disagree. The document is quite clear that each of the two commissions relates to the QLM tenancy.
[62] Plaintiffs’ trial submissions at para. 237[218] That leaves the Third Payment. There was a good deal of confusion about the way this line item was claimed by Mr McAvoy, all of which was his fault. However, what was discussed about this line item, if anything?
[219] Mr McAvoy said that he specifically told the Patels that he proposed charging a consultancy fee. In evidence he said he calculated this fee as 2 per cent of the building costs. Mr McAvoy also said that he told Mrs Patel what the fee was for at a meeting at her kitchen table. This was a fee for his own time. I would hesitate to accept such recollections were accurate, except that it is consistent in my view with the objective circumstances:
(a)
First, I find Mr McAvoy was indeed annoyed at how much of his time went into managing the Southlink 10 and 20 projects, to the benefit of the Patels. His evidence on this point, at least, struck me as accurate. It is likely that he was quite determined to receive some such payment for Wembley Road, and that he would want to make that clear to the Patels; and
(b)
Second, the September Feasibility itself discloses that the payment is a fee for a project director separate from the project management for the project. So much is evident on the face of the document. By that time, the Patels knew that professional project management of day-to-day operations was carried out by Mr Scammells. (No project of this type could operate without
it.) The document disclosed a “Project Director”, in addition to the the
project manager. This objectively communicated an additional role.
[220] Bearing those matters in mind, although it is not a matter free from doubt, I find on the balance of probabilities that Mr McAvoy said something to the effect that the Project Director fee was an additional fee for his own time and effort at the September meeting. I am not persuaded however that he told the Patels how he calculated the sum. That is a detailed recollection which seems unlikely to be reliable and, further, the 2 per cent figure does not tally with any combination of the construction cost figures in the September Feasibility. It was likely a round figure Mr McAvoy thought fair for his likely effort, given his experiences with Southlink 10 and 20. I am not persuaded he told the Patels how the figure was calculated.
[221] It is convenient at this point to deal with the NAB funding table, though it was not executed until March 2019. The content of the NAB funding table is relevant. The
line item ‘Consultants/Professional Fees’ correlates in amount to the Third Payment.
The line item ‘Pre-Committed Leasing Fee’ correlates in amount to the total of the
King & Co and Savills payments. The NAB funding table was executed by the Patels, by which they acknowledged to the Bank that the information was accurate and not misleading. That is not an acknowledgement to the defendants, of course, but it does reflect that it was an important document.
[222] The Patels’ evidence in chief did not deal with the NAB funding table. In cross
examination, and again in re-examination, however, Mrs Patel accepted that she was provided with the NAB funding table at a meeting at her home with Mr McAvoy and Mr Scammells. Her evidence about this meeting was the nadir of her performance in the witness box: see paragraph [105] above.
[223] What I can conclude is that the NAB funding table was provided to the Patels and explained to them. I also think it likely that if Mrs Patel was in any doubt as to the line items relating to the Third to Fifth Payments, she would have queried them (as she impliedly admitted she did, though the balance of her evidence about that was nonsense).
[224] Based on the above, I conclude that the Patels were well aware in September 2018 what the three payments in dispute were for, and raised no objection to either, even if they did not actively concur. Further, Mrs Patel was reminded of those matters by the NAB funding table and again raised no objection. Given the circumstances in which the September Feasibility was provided to the Patels, the inference that they approved the payments identified in that feasibility by their proceeding with the venture is overwhelming, even if a formal statement to that effect was not made.
[225] Given those findings, what then is the explanation for the mess made by Mr McAvoy of claiming the Third Payment, and the debates about the Fourth and Fifth Payments?
The plaintiffs make extensive submissions attacking the defendants’ case arising out
of those circumstances. The answer, in my view, is simple. Neither Mr McAvoy nor Mrs Patel paid sufficient attention to the arrangements evidenced in the documents they signed; a characteristic common of both Mr McAvoy and Mrs Patel throughout their commercial relationship. I explain this further, next.
The Third Payment
[226] I have found that the Third Payment was disclosed to the Patels on at least two occasions, and that on at least one occasion Mr McAvoy told Mrs Patel what the amount was for. I now turn to consider the submissions of the plaintiffs in the light of those findings. I can do so relatively briefly (thankfully).
[227] The plaintiffs placed emphasis on the evidence showing that Mr McAvoy, by HPT4, initially issued a tax invoice relevant to the consulting sum as a commission, and then it was re-issued as a consulting fee. They submit, ultimately, that these exchanges support the conclusion that the entire notion of a consulting fee arose in about April 2019. I reject that submission. It is inconsistent with the documents and inferences which flow from them, explained above. In my view, the issue of the tax invoice as a commission was, as Mr McAvoy said, a mistake. The explanation for the later correspondence lies in the failure of Mr McAvoy and Mrs Patel to have regard to the earlier documents. Notably, Mr Scammells, whose role as project manager would have required closer attention to the detail, was well aware of the
nature of the provision in the feasibility and the funding table for Mr McAvoy’s time.
There is no basis to imagine his contemporaneous observation about that is incorrect: see paragraph [86] above.
[228] The plaintiffs submitted that the Third Payment was made in breach of the JVA because it was made without their agreement. I have found that the payment and its purpose was disclosed to the Patels and that they did not raise any objection to it in September 2019. Rather, they committed to the Wembley Road venture and took the
benefit of Mr McAvoy’s efforts. To the extent that the plaintiffs submit that,
notwithstanding that, the payment was not authorised because it was not approved by the method specified in the JVA, I reject that submission on the basis that, as with the other ventures, the Patels and Mr McAvoy operated on the conventional basis that Mr McAvoy would operate the ventures with reporting from time to time to the Patels.
[229] The plaintiffs submitted that the Third Payment was made in reach of the limited fiduciary duty owed by Berrinba in operation of the bank account of the venture. However, that duty, whatever its scope, cannot rise above its source. That source was the authority of Mr McAvoy to charge the consulting fee. The only complaint of the plaintiffs was that that fee was not disclosed to them. As I have found, it was disclosed quite clearly in September 2019. And of course, substantive fiduciary obligations were expressly excluded under the JVA.
[230] There remains one issue to consider. The plaintiffs contend that the defendants disclosed no documents and adduced no evidence which proved the work done and the rate charged to sustain the entitlement to the consulting fee, even if it had been disclosed to the plaintiffs. However, the plaintiffs did not plead that if the fee was a
consultancy fee for Mr McAvoy’s personal efforts in carrying out the Wembley Road
venture, that he had not earned that fee. The plaintiffs’ case was that the payment
was not disclosed to the Patels or authorised by them. No issue arose on the pleadings
that Mr McAvoy had not done the work contemplated by the consultancy fee.
In any event, one wonders what the plaintiffs’ prospects would have been. The
uncontentious evidence is that Wembley Road was brought to a successful result, and that Mr McAvoy was involved in carrying out that venture. Given the nature of the consultancy fee (which appears to have been a single sum for all and any personal effort he made), it is strongly arguable that he was entitled to the fee in those circumstances. Perhaps different characterisations might have been open, but all that
goes to demonstrate is the importance of the the plaintiffs’ pleading any basis they
had to contend that there was no entitlement to the fee.
[232] These considerations provide an answer to any submission that the payment of the fee was a breach of some good faith obligation.
The Fourth and Fifth payments
[233] I have found that the Fourth and Fifth payments were disclosed to the Patels in circumstances which clearly communicated to the Patels the nature of the payments and to whom they were to be paid in the September Feasibility. Like the Third Payment, the subsequent confusion and conflict over this the Fourth and Fifth payments is explicable by the failure of Mrs Patel to reflect on the contents of the September Feasibility and fairly consider what had been disclosed by that document. That situation was made worse by the confusion sowed by Mr McAvoy in wrongly characterising his claim to the Third Payment. The situation was made much worse
by the intervention of the Patels’ son, who had no knowledge of the background to
the ventures.
[234] However, none of those later events provide a basis to conclude that the Fourth and Fifth payments were not disclosed in circumstances in which the Patels must be taken to have approved them.
[235] The comments made as to any lack of compliance with the formal approval processes in the JVA apply equally to these payments. Similarly, if the payments had been approved, it could not have been a breach of any fiduciary obligation attached to operation of the bank accounts to pay them.
[236] The plaintiffs also contended that there was no Form 6 signed for Savills and that the relevant plaintiff never had a legal liability to pay Savills for its work. However, the submission arising from those contentions was not clearly articulated. The submission might be that the failure to disclose that lack of legal liability to Savills meant that the commission had not been properly disclosed to the Patels. Alternatively, the submission might be that it was a breach of the JVA to pay out venture funds where no legal liability arose.
[237] Whatever might be intended, I do not consider those matters to provide any assistance to the plaintiffs. The venture was a commercial one. I accept the evidence of Mr McAvoy and Mr Stenson that it is common for potential tenants to retain agents who act for the tenants, though require the successful landlord to pay the
tenant’s agent as a condition of any resulting AFL. I also accept that that can
frequently involve the payment of two commissions: one to the landlord’s agent, and one to tenant’s agent. There was a suggestion in cross examination that Mr McAvoy
had not tried to negotiate with Savills, or indeed King & Co, as to the amount of commission. But the plaintiffs did not run a case that the amounts were excessive or inconsistent with market rates. Further, the argument meets the practical impediment that Mr McAvoy had no particular incentive to pay Savills more than necessary. Rather the contrary is true, given his participation in the venture as an owner.
[238] To the extent the plainitffs contend otherwise, in my view, it was a reasonable commercial decision by Mr McAvoy to accept the liability to Savills as a condition of obtaining the benefit of the QLM AFL and to include the payment to Savills as a commercial liability, which would have to be met if the venture was to proceed in accordance with the September feasibility, even if there was no enforceable legal liability. It cannot be said, in those circumstances, that it was any breach of any obligation of good faith to incur and pay that amount.
[239] Further, as to whether Mr McAvoy explained in detail why the two commissions were payable, I make this observation. I am not persuaded on the whole of the evidence that he did not. Nor am I persuaded that he did. I do not think any positive finding either way can be made on the evidence. However, to the extent the plaintiff relies on such a finding, it has failed.
Conclusion
The plaintiffs’ claims in respect of the Third to Fifth Payments fail.
between the two Patels.
claim, in that regard.
all creatures of the persons behind them, and I sometimes refer to the Patels and Mr McAvoy as the
participants in the ventures, though technically that is not the case.
version, as it contains entries recording payments on 28 February and 10 March 2017. There is no evidence as
to how those entries came to be added, though nothing seems to turn on that.
TB57, p. 502.
Wembley Rd: see TB87, pg 786.
questions, sought to “make a statement”. See TS2-42.2.1
comment in TS3-78.40.
does not do so.
Agreed Statement of Admitted Facts (Exh. 2), which are limited to admissions that the Patels did not do any relevant work on the ventures, with no admission that they were content with that arrangement. I find they were.
but no explanation for that was given by either party.
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