Sanv Enterprises Pty Ltd v Filippou Management Pty Ltd
[2012] VCC 1016
•30 July 2012
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE | Revised Not Restricted |
CIVIL DIVISION
DAMAGES AND COMPENSATION
COMMERCIAL – EXPEDITED DIVISION
Case No. CI-10-02272
| SANV ENTERPRISES PTY LTD (ACN 109 721 842) | First Plaintiff |
| VIJ ENTERPRISES PTY LTD (ACN 125 232 797) | Second Plaintiff |
| v | |
| FILIPPOU MANAGEMENT PTY LTD (ACN 120 880 604) | First Defendant |
| LONG PROPERTY PTY LTD (ACN 106 176 069) | Second Defendant |
| CON VATMANIDIS (trading as "VATMANIDIS LAWYERS") | Third Defendant |
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JUDGE: | HIS HONOUR JUDGE McINERNEY | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 17-21 October, 28-30 November, 1-2 December 2011 and 21 February 2012 | |
DATE OF JUDGMENT: | 30 July 2012 | |
CASE MAY BE CITED AS: | Sanv Enterprises Pty Ltd & Anor v Filippou Management Pty Ltd & Ors | |
| MEDIUM NEUTRAL CITATION: | [2012] VCC 1016 | |
REASONS FOR JUDGMENT
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CATCHWORDS – Sale of property – property sold subject to agreement to lease – non-fulfilment of special condition – classification of special condition – whether basic or contingent condition – entitlement to terminate – entitlement to recover deposit – whether waiver of contractual obligation – whether unconscionable to terminate in circumstances – amendment of pleadings – agent’s duty regarding release of deposits – vendor’
LEGISLATION CITED – Transfer of Land Act 1958 – Liquor Control Reform Act 1999 – Penalty Interest Rates Act 1983 – Supreme Court Act 1986 – Sale of Land Act 1962 – Estate Agents Act 1980 – Wrongs Act 1958 – Fair Trading Act 1999
CASES CITED – Carr v Finance Corp of Australia Ltd (No 1) (1981) 147 CLR 246 – Stockdale v Alesios [1999] 3 VR 169 – Kuek v Wellens [2000] VSC 326 – Eastman v Director of Public Prosecutions (ACT) & Ors [2003] HCA 28; Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175; Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41; Nocton v Lord Ashburton [1914] AC 932; Dawson, Re; Union Fidelity Trustee Co Ltd v Perpetual Trustee Co Ltd [1966] 2 NSWLR 211; Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr M I Ravech | F C Law Pty Ltd |
| For the First Defendant | Mr R E Cook | Belleli King & Associates |
| For the Second Defendant | Mr A T Strahan | DLA Piper |
| For the Third Defendant | Mr C G Juebner | Obst Legal |
HIS HONOUR:
1 In this matter, the plaintiffs seek recovery of deposits and other redress, in regard to contracts to purchase property entered into on 2 June 2008 with Filippou Management Pty Ltd, the first defendant (hereinafter referred to as “the defendant”).
2 The properties purchased were located at 2 Queen Street, Melbourne. The background to such development was that Mr Kalothihos, a director of the defendant, purchased the land in 1999 and designed a twelve-floor office tower which he joint ventured with the Macquarie Group. As part of such arrangement, he kept the downstairs units to sell as commercial outlets. There were nine lots for sale and they were given to Long Property Pty Ltd, Estate Agents, the second defendant (hereinafter referred to as “the agent”), to market, albeit not an exclusive agency.
3 The two plaintiff companies were controlled by Mr Arun Vij and his son. Mr Vij had been a convenience-shop operator in Bourke Street, Melbourne and was keen to invest in property. The purpose, he told the Court, of buying these properties was to invest his savings into commercial outlets, which would be tenanted and the fit-outs paid for by the respective tenants.
4 The contracts entered into on 2 June 2008 were as between the defendant and the first plaintiff as to Lots 4 and 6, and the second plaintiff as to Lot 5.
5 Pursuant to such contracts, deposits were paid to the agent totalling $205,000, being payment on 18 June 2008 of $30,000 and on 1 July 2008 of $175,000. Each of the contracts and their respective terms are located in the Court Books (hereinafter referred to as “CB”) and are respectively exhibited as Exhibit A,[1] B[2] and C.[3]
[1]CB 881
[2]CB 794
[3]CB 708
6 Subsequently, on 4 June 2009, in regard to Lots 4 and 5, the solicitors on behalf of the plaintiffs, Cannizzo Lau & Associates (hereinafter referred to as “CL”), terminated the contracts in writing.[4]
[4]See Exhibit G, CB 618
7 The dispute between the plaintiffs and the defendant concerns the interpretation of special condition 38, and in particular, special condition 38.3 of the contracts. Special condition 38 is as follows:
“38 LEASE
38.1 The Property sold pursuant to this Contract is sold subject to an Agreement to Lease, the terms of which are annexed herein at Schedule D.
38.2 The Parties hereby acknowledges (sic) and accepts that the sale of the Property herein is subject to the said lease.
38.3 Notwithstanding any other provision in this Contract of Sale, the Purchaser shall not be required to settle its purchase of the Property until the following matters are satisfied -
(a) The tenant has completed its fitout;
(b) The tenant has taken possession of the Property;
(c) At the time of settlement, the tenant is trading from the Property, pursuant to its lease to the Property; and
(d) At the time of settlement, the tenant is not in breach of the lease to the Property.
38.4 At settlement, the Vendor must provide to the Purchaser a fully completed and executed Lease Agreement and Disclosure Statement, with the tenant to the Property. The Lease must reflect the terms of the Agreement to Lease, as outlined in Schedule D herein.
38.5 If, within 12 months from the Day of Sale in the Particulars of Sale to this Contract, the tenant has not completed or complied with any or all of the items listed in special condition 38.3 herein, the purchaser shall, at its absolute discretion, elect to terminate this Contract, in which case, the Purchaser shall be entitled to a refund of any deposit moneys paid.
38.6 Notwithstanding any other provision in this Contract -
(a) The Parties acknowledge and agree that the deposit moneys payable under this Contract shall be invested;
(b) if the sale does not settle within the twelve (12) month period described in special condition 38.5 herein and the Purchaser elects to terminate this Contract, then interest earned from the investment of the deposit moneys shall be paid to the Purchaser at the same time as when the deposit moneys are returned to the Purchaser.
(c)If the sale pursuant to this Contract settles, then interest earned from the investment of the deposit moneys shall be paid to the Vendor.”
Background to Alleged Termination
Lot 2
8 Subsequent to the purchase of Lots 4, 5 and 6, the first-named plaintiff, on 3 December 2008, bought Lot 2 at the said premises. Early in 2009, leading up to settlement, the defendant apparently came under pressure from its bankers, given the global financial crisis, and it appeared that the completion of the sale of Lot 2 was in jeopardy. Mr Vij said in evidence that he was approached by Mr Michael Long, of the agent, who advised that unless assistance was given to the defendant, then the defendant could well be bankrupted by his bank and, further said that such would place in jeopardy the deposits. Mr Long confirmed such meeting and that he was aware of the financial trouble of the defendant.[5] At that meeting, a written agreement was entered into, being Exhibit E.[6] Such document related generally to the totality of the contracts, but in particular, provided for the payment by the plaintiffs of the sum of $93,455.28 on or before 8 March 2009 in order for the defendant to be able to meet its banker’s demands, and thereby be able to complete the settlement of Lot 2.
[5]Transcript 503
[6]CB 431
9 On 3 April 2009, Lot 2 was settled. However, almost immediately thereafter issues arose. In a letter from CL to Vatmanidis Solicitors[7] (hereinafter referred to as “Vatmanidis”), CL complained that, despite the matter being settled on the basis that a tenant was in place pursuant to the contract of sale, such tenancy had in fact been terminated and a new lease entered into, all without any notice to the purchaser. In documents forwarded to CL, it was advised the termination had taken place the day before settlement, and subsequently, a new tenancy entered into.
[7]Exhibit N at CB 567
10 There was no more evidence as to this, and I assume that the status quo remained and the plaintiffs, as far as I understand, continue to own it and lease it. Those issues, of course, do not arise for consideration here.
Deposits for Lots 4, 5 and 6
11 At about the time of the settlement of Lot 2 there was concern expressed as to the location of the deposit monies paid in regard to these contracts, in a letter from CL to Vatmanidis of 2 April 2009.[8] In response, on 27 April 2009, Vatmanidis confirmed that, in breach of the Contracts of Sale, the deposits had been paid by the agent to the defendant, but were now to be placed in more conventional investment funds.[9]
[8]CB 532
[9]Exhibit Q at CB 562, 619
12 Further, on 11 May 2009,[10] Vatmanidis confirmed that the deposits had never been provided to it, but had been paid directly to the defendant, following advice from Vatmanidis to the agent. Following termination, on 11 June 2009, CL again enquired as to the deposits and demanded they be restored to the trust account of the agent. CL also indicated to Vatmanidis that they had received instructions to issue proceedings to restrain such deposits.[11]
[10]Exhibit V6 at CB 581
[11]CB 619
13 In response, Vatmanidis advised on 17 September 2009[12] that the issue of the deposits was a moot point, as following termination (and/or rescission), the three properties were to be auctioned by the defendant and the deposits would be repaid to the plaintiffs from proceeds.
[12]Exhibit BB at CB 630
Lot 6
14 In regard to the purchase of Lot 6, on 27 April 2009, in the letter referred to above,[13] Vatmanidis advised that the tenant had abandoned the lease and the defendant was negotiating with a new tenant. By way of reply, CL rescinded the contract and sought return of the deposit for the plaintiffs: see letter of 1 May 2009[14] and rescission notice.[15]
[13]Exhibit Q
[14]Exhibit F
[15]CB pages 572-573
15 Despite some prevarication, by 13 May 2009, the defendant accepted such rescission. It was subsequently suggested by CL[16] that the return of the deposit of $50,000 should be effected by way of a set-off, at the then imminent settlement of Lots 4 and 5.
[16]See Exhibit V at CB page 591
Termination
16 Thereafter, on 4 June 2009, the Contracts relevant to Lots 4 and 5 were, by letter,[17] purported to be terminated on the ground of the non-fulfilment of special condition 38.3. In response thereto, on 15 June 2009, the defendant served a rescission notice on the ground of the plaintiffs’ failure to settle.[18]
[17]Exhibit G at CB page 617
[18]Exhibit X at CB pages 621-624
17 It is not possible to comprehend the circumstances surrounding the alleged termination without an understanding of the above issues which had occurred in regard to Lot 2, where the tenant had been terminated on the day of settlement; in regard to Lot 6, where the tenant had abandoned prior to settlement, and the issue as to the whereabouts of the deposits.
Credibility
18 The respective credibility of Mr Vij and Mr Kalothihos were subject to submissions of counsel. I find that Mr Vij gave forthright evidence without prevarication, which I found reliable. It may be that on one or other occasion he was unsure either precisely where a meeting was held or who was present, or precisely how many times he attended at the premises and who he may have seen there; however, such issues I find to be essentially of a minor nature.
19 When assessing the credibility of Mr Kalothihos, the director of the defendant, the comparison is marked. Mr Kalothihos is a property developer who unashamedly told the Court that he was prepared to do anything to achieve his commercial ends. Mr Kalothihos’ evidence, in my view, albeit delivered with some charm, demonstrated a complete disregard for any legal requirement involved in the sale of property, or for any obligation involved in any contract. He was disarmingly honest in such admissions. Indeed, at one stage when questioned as to the defendant’s continued failure to provide leases, or to provide executed leases which accorded with the contractual terms, he proffered the view that he did not see this as any great issue because:
“I would have said: ‘Okay. What words need to be in there if this has now become the issue that’s blocking settlement?’ All that needed to happen is that he had just done what he had done before. Just give me a list of what you need changed and I’ll change it’.”[19]
[19]Transcript 379
20 I find that Mr Kalothihos’ actions and evidence bespeak that he did whatever he wanted to effect his ends, irrespective of whether such was allowed by contract, or advised against by his own solicitor. Perhaps if I provide four examples:
(1) Schedule D of the Contracts and Exhibit 7
21 The contracts for the sale of Lots 4, 5 and 6 provided that the term of the leases, pursuant to Schedule D, was in each case five years, with a further term of five years. Mr Kalothihos presented in evidence leases which he alleged to have been signed on 1 November 2008 (Exhibit 7). These were said to be the leases that the defendant would have produced at settlement, had it been effected on 4 June 2009. Mr Kalothihos accepted that such leases had terms of ten years by ten years as against the terms in Schedule D of the contracts of five years by five years. He was asked:[20]
Q: “So you entered into a lease on 1 November [2008] that was in breach of the Contract of Sale. Correct?---
A: I’d have to say correct.”
[20]Transcript 406
22 However, in the draft lease forwarded to CL,[21] said to have commenced on 1 November 2008, the term was five years with an option of two further terms of five years.
[21]Exhibit H
23 It was then pointed out to Mr Kalothihos in cross-examination that in the Amended Defence of the defendant, at Clause 11(c), it was alleged that at a meeting on 18 November 2008, the defendant had agreed with the plaintiffs that the leases need not reflect the terms as outlined in Schedule D of the contracts. It seems to me significant that such agreement was not referred to by Mr Kalothihos in evidence and is totally inconsistent with the actual written notation of such meeting.[22] If there was such a significant agreement to disregard Schedule D of the contract, it is incomprehensible that it was not referred to in the written record of amendments agreed at such meeting, where Mr Kalothihos alleges he was present. It is also of significance that no such proposition consistent with cause 11(c) was put to Mr Vij by Mr Cook.
[22]Exhibit D
24 Again, significantly I find, in speaking of this meeting of 18 November 2008, Mr Kalothihos said:
“… on that day … if terms were agreed which were relevant I would have put them down [on Exhibit D].”[23]
[23]Transcript 414
(2) Lot 2 Settlement
25 As I have referred to above, this settlement was effected on 3 April 2009. Following such, CL wrote to the tenant allegedly in possession at the time of settlement, CPM Shopfitters Pty Ltd, to advise it of the settlement and that it should thereafter contact CL in regard to payment of rent. Significantly, twenty days later, on 27 April 2009,[24] Vatmanidis wrote to CL to advise that the day before settlement the tenants had terminated the lease and that the defendant had entered into a new lease with two persons, albeit the purchaser had not been advised.
[24]Exhibit M
26 This situation and lack of notice seems absolutely remarkable and smacks of Mr Kalothihos’ methodology.
(3) Deposit monies regarding Contract for Lots 4, 5 and 6
27 In evidence, Mr Kalothihos[25] was asked:
Q: “You know, don’t you, that deposits have to be held in trust in situations like this, don’t you?---
A: Yes.”
[25]Transcript 384
28 Mr Kalothihos said that he had in fact contacted the agent, asking for the deposits to be forwarded to the defendant. The agent had refused to do so, and requested a letter of authority from Vatmanidis. Mr Kalothihos was questioned about his knowledge in these circumstances:[26]
[26]Transcript 385-386
Q: “So you were aware that by requesting this from Mr Long you were asking him to break the law?---
A: No, not at all. I was under the impression that the contract that we entered into allowed for that.
Q: Could we perhaps look at 5.2. Where in 5.2 does it allow the money to go to the vendor?---
A: Well I think it’s in, from my reading, part of my assumption began from the first sentence. ‘The Vendor and the Purchaser hereby authorise the Vendor’s solicitor to invest the deposit on terms and conditions approved from time to time by the Vendor in an investment bearing account with any body corporate defined as a bank’ et cetera et cetera, so part of my state of mind came from that.
Q: Well, I can’t follow that because the first sentence makes it quite clear, doesn’t it? ‘The Vendor and the Purchaser hereby authorise the Vendor’s solicitor’?---
A: Yes.
Q: Are you the Vendor’s solicitor?---
A: No, I’m not.
Q: No. So how do you come to the conclusion that it authorised you to get the money?---
A: Well it’s just the way I interpret it.
Q: Well it was wrong wasn’t it?---
A: That’s a matter; it may very well be wrong, but that’s how I interpret it.”
(my emphasis)
29 On 13 June 2008, Mr Kalothihos gave written instructions via email to Vatmanidis to forward a letter to the agent authorising the release of the deposits to the defendant.[27] Thereafter, on 14 June 2008, Vatmanidis wrote the letter[28] in which he advised the agent that the monies could be released to the defendant, specifically on the basis as he set out in paragraph 4, that:
“The vendor has instructed me that it intends to invest the deposit monies in an interest bearing term deposit.”
[27]Exhibit V2
[28]Exhibit V3, at CB page 674
30 Mr Vatmanidis swore in evidence that such term accurately represented the instructions he was given by Mr Kalothihos. When this was put directly to Mr Kalothihos in cross-examination, he replied:
“No, I don’t recall telling him that at that occasion”[29]
[29]Transcript 394
and further, this question was put as to paragraph 4 in the Vatmanidis’ letter:
Q: “So this is wrong then, this letter? What’s recorded in this letter is wrong, is that what your evidence is to his Honour?---
A: If you want to put it like that, yes.”[30]
[30]Transcript 394
31 After the letter was sent to the agent by Vatmanidis, on 14 June 2008,[31] Vatmanidis sent to Mr Kalothihos an email, as follows:
“Once the deposit monies are released, you can only invest them as described in paragraph 4 of the said letter – that is, in a term deposit with one of the four major banks, for consecutive periods of 30 days each.”
[31]Exhibit V4
32 Mr Kalothihos, despite such instruction from his solicitor, confirmed[32] that at no stage did he ever advise Vatmanidis that in fact his intention was to place the deposits on a short-term loan to a private person, from which he “thought I would make a handsome return”.[33]
[32]Transcript 394
[33]Transcript 395
33 The above amply demonstrates what I concluded above, that Mr Kalothihos’ modus operandi at all times was to take whatever action necessary, irrespective of the law or his solicitor’s instructions, to achieve his ends.
(4)Utilisation of deposits received from the Agent in regard to Lots 4, 5 and 6
34 Subsequent to the release of the deposits to the defendant, at no stage did Mr Kalothihos advise his solicitor that he had dealt with the deposits in any way inconsistent with the solicitor’s instructions.[34] In fact, not only did Mr Kalothihos not intend to deposit the monies in a term deposit with one of the four major banks, he intended to place the money in a short-term loan agreement with one Mr and Mrs Sarris, who coincidentally turn out to be the intended purchaser of the liquor licence to be conducted at Lots 4 and 5. As an example of Mr Kalothihos’ “flexible approach”, during cross-examination[35] as to Mr Sarris and the proposed loan, he was asked:
[34]as set out in Exhibit V4 above
[35]Transcript 398
Q: “The Sarrises, weren’t they; they were the people behind Foxwalker Productions, weren’t they?---
A: Allister Sarris, yes.
Q: Yes, he was the purchaser of the liquor shop?---
A: He was the tenant, yes.
Q: The tenant, yes?---
A: Well, he was the director of the company.
Q: The director of the company?---
A: Yes, same thing.”
35 During such cross-examination,[36] Mr Kalothihos went on to describe how the Sarrises needed funding to finance renovations to their home and provided they had a certain amount in term deposit, their bank would release money to the Sarrises. It was the intent of Mr Kalothihos to lend the deposits to the Sarrises on a short-term loan; indeed, such loan had been signed by a Ms Filippou, as an authorised person for the defendant, on 2 February 2009 in the sum of $200,000. On 25 March 2009,[37] upon enquiry from CL, Vatmanidis advised not only had the deposits not been spent, but the funds had been invested in a term deposit with a private individual.
[36]Transcript 398
[37]Exhibit Y
36 When these matters were put to Mr Kalothihos, he said that, despite Vatmanidis’ belief as to the term deposit with the private individual and the forwarding of relevant supporting documents, in fact the money never changed hands. To use his words:[38]
“I had a short-term loan agreement. I had that executed … I mean, I thought I had the deal done. … – admittedly, this is a bit dodgy, but … .”
(my emphasis)
[38]Transcript 397
37 No doubt somewhat embarrassingly for Vatmanidis, subsequently, on 11 May 2009, despite having earlier forwarded the alleged supporting agreement, Vatmanidis wrote to advise CL that he had now been instructed that:
“The deposits have been reinstated in a term deposit with the Bank of Queensland.”
38 Subsequently, deposits were placed by Mr Kalothihos into the defendant’s company bank account.[39]
[39]CB page 1218 and the entries as of 4 July 2009
39 The above exploration of the flight of the deposits from the agent amply demonstrates the accuracy of my earlier conclusion that Mr Kalothihos disregarded the law and his solicitors to achieve his ends.
40 In combination, the above four examples certainly do not show Mr Kalothihos in a favourable light. I find that he has no business credibility, or credibility before this Court.
Concerns
41 Perhaps to emphasise my findings in regard to Mr Kalothihos, he was at one stage asked how he saw himself when effecting property deals. He described how he used to assist solicitors, so that settlements were not held up, as a “case of greasing the wheels”.[40]
[40]Transcript 348
42 This case has been complicated by a failure of persons involved to act appropriately. As a result, Mr Kalothihos, acting on behalf of the defendant, was allowed free reign to take any steps he deemed necessary in order to beat off pressure of the global financial crisis, his banks and in order to place trading tenants at the premises in order to meet the requirements of the contracts.
43 Unfortunately, the plaintiffs were no doubt in somewhat of a bind, seeking to pursue their investment goals, but at the same time concerned as to the whereabouts of their deposits and having had the experience of settling Lot 2, whereby the tenant vacated, and thereafter a new tenant was introduced without their knowledge, and in regard to Lot 6, having had the tenant vacate. The plaintiffs were at all times cooperative with Mr Kalothihos in order to complete the contracts.
44 The role of Mr Vatmanidis must be strongly questioned. He had no role whatsoever in preparing the leases, leading to a situation where Mr Kalothihos, on behalf of the defendant, amended leases or prepared new leases at will, importantly, it would seem, not at the request of any tenant, but in order to meet the requirements of CL and/or the plaintiffs’ bank. Mr Vatmanidis appears to have been far too prepared to accept Mr Kalothihos’ instructions as accurate. Mr Long, the agent’s representative, also appears to have been totally out of his depth, as apparently was the officer in effective control of the agent.
Termination
Understanding of Parties
45 Mr Vij gave evidence that in order to pay the deposits, he had sold property of his own and that he entered such contracts because they had leases attached, whereby the fit-outs were to be paid by the incoming tenants.[41] When asked about the leases[42] by Mr Cook,[43] Mr Vij replied:
“There are so many leases, every second they printed out the lease and sent it to my solicitors. So I don’t know which these two are talking about. There are millions of leases. If I bring it to you, your Honour, that might be the leases. I don’t know which one belongs to which people. They signed like anything.”
[41]Transcript 150
[42]Exhibit 7
[43]Transcript 172
46 Mr Vij went on to say,[44] in answer to a further question from Mr Cook:
Q: “By 18 November this lease of 1 November – there are two leases of 1 November to Fox & Hounds, had already been signed, hadn’t they?---
A: As I said before your Honour, there are so many leases. I don’t know which leases are signed or not signed. There are so many. I don’t [know] which one they prefer to which one is good or not. That’s why my bank needed the real leases.”
(my emphasis)
[44]Transcript 173
47 As to the contracts, it was put to Mr Kalothihos, by Mr Ravech:[45]
Q: “… You knew that my client was buying all the lots for commercial investment didn’t you?---
A: Yes.
Q: What he was relying on was an income stream really. That’s what he was getting, wasn’t it? That’s why the leases are so important to him?---
A: Yes.”
[45]Transcript 408-409
48 Consistent with the above understandings, when the contracts were purported to be terminated by the purchaser, CL correctly summed up the purpose of special condition 38 of the contracts, being to provide for the plaintiffs a bona fide tenant for each of the premises, who was committed to a viable commercial lease, trading and complying with the terms of the lease.
49 In cross-examination, when questioned about the relationship between Schedule D to the contracts and the leases, Mr Kalothihos said, as to the leases:[46]
“There were no conditions because I hadn’t come up with any conditions at that stage, so I couldn’t have agreed to something I hadn’t actually come up with. I came up with those conditions in October. We signed the contracts in June, sir, so … .
Q: You signed the contracts in June?---
A: Yes.”
[46]Transcript 402
50 And after further questioning about the leases, the following question was asked:[47]
Q: “So you entered into a lease on 1 November that was in breach of the Contract of Sale, correct?---
A: I’d have to say correct.
[47]Transcript 406
Classification of Special Condition 38.3
51 As to classifying special condition 38.3, Mr Cook submitted that such was a basic condition of the contract, that there was nothing promissory about it and that what in essence was being provided was a timeline for completion of the contract. Hence, such being a default or breach under the contract, condition 5 of Table A of the Transfer of Land Act 1958 applied and as such, appropriate notice should have been served. Mr Cook submitted that as no notice was served, the plaintiffs were not entitled to terminate the contracts.
52 Alternatively, Mr Ravech argued that special condition 38.3 was a contingent condition of performance relevant to the contract as a whole and did not relate to any particular obligation upon any party to the contract. In answer to such, Mr Cook submitted that special condition 38.3 was a basic condition of the contract, where there was no decision by a person other than the parties to the contract involved, what was involved was a promise by the vendor that an event ought occur, such amounting to a promissory condition upon the vendor which was central to the contract. In such light, Mr Cook submitted that Mr Kalothihos, on behalf of the defendant, went about seeking to change the lease to satisfy the plaintiffs’ solicitors/ bankers, to assist the plaintiffs in obtaining finance, to ensure the fit-outs were undertaken, to obtain certificates of occupancy and to transfer the liquor licence.
53 I find however that, despite what Mr Kalothihos may have done to secure the completion of these commercial transactions, such actions cannot alter the meaning of the conditions of the contract. Special condition 38.3 I find does not relate to a condition or promise involving a party to the contract. Such condition is quite specific and starts with the following: “Notwithstanding any other provision …”. The obligations under such special condition apply to the tenant alone in regard to each contract. I find that such condition is a contingent condition of the performance of the contract. I find that to so interpret this condition is consistent with the purpose of the condition, being to produce, in regard to each property, a viable tenant who has paid for its own fit-out, thereby securing the commercial investment of the purchaser. I find further, that the fulfilment of Special Condition 38.3 was a condition of the obligation upon the purchaser to complete each contract. Such condition does not relate to a promise by either party to the contract that a particular event will occur, but is a contingent condition of performance of the contract.[48]
[48]See Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 at 565
54 I find that non-fulfilment of special condition 38.3 would entitle the plaintiffs, at their absolute discretion, to terminate the contracts, and should the plaintiffs so terminate, they would be entitled to a refund of the deposits.
55 I further find that upon the expiration of twelve months from the date of the contracts, if special condition 38.3 had not been fulfilled, the plaintiffs were entitled to terminate the contract. Indeed, the letter as to the alleged termination[49] was sent by CL on 4 June 2009 to Vatmanidis by facsimile.
[49]Exhibit C at CB page 617
Was there a failure pursuant to Special Condition 38.5 of the tenant to complete any or all of the items listed in Special Condition 38.3?
(a) Fit-out
56 Like much of the evidence in this case, the evidence is confusing in this regard. Mr Kalothihos said that the fit-outs had been completed prior to December 2008 and that the tenants were in possession before Christmas 2008. Mr Long said in answer to Mr Cook that the fit-out was finished in February 2009 and the liquor store operating; however, on 24 February 2009, there was a meeting between the parties in which terms were entered into[50] whereby it would appear that there was still documentation by way of leases, owner’s corporation certificate and liquor licence details to be handed over and, further, there was agreement that the shops were to open for business in the following March. In Exhibit Z, a letter dated 23 March 2009 from CL to Vatmanidis,[51] it is stated that the plaintiffs had instructed CL that the fit-outs had not been commenced and would not be completed for several months, and therefore CL advised Vatmanidis that until all matters in the special conditions had been satisfied, that settlements would not take place.
[50]See Exhibit E
[51]Exhibit Z
57 In evidence, Mr Vij said that the fit-out was not completed by June 2009. However, Mr Kalothihos said[52] that, insofar as the fit-out of Lots 4 and 5 was concerned, it was complete. Indeed, this was stated in writing from Vatmanidis to CL by way of letter of 29 May 2009,[53] being that the tenant had completed the shop fit-out and the liquor licence had been transferred to the tenant.
[52]Transcript 377
[53]Exhibit T
58 No alleged tenant was called as to this issue, nor any other form of evidence provided. As counsel for the plaintiffs did not, in final submission, suggest that this part of the condition had not been fulfilled, I find that the plaintiffs have not proved non-fulfilment of special condition 38.3(a).
(b) That the tenant had taken possession of the property
59 Albeit that Mr Kalothihos said that the tenant was in possession before Christmas 2008, in evidence before this Court, Mr Kalothihos, when asked that question,[54] said:
“Well, they had possession since May. Sorry, since February [2009]. Physical possession.”
[54]Transcript 377
60 Unfortunately, what Mr Kalothihos meant by “physical possession” and to whom he was referring by the word “they” was not pursued before the Court. One presumes that when Mr Kalothihos said the tenant was in possession, it is the tenant which responds to the questioning of him,[55] when he was asked by Mr Cook, had he been required to settle on 4 June 2009, what lease would he have handed over. He replied “the one in place”, being Exhibit 7. Exhibit 7 shows the tenant as Foxwalker Productions Pty Ltd. It is not insignificant that as at 4 June 2009, the only director of that company was Allister Sarris who had been appointed on 24 April 2009. Mr Sarris also filled the role of secretary of the company from that date and, although it is difficult to tell from the ASIC historical company extract,[56] appears to be the holder of the two shares in the company.
[55]Transcript 377
[56]Exhibit FF
61 There was no submission by Mr Ravech disputing the evidence of Mr Kalothihos that Foxwalker Productions Pty Ltd was in physical possession of Lots 4 and 5 as at 4 June 2009. I find that the plaintiffs have not proved non-fulfilment of special condition 38.3(b).
(c)at the time of settlement, the tenant is trading from the property, pursuant to its lease to the property
62 It is clear on the evidence that whoever the tenant was, it was not trading from the property on 4 June 2008. Exhibit 6 is a copy of the 2008 liquor licence tendered by Mr Cook, which shows the defendant to be the licensee conducting the liquor licence at the premises, albeit that the licence incorrectly describes the premises as shops 3 and 4. This was admitted by Vatmanidis[57] on 18 March 2009, whereby it was stated that the liquor store is trading under the name of Filippou Management Pty Ltd, which it described as being both the landlord and the holder of the liquor licence. Vatmanidis acknowledged, at that stage, that given such situation, the defendant could not settle in regard to either lot until it complied with special condition 38.3 of the Contract of Sale. According to the evidence of Mr Kalothihos, post the termination of the contracts by the plaintiffs, he arranged on 5 June 2008 for the transfer of the liquor licence to the alleged tenant, being Foxwalker Productions Pty Ltd. The 2009 licence from such date was also tendered by Mr Cook as part of Exhibit 6. There was no issue as to who was trading at the premises from Mr Kalothihos,[58] for I asked Mr Kalothihos the following question:
Q: “So the shop traded under your licence essentially, I assume?---
A: Well I think you’d have to say that, your Honour, we were the only ones licensed.”
[57]Exhibit 12
[58]Transcript 364
63 The submission of Mr Ravech in regard to part (c) of special condition 38.3 was that, at the time of termination pursuant to the Liquor Control Reform Act 1999, section 107, the defendant was trading. If there was a lease, the only person entitled to so trade was the tenant. Hence, the submission of Mr Ravech was that not only was the tenant not trading, but at the time of termination, someone else was trading. Mr Ravech went on to submit that such amounted also to a breach of the lease pursuant to part (d) of special condition 38.3, in that if there was a lease, then for the tenant to allow someone else to trade at the time was a breach of the lease.
64 In submission, Mr Cook essentially relied upon the lease[59] and submitted that special condition 38.3 was not a contingent condition but a term of the contract for which a Table A default notice was required and that had such notice been given, the licence transfer would have been approved and all other items which may not have been fulfilled on 4 June 2009, could have been attended to.
[59]Exhibit 7
65 In reply, Mr Ravech submitted that there was a breach of special condition 38.1, that is, that the lease was not in accord with the terms of the contract. He further submitted that such was, to use his term, “nested” in special condition 38.3. Mr Ravech submitted that a breach of special condition 38.1 is one and the same as a breach of part (d) of special condition 38.3. While not fully comprehending the subtlety of that submission, it did raise the next consideration as to part (c), that is, were the tenants trading pursuant to its lease to the property?
66 To answer this question, and thereby determine whether there were in fact leases as at 4 June 2009 in regard to Lots 4 and 5, requires an analysis of the evidence.
Were there Leases of Lots 4 and 5 on 4 June 2009?
67 As to the lease, Mr Kalothihos, when asked as to what lease he would have produced had he been required to settle on 4 June 2009, said,[60] referring to Exhibit 7:
“Yes, but I have to qualify it, your Honour. Actually in all of the toing and froing, I lost my original signatures on my lease, so because I knew I had to deliver an original lease it was my intention to get a certified copy of the lease and hand that over at settlement. …”
[60]Transcript 377
68 In referring to Exhibit 7, he said:[61]
“Well that was the only one that was going. The others were all attempts but never crystallised to form a new lease.”
[61]Transcript 378
69 Mr Kalothihos further said,[62] as to the lease dated 1 November 2008, “it was signed by the director of Filippou Management, the tenant and me”. Looking at the leases, while not executed, they seem to be signed by a director of the vendor and Mr Sarris, as the purported authorised officer on behalf of Foxwalker Productions Pty Ltd and a guarantor, and the signatures were witnessed by Mr Kalothihos.
[62]Transcript 348
70 If one looks at Schedule D of the contracts, the proposed tenant was Cheyne Louise Fox. From that time, the progress of the alleged leases appears as follows:
(i)On 23 October 2008, Vatmanidis wrote to CL that the tenants were in possession of all lots and had commenced their fit-outs.
(ii)On 29 October 2008, the leases said to exist for the properties were sent by Vatmanidis to CL. The lease for Lot 5 is Exhibit H. The lease was to commence on 1 November 2008 for five years, the use designated as health and beauty; however, the tenancy had been extended by granting two further terms of five years. Importantly, however, the tenant described in that lease was Spiros Kalothihos. Hence the tenant in possession referred to, presumably by the solicitor in Item (i) hereof, must have been Mr Kalothihos himself.
(iii)On 6 November 2008, given the state of the so-called leases, CL sent an email to Vatmanidis urgently requesting copies of executed leases, as the matter could not be progressed with the plaintiffs’ bank.
On the same date, by way of email, Vatmanidis replied that the leases supplied had been signed by the landlord and tenant but that the executed copies thereof had not been supplied by Mr Kalothihos, but that Mr Kalothihos was to deliver same to the purchases’ solicitors that day.[63]
[63]CB 341
(iv)On 13 November 2008, by email, CL advised the vendors’ solicitors that there was a discrepancy between the area of land shown in regard to Lot 5, as against what was detailed in the Contract of Sale, and that the area set out in the leases did not correspond with actual measurements of the lot.
(v)On 18 November 2008, there was a meeting, to which I have already referred, in which various amendments were “agreed” to the “leases”. I point out that such meeting did not involve the alleged tenant. The plaintiff says this meeting was with Mr Long alone. However, Mr Long and Mr Kalothihos suggest that Mr Kalothihos was in fact there as well. Irrespective, amendments to the leases by way of areas and rental were “agreed” and, significantly, it was noted that fit-outs were to begin.
(vi)On 20 November 2008, Vatmanidis sent by facsimile a letter, no doubt upon instructions from their client, that following a meeting at the premises on 18 November 2008, all outstanding matters had been resolved.[64]
[64]Exhibit 1
(vii)In response, Exhibit 2[65] was sent by way of reply from CL, disputing the assumption of Vatmanidis and in particular, advising that as at 20 November 2008, the fit-outs had not commenced and would take several months to complete, and noting that unless all matters in the special conditions had been satisfied, settlement would not take place.[66]
[65]CB 354
[66]Exhibit 2
(viii)Further, on the same day, CL sent another letter by facsimile to Vatmanidis, returning the leases it had received and asking that they be amended to reflect changes in rental and area as agreed in Exhibit D.[67]
[67]CB 356
(ix)Mr Kalothihos, on 5 December 2008, sent to Vatmanidis new lease schedules in regard to Lots 4 and 5, and execution pages in regard to the lease for Lots 4 and 5, including guarantor clauses.[68]
[68]CB 681
(x)On 6 December 2008, Vatmanidis sent to CL formal advice that the tenant’s name had incorrectly been put on the prior leases and that it should be Foxwalker Productions Pty Ltd, together with the revised lease schedules and guarantor clause sent to him by his client, Mr Kalothihos. In particular, it should be noted that the so-called execution pages[69] for both leases are not executed by either company and appear to be the same execution pages which were ultimately attached to the leases which Mr Kalothihos said he would have presented at any settlement on 4 June 2009.[70]
[69]CB 376
[70]Exhibit 7
(xi)On 17 December 2008, CL requested final versions of the leases[71] and by facsimile[72] conveyed its dismay that the lease detailed a tenant company, being Foxwalker Pty Ltd, which could not be located by ASIC search, and did contain the required director’s guarantees.
[71]CB 414
[72]CB 420
(xii)There was a meeting between the parties on 24 February 2009, which is recorded as Exhibit E.[73] The record of the meeting notes that documentation in regard to the leases had still not been supplied, and the businesses at the premises were not open.
[73]CB 431
(xiii)On 5 March 2009, in regard to Lots 4, 5 and 6, Vatmanidis forwarded to CL newly drafted contracts, apparently in response to a bank request, as the land description in the contracts did not match the land description on title.[74] It is noted that these contracts were not executed and were never subsequently executed and, further, Vatmanidis noted:
[74]CB 453
“As my client did not attend my office, he has not provided me with the executed leases and the executed disclosure statements.”
(xiv)On 13 March 2009, CL wrote to Vatmanidis, noting that “up to date” leases had still not been provided showing current rentals and correct lot numbers and further noting the matter could not proceed as the documentation could therefore not be produced to the plaintiffs’ bank. The request for the leases and other documentation was noted as “urgent”.[75]
[75]CB 457
(xv)On 27 April 2009, Vatmanidis wrote to CL advising there had been no transfer of liquor licence to the tenant, and in regard to Lot 6, that the tenant had abandoned the property.[76]
[76]Exhibit Q at CB 562
(xvi)On 27 May 2009, Mr Kalothihos personally emailed and attached new draft leases for Lots 4 and 5 (the sale of Lot 6 having been rescinded by the purchaser by this stage) and intimated that the defendant would shortly be in a position, once the leases have been appropriately executed, to assign the liquor licence. Mr Kalothihos said that once such leases were approved by CL –
“… we will arrange for them to be executed by all parties.”
It is to be noted that Mr Cannizzo, quite correctly, requested Mr Kalothihos to communicate in future through his solicitor.[77]
[77]CB 587
(xvii)On 29 May 2009, despite the earlier comments of his client, Mr Vatmanidis wrote to CL to advise that the tenant had commenced trading and that the liquor licence had been transferred and, accordingly, sought settlement.[78]
[78]CB 589
(xviii)On 29 May 2009, CL urgently requested from Vatmanidis the leases and disclosure statements and advised that settlement could not proceed until the plaintiffs’ bank was able to peruse the original leases.[79] Again, such request is expressed as “urgent”.[80]
[79]CB 591
[80]See Exhibit U
(xix)On 2 June 2009, a further urgent request was made by CL to Vatmanidis seeking the leases, with the following being stated:
“We place on record that this [is] the third request we have made for the leases and cannot understand as to why it has not to date been produced.”[81]
[81]Exhibit V at CB 595
It should also be noted that this date marked twelve months from the date of the contracts.
(xx)On 3 June 2009, Mr Kalothihos emailed leases to Vatmanidis,[82] and he forwarded them on to CL.[83] It is to be noted that neither lease is signed or executed.
[82]CB 1399
[83]Exhibit W, CB 1400-1449
(xxi)On 4 June 2009, noting the receipt of the unsigned leases and the alleged non-fulfilment of special condition 38.3, the plaintiffs terminated the contracts for Lots 4 and 5.[84]
[84]Exhibit G
(xxii)Such is the torturous path of the non‑production of executed leases.[85]
[85]Transcript 377
When asked by Mr Cook if required to settle on 4 June 2009, what lease he would have handed over, Mr Kalothihos said, “the one that was in place”, meaning Exhibit 7, and, as he said:[86]
[86]Transcript 378
“That was the only one that was going. The others were attempts but never crystallised to form a new lease.”
Mr Kalothihos further said,[87] that in regard to the leases signed on 1 November 2008:
[87]Transcript 377
“In all the toing and froing, I lost the original signatures on my lease.”
Mr Kalothihos was asked, specifically about these leases,[88] by his counsel,[89] whether he had delivered the originals of these leases to any person. Mr Kalothihos answered as follows:[90]
[88]Exhibit 7
[89]Transcript 348
[90]Transcript 349
“Okay, the original, which original? Yes, I can say that in the main these two Exhibits [Exhibit 7] represent the contracts as I knew them to be in their first form. These are not the first form of the contract, they were different originally but ultimately this what I believe the contracts were so this is what I thought.”
(my emphasis)
I then asked the following question:
“You mean the leases?”
He said:
“Yes.”
Mr Cook then asked:
Q:“When you say the leases were different originally, what do you mean?---
A:Well the original leases that we entered into were deficient in the view of the purchaser, as a result of which we were asked to amend them numerous times. This is where they ended up. This is how they ultimately finished up, but there’s clauses here … . ”
Mr Kalothihos was then asked by Mr Cook:
Q: “Do you mean at the request of the purchaser or the request of the tenants?---
A: No, at the request of the purchasers’ solicitors. So although I'm giving evidence that this is the actual original – and I know what I'm doing when I'm giving it because this is dated 1 November [2008]. The fact is that pages within here were not the pages when this was originally executed, they were subsequently swapped by consent. So over the period of months that’s what happened.”
(my emphasis)
Mr Cook then asked the following question:
Q: “So Exhibit 7, what do you say, albeit that it’s dated 1/11/08, it incorporates all the subsequent amendments?---
A: It does, your Honour, probably shouldn’t have done it that way but in any event that’s what we did, that’s how it happened.”
(my emphasis)
Mr Kalothihos then nominated all the changes that were subsequently incorporated into the leases after their execution on 1 November 2008.[91]
[91]Transcript 349-350
(xxiii)Consistent with the view of the world held by Mr Kalothihos, and of what I have described as his desire to get it done by whatever means, the Court was asked by Mr Cook to accept Exhibit 7 as valid and legal leases, albeit that they at no time were ever executed, and even if signed on 1 November 2008, having since been amended, had pages of terms, rentals, description of land, period of lease and guarantor clauses added, all without any formal endorsement.
Even if I accepted there was oral consent to any such changes by the tenant, of which there was no evidence, there is no signature to such, much less any executed agreement to leases in such form, given that the amendments to the leases were made at the request of a third party: see paragraph [70](xxii) above.
To submit that the plaintiffs agreed to such amendments is hardly to point. The plaintiffs at all times sought executed leases through CL.
I find that it would be an abuse of process to give Exhibit 7 any skerrick of recognition. Little wonder the defendant never produced any executed leases to CL. What is amazing is that Exhibit 7 was tendered to this Court by the legal team representing the defendant purportedly as valid leases.
(ix)As to Mr Kalothihos’ evidence that the leases[92] were signed on 1 November 2008 by “the director of Filippou Management, the tenant and me”, a perusal of each such lease shows Mr Sarris purported to sign the lease on behalf of the tenant, as its authorised officer. Exhibit FF, the ASIC historic extract as to Foxwalker Productions Pty Ltd tendered by the plaintiffs of 1 December 2011, demonstrates that Mr Sarris did not become either a director or secretary of such corporation until 24 April 2009. Mr Sarris therefore could not have signed either lease in Exhibit 7 on 1 November 2008 in the capacity of an authorised officer of such company.
Again, perhaps not insignificantly, it is noted that Mr Kalothihos is currently the only director, sole shareholder and secretary of such corporation.
It appears from these same ASIC documents that Mr Sarris’ interest in Foxwalker Productions Pty Ltd did not begin until April 2009. Indeed, looking at the historical extract for the period prior to that time, the corporation appears to have been a shelf company.[93] Hence, the signature pages to Exhibit 7, being the leases tendered by the defendant, cannot be valid. As of 1 November 2008, I find that Mr Sarris was not able to sign as an authorised officer of the company, whether or not Mr Kalothihos on that date actually witnessed such signature, although the signature page of each lease suggests that he did so.
Hence, I find, upon this torturous analysis, insofar as special condition 38.3(c) is concerned, that on 4 June 2009, not only was the alleged tenant not trading at the property, but it could not have been trading from the property pursuant to lease, because there were no leases in existence. Certainly, Exhibit 7, as it purports to be, was not validly signed by the tenant, much less executed.
Hence, I formally find that the tenant was not trading from the property in regard to either lot pursuant to its lease to the property.
Perhaps before I leave this topic it is not inappropriate to quote further from Mr Kalothihos’ evidence that the defendant was trading at the premises as a licensed liquor retailer. He said:
“You know, any trick in the book to try and get the shop open and trading and generating some money.”[94]
(my emphasis)
[92]Exhibit 7
[93]See page 4 of such document
[94]Transcript 364
(d)at the time of settlement, the tenant is not in breach of the lease to the property
71 Given my findings above, this condition has not been fulfilled as there were not only no leases but accordingly, there were no tenants.
Entitled to Terminate
72 I find that as of the date of termination, special condition 38.3(c) and (d) of the contracts had not been fulfilled and the plaintiffs were entitled to terminate both contracts, which they did pursuant to facsimile letter sent by CL on 4 June 2009.[95]
[95]See Exhibit G CB 617
Waiver
73 Mr Cook, on behalf of the defendant, submitted that by their actions, the plaintiffs had waived the requirement for special condition 38.3 to be fulfilled. Under the contract, any waiver of a term of the contract is required to be in writing and signed by the party granting the waiver (see special condition 21). The particular waiver which would have to be proved is a waiver of the right to terminate. I find, from the above analysis and the evidence, that at all times the plaintiffs, through CL, were most anxious to secure the properties and further their commercial interest. At no stage could such be effected without appropriate leases, and I find the plaintiffs at no stage acted in any way which could have been seen as a waiver of their right to terminate. Indeed, the plaintiffs were most consistent in trying to enforce their rights pursuant to the contracts in regard to each of these lots.
Unconscionable
74 Mr Cook submitted that it would be unconscionable to permit termination in these circumstances. I find that the plaintiffs did not act unreasonably, in bad faith or in any way that could be considered to be unconscionable. Indeed, I find that the plaintiffs were at all times ready, willing and able to settle the contracts in regard to Lots 4 and 5.
Consequence of Termination
75 Pursuant to condition 38.5 of the contracts, the plaintiffs are therefore entitled to a refund of the deposit moneys paid, together with interest pursuant to special condition 38.6 of the contracts.
76 I order that the defendant pay to the first plaintiff the sum of $130,000, being the repayment of $80,000 of the deposit paid on Lot 4 and $50,000, being the repayment of the deposit paid on Lot 6, together with interest pursuant to special condition 38.6 of the contracts.
77 I also order that the defendant pay the sum of $75,000 to the second plaintiff, being a refund of the deposit paid in regard Lot 5, together with interest pursuant to special condition 38.6 of the contract.
Interest
78 In regard to Lot 6, interest is payable from 13 May 2009 when the rescission was accepted by the defendant (see Exhibit S). As to Lots 4 and 5, it is payable from 4 June 2009. Pursuant to the contracts, the general conditions in Table A of the seventh schedule of the Transfer of Land Act 1958 apply, and pursuant to Clause 2 of that schedule, such interest is payable at a rate 2 per cent higher than that fixed by s2 of the Penalty Interest Rates Act 1983. Throughout the relevant period, that rate was, as at 23 February 2009, 10 per cent, and from 1 February 2010, 10.5 per cent.
79 I will hear the parties as to whether such order is affected by s58.1 of the Supreme Court Act 1986.
Lot 6
80 So there is no doubt, I should say that I specifically reject the evidence of Mr Kalothihos that an agreement was reached between him and Mr Vij that repayment of the deposit due under Lot 6 would not be payable until the date of settlement of Lots 4 and 5. All I can say is that such was merely the reality, given Mr Kalothihos’ financial position.
The Plaintiff’s Other Actions
81 As to other redress sought by the plaintiffs, they allege as against the agent breach of duty in releasing deposits received by the agent in regard to the sale of Lots 4, 5 and 6 to the defendant, and as against Vatmanidis, that it induced or procured such breach of trust by the agent.
82 As to the claim against the agent pursuant to paragraph 31(a) of the Statement of Claim, the plaintiffs seek to establish breach of trust pursuant to the provisions of s9AA of the Sale of Land Act 1962.
83 In order for the plaintiffs to be able to proceed in regard to this part of the claim against the agent, I must grant the plaintiffs’ request to further amend the pleadings, post the giving of final addresses by counsel. The circumstances whereby that came about is that the evidence in the case closed on 29 November 2011 and Mr Ravech commenced his final address.[96] Counsels’ addresses continued until 1 December 2011 and on that date, Mr Ravech abandoned the claim under s9AA of the Sale of Land Act 1962.[97] There was subsequent discussion as to the need for a further amendment of the Statement of Claim in order for it to read sensibly.[98] As Mr Ravech pointed out, despite such abandonment, at all times the remaining claims against the agent were on the basis that it held the deposits on trust.[99]
[96]Transcript 688
[97]Transcript 861, lines 24-29
[98]Transcript 892-893
[99]Transcript 862
84 Mr Ravech, during the hearing, and indeed during submissions, came under strong criticism from Mr Strahan and Mr Juebner as to the basis upon which the claim under the Sale of Land Act 1962 was made. Whether that was the reason for the abandonment, I am not sure. As Mr Strahan said to the Court, such abandonment, albeit at the start of Mr Strahan’s final address, was part of the “moveable feast”, in that I had allowed amendments to the Statement of Claim on the first day of the trial and on four occasions during the running of the trial: see the Transcript,[100] as well as the abandonment of the Sale of Land Act 1962 pleading.[101]
[100]Transcript 114, 212-3, 325
[101]Transcript 861, 892-3
85 Candidly, Mr Ravech has accepted that he abandoned the trust claim, based on the Sale of Land Act 1962, but was pursuing such claim insofar as the duty of a stakeholder is concerned. After the addresses, Mr Ravech then reflected, apparently overnight, because, in support of the application to file the Fourth Amended Statement of Claim, he prepared a written supplementary submission on behalf of the plaintiffs dated 2 December 2011, which I understand was served on all parties.
86 Mr Ravech “filed” both the proposed amended pleading and his submission by sending them to my Associate and, having served the parties, various submissions were then received from the other counsel.
87 It became apparent that a hearing was required to hear oral submissions. Such hearing, considering the timing of the application, was not able to be set down until 21 February 2012. Each party had filed written submissions as to the application and its utility, albeit that similar arguments had been put in final submission.
88 As to Mr Ravech’s actions, I note the references in the various submissions to the views of the High Court expressed in Carr v Finance Corp of Australia Ltd (No 1)[102] and the Court of Appeal (Victoria) in Stockdale v Alesios[103] as to their disapproval of the forwarding of unsolicited written submissions after the hearing. I also note the view of Gillard J in Kuek v Wellens[104] that such practice should not be deterred, providing it was at trial level and appropriate service is effected. However, his Honour was at pains to emphasise that the proper place for submissions is the hearing.
[102](1981) 147 CLR 246 at 258
[103][1999] 3 VR 169
[104][2000] VSC 326 at paragraph [98]
89 Having considered such submissions, I said, at the hearing of the application, to Mr Strahan that what Mr Ravech sought by way of the application was to put back before the Court an issue which had been in issue between the parties throughout the trial.[105] Albeit Mr Strahan questioned the utility of the proposed reinstatement, he had no objection to such reinstatement, subject to the exercise of my discretion, if such was all that was allowed, and provided that no new claim was added. Again, Mr Strahan submitted, as was obvious from his written submission dated 2 December 2011, that the agent was concerned that under the guise of such reinstatement, an additional claim based upon the state of actual knowledge of Mr Long was not allowed to come before the Court for the first time. Given my findings as to Mr Long’s knowledge and role (paragraphs [108] to [111] of this judgment), this is hardly an issue.
[105]Transcript 20
90 Mr Juebner, on behalf of Mr Vatmanidis, after being satisfied that what was sought was a precise reinstatement of the pleadings in place prior to the abandonment, supported Mr Strahan, in that he said that to allow the amendment would be of no use as the claim was futile and therefore should not, in my discretion, be allowed.
91 Mr Juebner also relied upon the general principles set out in Eastman v Director of Public Prosecutions (ACT) & Ors[106] and submitted that there were no exceptional circumstances which would justify the grant of the application.
[106][2003] HCA 28
92 Mr Cook opposed the application because he was concerned as to potential prejudice to the defendant and Mr Kalothihos being enlivened by reason of various cross and third-party proceedings brought against them by the second and third-named defendants.
93 As will shortly be seen from my findings, I do not consider the application futile. I am concerned as to the behaviour of both the agent and the solicitor. I consider that all issues as to this claim were canvassed throughout the hearing and in cross-examination, and that the parties, both during the hearing and subsequently at the further hearing in January 2012, were given the opportunity to make submissions as to the claim under the Sale of Land Act 1962. As I have said, both Mr Juebner and Mr Strahan throughout the hearing, and in submission, strongly submitted that such claim was futile and doomed to failure as there was no trust, and just as importantly, no loss.
94 I have considered all submissions. As I said during the hearing, and at the further hearing in January 2012, the aim of the Court at all times is the attainment of justice. As set out in the Rules, Order 36.01, the Court has the capacity to grant an amendment at any stage in a proceeding in order that the real questions in controversy between the parties can be determined.[107]
[107]See Ketterman v Hansel Properties Ltd [1987] AC 189 at 220
95 Despite the matters referred to in Aon Risk Services Australia Ltd v Australian National University,[108] I find, in the particular and unusual circumstances of this case, given that the matter was fully ventilated and cross-examined upon during the hearing, and the short time which elapsed before leave was sought, that I should grant the amendment sought.
[108](2009) 239 CLR 175
96 I point out, as I stated to Mr Strahan, that I reinstate the paragraph on the basis of its status as it was before it was abandoned, and on the basis that such reinstatement does not produce any new claim by the plaintiffs.
97 Both Mr Strahan and Mr Juebner submitted throughout the hearing that such claim had no basis in law. I find that there is no prejudice to their clients by such order being made, nor, given the terms in which this order is made, is there any need to reconvene the hearing, nor to take any further evidence. In making the order, I have taken into account the potential additional prejudice to the defendant or Mr Kalothihos, but given the terms of the reinstatement, I do not consider that they are placed in a more prejudicial position than they were at the time of abandonment. In such circumstances, I grant the application.
The Plaintiff’s Claim against the Second and Third Defendants
Factual Matrix
98 As already detailed, the contracts for the purchase of these lots were signed on 2 June 2008. Copy contracts were forwarded to the agent, and Mr Long stated in evidence that he was aware, from having perused the contracts, in either May or June, that they did not authorise the release of the deposits to the defendant.[109]
[109]Transcript 497
99 Mr Long said that Mr Kalothihos rang him a couple of days after the first tranche of the deposit monies was received in June 2008, seeking payment of the deposits to the defendant. Mr Long advised him that such was not possible, unless the agent received a solicitor’s letter authorising such payment.
100 Exhibit V7 is a file note of Vatmanidis indicating that on 12 June 2008, Mr Kalothihos called Vatmanidis, asking them to forward such letter of authority.
101 Vatmanidis immediately faxed a letter to CL seeking confirmation of payment of the deposits and as to when they were to be paid. In that letter, Vatmanidis specified that the deposits were to be paid into the Long Property Pty Ltd trust account.[110] Subsequently, on that day, Vatmanidis’ file note indicates that the first tranche had been received by the agents.[111]
[110]Exhibit V8, CB 290
[111]See Exhibit V7, CB 669
102 Vatmanidis then had a further telephone call with Mr Kalothihos on 13 June 2008 where it noted, in a file note, specifically that Mr Kalothihos had requested it to send “a letter to Michael Long, agent, to release deposit funds into term deposits as per contracts”. Mr Kalothihos followed that up, confirming to Vatmanidis that the letter is to request that the deposits be lodged in the bank account of the defendant.[112]
[112]Exhibit V2
103 Mr Con Vatmanidis of Vatmanidis then drafted and sent the requested letter by facsimile to the agent.[113] The content of the letter is grossly negligent, to say the least. It is tantamount to a total disregard of special conditions 5.1 and 5.2 of the contracts and of s9AA of the Sale of Land Act 1962. I find that by such letter, Vatmanidis, for whatever motive, was inducing and procuring the agent to breach the protective trust provisions of the Sale of Land Act 1962 in regard to plaintiffs, and also inducing or procuring the agent to breach its obligation as to the holding of money received on trust imposed by s59(1)(b) of the Estate Agents Act 1980. As the solicitor should well have known, either pursuant to the contracts or law, the only persons entitled to the deposit held on trust, or to direct what should happen to those deposits, were the plaintiffs.
[113]Exhibit V3, CB 674
104 Mr Vatmanidis, in his evidence, was honest enough to now say, in hindsight, that his letter to the agent was careless and that at a minimum, paragraph 4 should have recorded that the investment would be made in both names. Mr Vatmanidis was also honest enough to accept that his instructions to the agent effectively amounted to encouragement to the agent to breach the Sale of Land Act 1962.
105 To some degree, Mr Vatmanidis tried to control Mr Kalothihos, as to what was to be done, when he received the deposits, in that by email of 14 June 2008,[114] after advising that he had sent the requested letter to the agent, he instructed Mr Kalothihos that:
“Once the deposit monies are released, you can only invest them as described in paragraph 4 of the said letter – that is, in a term deposit with one of the four major banks, for consecutive periods of 30 days each.”
[114]Exhibit V4
106 Again, as to such instruction, Mr Vatmanidis admitted in evidence that he had failed to take any follow-up action to ensure that Mr Kalothihos indeed so dealt with the deposit monies.
107 Mr Long said that upon receipt of the letter from Vatmanidis,[115] there was discussion with his daughter, who was the officer in effective control of the agent pursuant to s15 of the Estate Agents Act 1980.
[115]Exhibit V3
108 Mr Long was asked in evidence as to his experience, and he stated that he had never released monies before in such circumstances without a s27 authority being received under the Sale of Land Act 1962.[116] Unfortunately, in these circumstances, s27 is totally irrelevant. With great respect to Mr Long, who is not a licensed agent but an agent’s representative,[117] he appears to have almost no knowledge of the law relevant to the operation of a real estate agency. While he acknowledged looking at the specific clause, being 5.2 in the contracts, and discussing that with other people in the office, whom we presume to be his daughter,[118] he was adamant that he would not have released the deposits without the letter from Vatmanidis.
[116]Transcript 506
[117]See s13 of the Estate Agents Act 1980
[118]Transcript 507
109 When cross-examined by Mr Juebner as to his understanding of the obligations upon an agent when so releasing deposits, Mr Long answered as follows:
“My position is to sell the properties. Other people, the estate agent, which is the licensed estate agent, looks after that side.”[119]
[119]Transcript 517
110 Mr Long further accepted that prior to sending the deposits to the defendant he had not checked or read s59 of the Estate Agents Act 1980. He was then asked, did he understand the obligations of an agent in regard to trust monies, and he answered:
“Me, personally, no, because I don’t handle the trust account money”[120]
and that all such decisions are made by his daughter, the Licensed Estate Agent and officer in effective control.[121]
[120]Transcript 524
[121]Transcript 526
111 With great respect to Mr Long, who I understand to have recently been quite ill, he had no knowledge whatsoever of the agent’s obligations in this instance. Of course, pursuant to the Estate Agents Act 1980, s13A renders the agent responsible for the acts of its representatives, the agent in effective control, being his daughter. That daughter, in order for the agent to have obtained its licence pursuant to s15, must have passed courses of instructions or examinations prescribed by the regulations. The officer in effective control of the agent has the specific duty under s29B(2)(d) of the Estate Agents Act 1980 to take reasonable steps to ensure that any estate agents’ agent’s representative, or other employees of the business, comply with the provisions of the Estate Agents Act 1980, the Sale of Land Act 1962 and any other laws relevant to the conduct of the business.
112 Mr Long said that after consultation with his daughter, the officer in effective control, it was decided to follow the advice, or the legal opinion, contained in Mr Vatmanidis’ letter. One would have thought prudence would have dictated the release of the deposits specifically to the vendor’s solicitors, Vatmanidis. The agent sought no other independent legal advice, and on 18 June 2009, released the first tranche of the deposits by a trust account cheque made payable directly to the defendant, albeit in the letter enclosing such cheque, the agent noted that such was to be invested in an interest bearing account of the vendor’s solicitor.[122] Subsequently, on 1 July 2008, the agent released the larger tranche of the deposits, again by a cheque payable to the defendant.[123]
[122]Exhibit CC, CB 1213
[123]See Exhibit DD, CB 1216
Finding
113 On 18 June 2008 and 1 July 2008, I find that the agent, in breach of its obligations under s59(1)(b) of the Estate Agents Act 1980, paid out from its trust account the deposits it had received in trust, pursuant to s9AA of the Sale of Land Act 1962 and the contracts between the defendant and the plaintiffs.
114 Such payments into the agent’s trust account were made prior to the plan of subdivision being registered. In such circumstances, I find that s24 of the Estate Agents Act 1980 has no relevance to the deposits so received.
115 The agent, having negotiated the sale, was in possession of copy contracts, which its representative said he had pursued and discussed with the officer in effective control. The officer in effective control of the business of the agent, given that she was a Licensed Estate Agent with the duties prescribed by s29B of the Estate Agents Act 1980, was, I infer, well aware of the requirements of s9AA of the Sale of Land Act 1962. Despite reference to the potential of calling evidence in this regard, the agent called no other evidence.[124]
[124]Transcript 533
116 Pursuant to the Sale of Land Act 1962 and its mandatory requirements as to contracts concerning sales of lots prior to the registration of a plan of subdivision, I find that the agent received such deposit monies on trust for the plaintiffs. The Sale of Land Act 1962 prescribes a safekeeping scheme and deposits so paid are designated as trust funds to be held on behalf of the purchaser only.
117 I find that, pursuant to its registration, it can be inferred that the agent both understood its obligations under the Sale of Land Act 1962, and that by accepting such deposits and paying them into its trust account the agent agreed to act in the interests of the plaintiffs. In such circumstances, I find a trust was created, and pursuant to such trust, a fiduciary relationship existed, see Hospital Products Ltd v United States Surgical Corp. [125]
[125](1984) 156 CLR 41, 96-7
118 I find in such circumstances therefore, that the plaintiffs are entitled to seek compensation in equity for any losses suffered: see Nocton v Lord Ashburton[126] and also Dawson, Re; Union Fidelity Trustee Co Ltd v Perpetual Trustee Co Ltd,[127] where it was pointed out that the object of such damages is restitution of what the principal has lost: the question is, would the loss have occurred but for the breach? It was also stated that considerations of causation, foreseeability and remoteness do not readily enter into the matter.
[126][1914] AC 932
[127][1966] 2 NSWLR 211 at 215
119 I also find that the third defendant knowingly induced and procured the second defendant to breach its fiduciary duties under the trust created by the Sale of Land Act 1962 and the acceptance of the deposits into its trust account, and is liable to the plaintiffs for any loss.
120 Given my finding, the submissions relevant to stakeholders and their duties, do not need to be determined.
121 I have considered the submission of Mr Juebner of the need for the behaviour of his client to be reprehensible, albeit not needing to be actually dishonest. He submitted that in the circumstances I could not so find. However, I have no hesitation in finding upon the evidence that Mr Vatmanidis’ actions were grossly reprehensible, and that liability to the plaintiffs is established by way of Mr Vatmanidis being a participant in the breach of trust whereby Vatmanidis knowingly induced and procured the breaches of duty by the agent, albeit that I find the agent did not act with any improper purpose. I refer in this regard to the line of authority referred to in Farah Constructions Pty Ltd v Say-Dee Pty Ltd,[128] see in particular the authorities referred thereto at note 237. I also refer to ‘Principles of the Law of Trusts’, Ford and Lee (2nd ed) [2222.2] and the Law Quarterly Review, 102 [1986] 114, at 141-144.
[128](2007) 230 CLR 89 at 159
Is there a Loss Suffered by the Plaintiffs?
122 The evidence as to the progress of the deposits from the time they were placed in the business account of the defendant is that on 4 July 2008 they appear to have been removed therefrom.[129]
[129]See Exhibit V5, CB 1218
123 In evidence, consistent with the advice of Vatmanidis, Mr Kalothihos said that the deposits were invested in a Bank of Queensland term deposit. Mr Kalothihos was asked by me whether it was still there, and he answered as follows:
“No, Your Honour. It ran its course a few months later. We rolled it over for another six months and then around December ‘09 it matured.”
124 I then asked:
Q: “What does that mean? Where did it go then?---
A: Well, it ran out of time. I didn’t roll it over. We took the money and we left it in the bank account and used it as – it stayed in the Filippou Management account.”[130]
[130]Transcript 399
125 To date the defendant has refused to refund the deposit on the basis that it maintained its right to rescission, and thereby retention of the deposits. Given my determination this day, it had no such right.
126 Mr Strahan and Mr Juebner submitted, given the evidence of Mr Kalothihos that the defendant, were it required by the Court to pay back the $205,000 deposit, was in a position to do so, Mr Kalothihos said:
“I don’t think we would have any difficulty doing it. I would answer, there’s no difficulty in paying back the money. It’s not the issue.”[131]
[131]Transcript 483
127 I have already said I do not accept the credibility of Mr Kalothihos.
128 Mr Strahan and Mr Juebner submitted that the claim by the plaintiffs in these circumstances is premature. I find that such claim is now not premature.
129 At the time these funds were released by the agent, s27(11) of the Sale of Land Act 1962 specifically provided that s27 did not operate in regard to deposit monies held by the agent under s9AA. Subsequent to the forwarding by the agent of the deposits to the defendant, the plan of subdivision was approved on 28 October 2008. Albeit that such would, had the money still been in the agent’s trust account, changed the status under which the agent held the deposit monies, such in no way alleviates the position of the agent.
130 Pending entitlement to possession of the property, or release of the deposit pursuant to s27 of the Sale of Land Act 1962, the deposit would have either remained in the agent’s trust account or had the investment power been exercised under special condition 5.2 of the contract, been invested accordingly. Such monies would now, given this determination, be available to be ordered to be paid to the plaintiffs according to special condition 58.1 of the contracts.
131 Such funds are not, because they have been dissipated by the vendor, now capable of being paid to the plaintiff. The argument that the defendant may now have a capacity to repay money that it has dissipated does not alter the fact that the plaintiffs have suffered a loss. I find that there is a loss suffered by the plaintiffs, and such loss was brought about by the fact that, in breach of fiduciary duty, the agent paid the deposits to the defendant.
132 In all of the circumstances, upon an analysis of the evidence, I am satisfied that Mr Vatmanidis had subjective knowledge which he disregarded wilfully or recklessly, that he was inducing and procuring the agent to act in breach of trust if it acted as he requested in the letter he forwarded.[132] Vatmanidis did not act unwittingly, but acted with knowledge that the actions that it was requesting of the agent would produce a breach of trust. In those circumstances, albeit that the breach was committed by the agent negligently, if not recklessly, I find that breach of trust by the agent to be innocent, given its reliance upon the advice from Vatmanidis. Given those findings, I find that Vatmanidis must bear primary responsibility for the loss.[133]
[132]Exhibit V3
[133]See ‘Principles of the Law of Trusts’, Ford and Lee (2nd ed) at paragraph 22.03 and the Law Quarterly Review, 102 [186] 114, page 143
Other Claims
(1) I order that if the agent is required to pay equitable damages to the plaintiffs, then, pursuant to s24 of the Wrongs Act 1958, that it is just and equitable that the defendant provide a full indemnity for any such sum paid. I do so upon the findings made against the defendant in paragraphs [28] to [33] hereof.
(2) I allow the cross claim pursuant to s9 of the Fair Trading Act 1999 against the defendant, again by way of a full indemnity in regard to any payments which the agent may be required to make to the plaintiffs. I do so again on the basis of my findings in paragraphs [28] to [33] hereof.
(3) I allow the damages claim in negligence and the claim under the Fair Trading Act 1999 against Vatmanidis in the sum of the amount which the agent may be required to pay to the plaintiffs. I do so on the basis of my findings in paragraphs [103] to [104] and [119] to [121].
(4) As to the issue of contributory negligence as between the second and third-named defendants, I reduce the negligence claim against Vatmanidis by 20 per cent to account for the contributory negligence of the agent. I do so upon the basis of my findings in paragraphs [107] to [112] hereof.
(5) I also order judgment against Mr Kalothihos on the third party claim of the agent in the full sum which the agent may be ordered to pay to the plaintiffs. There is no defence filed to this claim.
(6) As to the claim for contribution by Vatmanidis, I order that the defendant provide a total indemnity for any sum which the agent may be asked to pay to the plaintiffs. I do so upon my findings in paragraphs [27] to [33], [34] to [40] and [105] hereof.
(7) I otherwise dismiss all other claims by Vatmanidis.
133 Before any final order is made, I will hear the parties as to interest, the other orders made under paragraph [132] and costs.
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