SAS Realty Developments Pty Ltd v Quentin Kerr; Quentin Kerr v SAS Realty Developments Pty Ltd and Sean Shen
[2012] NSWDC 110
•04 May 2012
District Court
New South Wales
Medium Neutral Citation: SAS Realty Developments Pty Ltd v Quentin Kerr; Quentin Kerr v SAS Realty Developments Pty Ltd and Sean Shen [2012] NSWDC 110 Decision date: 04 May 2012 Before: MURRELL SC DCJ Decision: SAS cross claim: Verdict for the cross defendant.
Mr Kerr's cross claim: Verdict for the cross claimant.
Catchwords: Joint venture agreement
Estoppel
Conversion
Unjust enrichment
Breach of contract
Non est factum
Damages
MisrepresentationLegislation Cited: Trade Practices Act 1974 s 52 Cases Cited: Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407
Petelin v Cullen [1975] HCA 24
Ford by hist tutor Beatrice Ann Watkinson v Perpetual Trustees Victoria Limited [2009] NSWCA 186
Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387
Allianz Australia Insurance Limited v Lo-Guidice [2012] NSWSC 145
Parsons v The Queen [1999] HCA 1Category: Principal judgment Parties: SAS Realty Developments Pty Ltd
Quentin Kerr
Sean ShenRepresentation: Mr R de Meyrick (Second cross claimant)
Wisdom Lawyers (Second cross claimant)
Link Lawyers (Cross defendant)
File Number(s): 2010/386136
Judgment
Background Facts
Mr Sean Shen and his property development company, SAS Realty Developments Pty Ltd (SAS), are in dispute with Mr Quentin Kerr concerning a 2010 joint venture property development that did not proceed. The central issues relate to a sum of $400,000 that Mr Kerr paid to Mr Shen, a sum of $145,845 that Mr Kerr withdrew from the SAS account, and whether Mr Kerr breached the joint venture agreement by failing to pay a sum of $1M.
SAS owned a development site in Parramatta. It had development approval to construct a residential/commercial development on the property. SAS was negotiating with Nazero Constructions Proprietary Ltd (the builder) for the construction of the development. The property was subject to a mortgage of $1M to the National Australia Bank. SAS was seeking bank finance of about $6.5M for the development, to be secured by a registered first mortgage.
SAS needed an investor to pay out the existing $1M loan and to meet any shortfall in development finance. Mr Gao knew both Mr Shen and Mr Kerr. In June 2010, he introduced the two men. Thereafter, he acted as an intermediary. Mr Shen gave Mr Kerr a copy of a "project feasibility" document (Court book, tab 6, p 107 - p 108).
On 25 June 2010, SAS and Mr Kerr signed a joint venture agreement (the JVA), which Mr Shen had adapted from a standard form document. Mr Kerr paid $50,000 and committed to paying further sums of $350,000 and $1M. Under the JVA, SAS would derive its profit by retaining/selling nine commercial lots and one parking space (the retained lots). Mr Kerr's profit would be the difference between the development cost and the sum achieved by selling the remaining lots.
On 30 June 2010, Westpac Bank furnished SAS with an "expression of interest" in providing development finance of $6.22M (tab 8, p 45).
On 21 July, there was a meeting at a restaurant, which was attended by the builder, Mr Shen, Mr Kerr, Mr Yu (who was to be the project manager), Mr Gao and Mr Leamey (the solicitor for SAS). SAS and the builder signed the building contract (tab 6, p 24), pursuant to which the development was to be constructed for a fixed price of $5.4M plus GST (p 28). The work was to be undertaken in two stages. Stage 1 comprised the piling and the ground floor slab. The cost of Stage 1 was capped at $300,000 plus GST. The contract required that SAS deposit $200,000 into its account in relation to Stage 1 (special condition 13). At the meeting on 21 July, the builder noted that $300,000 (or possibly $200,000) should be deposited into the SAS account before Stage 1 work commenced. Stage 2 was to commence after bank finance was obtained.
In July 2010, Mr Kerr provided Mr Shen with a cheque for $350,000 made out to "Sean Shen" (tab 10, p1). Mr Kerr and Mr Shen executed a document dated 21 July 2010 (tab 6, p 109; the July document). Mr Shen asserted that, on about 21 July 2010, Mr Kerr requested a shareholding in SAS, he agreed that Mr Kerr could purchase 600 shares in SAS (a 37.5% shareholding) for $400,000, and he arranged for Mr Kerr to be appointed a director of SAS. On about 9 August, Mr Kerr was issued with 600 shares in SAS (tab 9, p 8 and p 10).
The sum of $400,000 paid by Mr Kerr ($50,000 plus $350,000) was applied to Mr Shen's personal purposes rather than to the joint venture.
On 11 August, there was a meeting at the Westpac Bank. An email dated 12 August from Minnie Yao (Mr Kerr's wife) to Mr Shen, stated:
"the bank made it clear we have to prepare $1,000,000 to settle or it won't release the money to us ... $400,000 by SAS share (done)"
In about August 2010, Stage 1 construction work commenced. Mr Kerr became concerned about the security of the sum of $400,000 and other sums that he had paid into the SAS account. Despite Mr Shen's objection, on 19 August 2010 Mr Kerr withdrew $145,854 from the SAS account. From about 18 August 2010, Mr Kerr asked Mr Shen to stop construction until funding issues were resolved (tab 8, p 56). On 23 August, Minnie Yao, wrote to the lawyers for SAS requesting that construction be halted due to the "funding problem" (tab 8, p 56).
In September 2010, the builder stopped work (tab 11, p 85). Stage 1 was about 90% complete. The builder had received its first progress payment of approximately $130,000. Later, the builder sued SAS and recovered a judgment of approximately $117,000 plus costs in relation to its second progress claim. At a meeting on 2 November 2010, SAS purported to terminate the joint venture (tab 10, p12).
The Issues
SAS claims damages from Mr Kerr, alleging that he breached the JVA by failing to pay $1M, and damages or restitution in the sum of $145,854.
Relying on the July document and/or the JVA, Mr Kerr claims repayment of the sum of $400,000 from SAS and/or Mr Shen, asserting that the monies should have been applied to joint venture purposes and/or were to be repaid if development finance was not approved. In addition, Mr Kerr claims that, in entering the JVA, he relied on misrepresentations made by Mr Shen. He seeks damages under the Trade Practices Act 1974.
The issues are:
(1) Did SAS and/or Mr Shen breach an implied term of the JVA and/or the July document that the sum of $400,000 would be used for joint venture purposes, rather than for the purchase of shares in SAS? Are the monies to be refunded under the July document? If so, is Mr Kerr estopped from relying upon the July document?
(2) Has SAS established that Mr Kerr's failure to provide $1M to SAS was a breach of the JVA? If so, has SAS established that the breach caused SAS to suffer damages (primarily, the obligation to pay two progress claims to the builder)? SAS claims that it accepted Mr Kerr's repudiation of the agreement and is entitled to recover its reliance costs, being the costs expended in performing the agreement.
(3) Has SAS established that Mr Kerr's withdrawal of $145,854 from the SAS account amounted to conversion and/or unjust enrichment?
(4) Did Mr Kerr enter the JVA/July document in reliance upon representations made by SAS in trade or commerce that were misleading and/or deceptive in relation to the number of units that had been presold, whether a construction certificate had been issued and piling design was in place, and/ or whether an electricity substation was required at a substantial additional cost? If so, has Mr Kerr established any loss flowing from the misrepresentation/s?
The Witnesses
I have no confidence in the veracity of Mr Shen's evidence. There were many occasions when Mr Shen prevaricated and appeared to be avoiding a frank response to questions. I disbelieve his evidence regarding the purpose of the payment of the $400,000 (see par [23]-[26] below). As to the electricity substation, Mr Shen admitted that, by March/April 2010, he knew that the project may require a substation at a cost of $50,000, but he did not advise Mr Kerr of this contingency until after Mr Kerr had entered the JVA. I accept Mr Yu's evidence that Mr Shen appointed him to be a secretary of SAS without his knowledge, and that Mr Shen asked him to "make a false evidence to accuse" Mr Kerr (tab 14, par 14). Mr Shen was prepared to deceive a financier into believing that the nine retained lots had been presold (see par [18] below). Most other witnesses were moderately reliable. I reject the suggestion that there was an orchestrated attempt to discredit Mr Shen.
I formed the view that Mr Kerr was a far more reliable witness than Mr Shen. He was agitated because he perceived that he had been wronged. Mr Kerr was criticised for failing to disclose matters in his affidavits and revealing them for the first time during cross-examination. On both sides of the record, the affidavits were poorly drafted, contained much inadmissible material and omitted relevant material. Mr Kerr's affidavits were no exception. Consequently, the omission of material should not be held against Mr Kerr. Although, in general, Mr Kerr was a believable witness, there were two significant shortcomings in his evidence. First, he was evasive in relation to his capacity to source $1M when required. Second, he may have been involved in Mr Shen's plan to deceive a financier into believing that the nine retained lots had been presold (Mr Shen said that Mr Kerr signed the "contract" to sell the lots).
Mr Shen alleged that Mr Yu was biased against him because Mr Shen had obtained judgment and issued bankruptcy proceedings against Mr Yu in relation to a loan of $67,547.27 that Mr Shen had made to Mr Yu. Although Mr Yu was very upset with Mr Shen, he became dissatisfied well before the commencement of proceedings to recover the loan. I am satisfied that the source of his dissatisfaction was Mr Shen's conduct in connection with the property development (for example, see tab 9, p 16).
Mr Gao was a rather cavalier witness, whose evidence about the circumstances in which Mr Kerr paid $350,000 differed from that of Mr Kerr. I harbour doubts about his reliability as a witness. I prefer Mr Kerr's evidence about the circumstances in which he paid $350,000. However, I do accept Mr Gao's evidence about how he came to sign a "contract" to purchase the nine retained lots for a sum of $2.5M because his evidence involved a concession of wrongdoing and he was not cross-examined on the evidence. Mr Gao said that Mr Shen asked him to ""purchase" the nine retained lots as (Mr Shen) can't buy himself since he is the owner of the property". Mr Gao was to "return" the units to Mr Shen. Mr Gao became unhappy when he discovered that he had been named as the sole director and secretary of the "purchaser" company, Capital Group Pty Ltd, and that the shareholder in Capital was "Sunny Sun", whose Broadway address was that of SAS.
The Payment of $400,000
Upon signing the JVA on 25 June, Mr Kerr paid $50,000 to Mr Shen. In July, Mr Kerr paid $350,000 by a cheque made out to Mr Shen. The moneys were applied to Mr Shen's personal purposes, rather than to joint venture purposes.
Mr Kerr claimed that $400,000 was repayable because SAS had breached the JVA and/or the July agreement by misappropriating it. Alternatively, he claimed that the moneys were refundable because SAS failed to obtain unconditional finance approval.
Mr Kerr asserted that it was a term of the JVA and/or the July document that the moneys would be used as joint venture working capital. He stated that, although the JVA did not oblige him to pay the instalment of $350,000 until development finance had been approved unconditionally, Mr Shen pressured him to do so. Because Mr Kerr was nervous about advancing the sum of $350,000, he prepared the July document and presented it to Mr Shen for signature. He said that the July document was executed on the date that it bore, 21 July, and that he paid the sum of $350,000 when Mr Shen signed the July document. The cheque was post-dated to 23 July to enable the subject funds to clear into his account. The cheque was made out to Mr Shen personally because Mr Shen told him that the SAS company account had not yet been established and cheques should be made payable to Mr Shen as the owner of the company.
Mr Shen was adamant that the sum of $400,000 was not advanced for joint venture working capital, but for the purchase of 600 shares in SAS. He alleged that, in a conversation on about 21 July, Mr Kerr agreed to pay $400,000 for 600 shares. Mr Shen said that the cheque for $350,000 was paid on 23 July and that he signed the July document on about 28 July, having been told by Mr Kerr that it was a "receipt". Mr Shen submitted that the July document did not vary the JVA because it was unsupported by consideration. Alternatively, Mr Kerr was estopped from relying on the July document as he had misled Mr Shen into believing that the document was merely a "receipt".
The JVA provided:
"Recitals
...
E Quentin Wayne Kerr is to provide funds to the joint venture as detailed herein.
4 In addition to the appointment of a Manager in clause 14 below, SAS must appoint Quentin Wayne Kerr as a joint director of SAS Realty Development Pty Ltd to manage the affairs of the joint venture on its behalf and agrees that its representative has authority to bind the company on all matters relating to the joint venture.
The joint venturers propose:
For Quentin Wayne Kerr to provide one million dollars ($1,000,000) to enable the existing mortgage AA747432 over the land to the National Australia Bank to be discharged or fund for start construction; and Quentin Wayne Kerr is responsible to pay back the existing mortgage AA747432 loan of one million dollars ($1,000,000) at necessary time.
For Quentin Wayne Kerr to provide four hundred thousand dollars ($50,000) immediately to SAS Financial Group Pty Ltd and Sean Shen for sign the contract. $350,000 upon the approved of finance for the development;
To obtain construction finance in the sum of six million dollars ($6,500,000) secured by a first registered mortgage over the land ...
6. The parties must contribute the capital required to complete the project in the following way with no fixed nominated proportions and all of the profits and losses of the venture will be for the account of Quentin Wayne Kerr subject to the terms and payments herein.
SAS agrees to allow the land to be used as security for the loan ...
Quentin Wayne Kerr is paying the sum of $1.4 million under this agreement to SAS and the National Australia Bank.
Quentin Wayne Kerr is receive all of the profits after the repayment of the loan and payments as specified here in ...
21.Quentin Wayne Kerr must ensure that the joint venture has sufficient working capital to conduct the project from the Loan."
(emphasis added)
The JVA made no mention of shares. I reject the submission of Mr Shen and SAS that the failure to mention shares is explained by "the inexpert manner of (the creation of the JVA)". The JVA may have been inexpertly created, but it was comprehensive and its intent was clear. Notably, clause 4 referred to the appointment of Mr Kerr as a joint director of SAS, but failed to refer to Mr Kerr acquiring any shareholding in the company.
Mr Shen drew attention to clause 4 of the JVA, which stated that the sum of $400,000 was to be paid to "SAS Financial Group Pty Ltd and Sean Shen" rather than to SAS Realty Developments Pty Ltd. However, clause 6 stated that the funds were to be paid to "SAS", an apparent reference to SAS Realty Developments Pty Ltd. Any deficiencies in drafting were caused by Mr Shen amending a precedent document, and the failure of both Mr Shen and Mr Kerr to draw clear distinctions between themselves and the corporate entities that they "owned".
The recitals and the substantive terms of the JVA provided that the sum of $400,000 was payable as joint venture working capital. Under the JVA, Mr Kerr was to contribute $1.4 M to the development. $50,000 was to be paid upon signing of the JVA, and the remaining $1.35 M upon unconditional approval of development finance. Of the sum of $1.35 M, $1M was to be applied to discharge of the existing mortgage, enabling development finance to be secured by a first mortgage over the property. Further, the JVA made commercial sense only if the funds were to be received on behalf of SAS and applied to the SAS development.
The July document was entitled "Agreement between Quentin Kerr to Mr Sean Shen in Joint Venture Agreement". It carried the typed date of 21 July 2010. It was signed by Mr Kerr as managing director of Staralbert Investment Group Pty Ltd and by Mr Shen as managing director of SAS Developments Pty Ltd. It provided:
"Mr Quentin Kerr has paid Mr Sean Shen from SAS Realty Developments Pty Ltd (ACN 102737575) total AU $400,000 from Staralbert Investment Group Pty Ltd as investment fund to SAS Developments Pty Ltd as at July 23rd, 2010 in Joint Venture Agreement. Quentin Kerr will hold the right to withdraw the investment fund if Mr Sean Shen fails to get the construction finance unconditional approved or receives less than $6, 220, 000 loan, Mr Sean Shen should refund Mr Quentin Kerr AU $400,000 immediately."
On its face, the July document purported to be an "agreement" relating to the JVA. In effect, it referred to the payment of $350,000 in consideration of an entitlement to immediate refund of the sum of $400,000 should Westpac fail to give final approval to SAS for development finance of $6.22 M. Although the parties were not correctly named, as the subject matter of the document was Mr Kerr's obligation to provide $400,000 as working capital for the joint venture, it must be inferred that Mr Kerr and Mr Shen intended that the document would bind the parties to the JVA (or that the named parties represented the parties to the JVA). Similarly, the agreement to "refund" was an agreement that, if SAS failed to obtain the approval, then SAS would refund the monies.
On 20 July 2010 Mr Fan, a friend of Mr Kerr, advanced a loan of $400,000 to Mr Kerr at 15% interest (tab 8, p 27; tab 11, p 51). This evidence supported Mr Kerr's assertion that the cheque to Mr Shen was post-dated to ensure that it cleared.
Mr Shen advanced a number of reasons why the Court should reject the evidence of Mr Kerr concerning the circumstances in which the July document was signed. First, there was evidence that, prior to 25 June 2010, Mr Kerr had received legal advice that he should obtain shares in SAS. Mr Kerr did receive that advice. However, apart from Mr Shen's assertions, there is no evidence that, prior to 12 August 2010, Mr Kerr sought to treat the $400,000 as relating to a share purchase.
Second, there was evidence that, on 12 August, Mr Kerr (or his wife) wrote "$400,000: buy share SAS (done)". On 15 August 2010, Mr Kerr (or his wife) wrote: "The $400,000 funding for purchasing SAS Realty Development Pty Ltd shares is not from cash purchasing" (tab 6, p 104). Although subsequent conduct may be admissible as retrospective evidence probative of the surrounding circumstances at the time that a document was executed, it cannot be used to prove what the parties meant by particular terms used in a contract: Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWSCA 407. By mid-August, Mr Kerr was becoming very nervous about the project and that sentiment may have influenced the communications of 12 and 15 August. Those communications reflect Mr Kerr's intentions in mid-August but say little about his intentions in June and July. The communications cannot be used to prove what the parties meant by the JVA or the July document.
Third, Mr Shen relied on the fact that, in late July 2010, Mr Kerr deposited $305,000 into the SAS account as a "personal funding transfer". Mr Shen argued that the deposit of such a sum was inconsistent with Mr Kerr's assertion that he had already met his obligation to pay the sum of $400,000. I reject that submission. The payment of $305,000 was consistent with Mr Kerr's obligation under clause 21 of the JVA to ensure that the joint venture always had sufficient working capital from which to conduct the project. When the $305,000 was deposited, construction was about to commence and the builder required funds in the SAS account.
For the following reasons, I find that Mr Shen fabricated his evidence regarding the circumstances in which the July document was signed and the reason for the issue of the 600 shares.
(1) $50,000 was paid on 25 June, one month before the alleged request for shares.
(2) Mr Shen failed to explain how the shares happened to be valued at the convenient price of $400,000.
(3) The feasibility document that was presented by to Mr Kerr prior to 25 June stated: "return on capital ($1,400,000) Westpac loan request 6.3 mil".
(4) An email of 12 August from Mr Shen to Minnie Yao stated:
"It is very clear you have to provide $1.4 million for this project" (tab 8, p 54, emphasis added).
(5) On 26 September 2010, Mr Shen signed a letter to Mr Kerr that stated:
"16 The $400,000 was not required to be deposited into the company's bank account under clause 4(c) of the Agreement it was paid to other entities/person. They are not Joint Venture funds;
17 The Jointure stands alone and has nothing to do with the shares; the shares were issued without consideration for finance purposes" (emphasis added).
I do not accept Mr Shen's evidence that the letter was written by his solicitor, Mr Leamey, without instructions. Mr Leamey would not have written the letter without instructions. In any event, Mr Shen signed the letter.
(6) Paragraph 17 of Mr Shen's affidavit of 8 August 2011 (tab 6) states:
"17. Kerr paid $400,000 to SAS about 21 July 2010. This was the initial investment fund from Kerr under clause 4 (c) of JVA ..."
I find that the shares were issued to Mr Kerr to demonstrate to the proposed financier that Mr Kerr was integrally involved with the affairs of SAS.
SAS argued that Mr Kerr had failed to plead that there was consideration for the July document. In my view, the issue was adequately raised by the pleadings. In any event, the case was conducted on the basis that it had been raised.
SAS pleaded a defence of non est factum in relation to the July document. Such a defence is unavailable to those who negligently fail to take reasonable precautions in ascertaining the character of a document before signing it and applies only where a person believed the document to be radically different from what it was: Petelin v Cullen [1975] HCA 24 at [12] applied in Ford by his tutor Beatrice Ann Watkinson v Perpetual Trustees Victoria Limited [2009] NSWCA 186. Consequently, it is not available in the present case.
In order to succeed on the alternative argument of estoppel, Mr Shen would have to establish that Mr Kerr misrepresented the July document to be a receipt only, that he signed the document on that assumption, and that it would be unjust or unconscionable for Mr Kerr to rely upon the document as being a legally binding agreement: Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 per Brennan J. For the reasons stated above, I do not accept Mr Shen's evidence that he was misled into believing that the July document was merely a receipt or that he signed the July document in that mistaken belief. Rather, Mr Shen's evidence as to the circumstances in which he received the sum of $350,000 and signed the July document was a fabrication.
The July document confirmed the intent of the JVA; that the sum of $400,000 was to be used by SAS as joint venture capital. After the JVA was entered and before the July document was signed, Westpac Bank expressed interest in providing $6.22 M for the project. It was in that context that the July document varied the JVA, stating that, if construction finance of $6.22M was not unconditionally approved, then the sum of $400,000 would be refunded to Mr Kerr "immediately". In breach of the JVA, SAS failed to apply the money to joint venture purposes. Funding approval was not obtained. In breach of the July document, SAS did not refund the money. Mr Shen was unjustly enriched; he took the money and applied it to his own purposes. Mr Kerr is entitled to recover the sum of $400,000.
Was Mr Kerr obliged to pay $1M?
SAS claimed that Mr Kerr breached the JVA by failing to provide $1M to discharge the existing mortgage over the property. Pursuant to the cl 4 of the JVA:
"...
b) ...Quentin Wayne Kerr is responsible to pay back the existing mortgage AA747432 loan of one million dollars ($1,000,000) at necessary time.
...
6. ... Quentin Wayne Kerr is paying the sum of $1.4 million under this agreement to SAS and the National Australia Bank."
The terms of the JVA required that Mr Kerr pay $1M to the National Australia Bank for the purpose of discharging the existing mortgage over the property and enabling the property to be used as security for a development loan.
Through its finance broker, SAS sought development finance. Mr Kerr had no responsibility for driving the process. On 30 June 2010, Westpac Bank gave SAS an "expression of interest" in providing finance of $6.22M (tab 8, p 45). SAS contended that this letter constituted effective approval of finance and gave rise to the requirement for Mr Kerr to pay $1M.
The letter of 30 June 2010 did not constitute unconditional approval of finance such that there was an immediate requirement that Mr Kerr provide $1M. The letter was an "expression of interest" which "(did) not represent a letter of offer". It set out details "for discussion purposes only". It listed many items of "further information" that were required "to progress this to a credit assessment", including at least one important item that SAS was in no position to provide: exchanged contracts for the nine commercial units. Consistent with the letter being merely an "expression of interest", it was not until some time after 30 June that Mr Shen showed the letter to Mr Kerr. Mr Shen had the primary responsibility for organising bank finance, but went overseas for a month on 11 August 2010. As at December 2010, SAS did not have loan approval (tab 6, p105).
The only notice that was given to Mr Kerr regarding the need to source $1M in the near future was contained in letter signed by Mr Shen on 26 September 2010 (tab 10, p8), which stated:
"12. The property valuation is expected to be ready next week and you will need to have the A$1 million ready soon."
I do not accept Mr Shen's assertion that Mr Leamey drafted the letter.
In evidence, Mr Kerr said that he could have obtained $1M "if required". Having regard to his Australian assets and liabilities at the time, it seems unlikely that he could have borrowed the money from a financial institution within Australia (see the statement of financial position at tab 10, p 5). However, despite apparently limited financial resources, in July 2010 Mr Kerr did raise the sum of $400,000 from Mr Fan. Mr Kerr maintained that he could have raised $1M from overseas sources. In any event, as SAS did not obtain approval for development finance, Mr Kerr was never put to the test and did not breach the JVA.
SAS contended that the failure of Mr Kerr to provide $1M constituted a repudiation of the JVA, which was accepted by SAS on 2 November 2010 (tab 10, p 12). SAS claimed reliance costs, being payment of the builder's costs for stage 1 of the development.
As SAS has not proved that Mr Kerr breached the JVA by failing to provide $1M, it is not necessary to determine whether damages were sustained. However, I note that, in the last six months, the builder and SAS have discussed recommencement of the building work. Mr Shen would like the development to proceed. SAS has not established whether and to what extent the expenditure on Stage 1 has been wasted.
Withdrawal of $145,854
Despite Mr Shen's objection, on 19 August 2010 Mr Kerr withdrew $145,854 from the SAS account.
Clause 3 of the JVA provided:
" 3(a) Each party must nominate Quentin Wayne Kerr to sign all cheques on their behalf.
(b) Joint venture cheques are to be signed Quentin Wayne Kerr on behalf of each party or by the Manager appointed herein.
Amount over $10,000 must be informed as to all parties."
SAS pleaded that Mr Kerr converted the sum of $145,854 to his own use and, alternatively, that Mr Kerr was unjustly enriched. SAS argued that, pursuant to clause 3 of the JVA, Mr Kerr was only authorised to draw cheques up to $10,000. Further, any withdrawals had to be for the purposes of SAS and/or the joint venture.
Mr Kerr gave evidence that he withdrew the sum of $145,854 in order to repay himself three amounts: a sum of $122,050 that he had deposited to the SAS account, $22,000 that he had paid directly (not via the SAS account) to Mr Yu for Stage 1 project management services (tab 10, p19), and $1,804 that he had deposited to the SAS account on 30 July 2010 in order that an identical amount could be withdrawn to pay a solicitor's bill without bringing the balance below the minimum sum of $200,000 that the builder required in order to commence construction.
The tort of conversion addresses interference with the dominion of the true owner over his or her goods. The tort is comprised of two elements: that the plaintiff has possession or a right to immediate possession of the goods, and that the defendant deals with the goods in a manner repugnant to the plaintiff's right to possession of the goods: Allianz Australia Insurance Limited v Lo-Giudice [2012] NSWSC 145 at [27]. The subject of a conversion must be tangible goods or property that is capable of possession. The goods may be a negotiable instrument such as a cheque: Parsons v The Queen [1999] HCA 1; Allianz Australia at [28]. There is no authority for the proposition that money in a bank account may properly be the subject matter of a claim in conversion. The claim by SAS must fail on this basis.
The sums comprising the amount of $145,854 were separate from the sums totalling $1.4 M that Mr Kerr was contractually required to pay under the JVA. Mr Kerr voluntarily paid $145,854 in order to expedite the project. His payments were loans repayable on call. I accept the submission of SAS that Mr Kerr was impliedly authorised only to draw cheques that related to joint venture purposes. However, the repayment of loans to SAS was such a purpose. I do not accept that the contractual requirement to "inform all parties" in relation to cheques exceeding $10,000 was a requirement to inform before drawing such a cheque, let alone a requirement to obtain consent to the drawing of such a cheque. As JVA profits and losses were to accrue to Mr Kerr, it was appropriate that he control monies and, pursuant to cl 3(a) of the JVA, Mr Kerr had general authority to sign all cheques on behalf of SAS. For these further reasons, the claims in conversion and unjust enrichment fail.
The Representations
Mr Kerr claimed that he entered the JVA/July document in reliance upon representations made by SAS in trade or commerce that were misleading and/or deceptive within s 52 of the Trade Practices Act 1974. The misrepresentations concerned the number of units that had been presold, whether a construction certificate had been issued and piling design was in place, and whether an electricity substation was required at a substantial additional cost.
SAS had an initial construction certificate only. The JVA referred to development approval but did not assert that there was a final construction certificate.
When, as part of stage one, the builder excavated for the purpose of constructing the piling, the builder encountered a water table. As a result, the builder incurred extra costs. There was no evidence about when it came to Mr Kerr's attention that the piling costs had increased, or his response to that information.
An electricity substation was required at an additional cost of at least $50,000. From March/April 2010, Mr Shen knew that the substation was required and he knew the likely cost. The project feasibility document (tab 6, p 107-p 108) contained no allowance for the substation. Mr Shen first spoke to Mr Kerr regarding the electricity substation in August. Although an amount of $50,000 was small compared to the overall cost of the project, it was significant when compared to the projected profit margin.
The builder said that the absence of a final construction certificate and the electricity substation issue were matters that were "not uncommon during a project of this size".
In relation to presold units, Mr Kerr contended that the number of presold lots "was over-estimated by at least one". The project feasibility statement referred to fourteen presold lots (including five presold car spaces) and the JVA referred to the same fourteen lots as "presold lots". The JVA also stated that one purpose of the JVA was "to sell the lots": clause 4(e). As to lot 25 (a lot nominated as presold, but which was not presold), there is evidence that Mr Kerr wanted to sell it himself in order to gain the benefit of the sales commission.
There is no clear evidence of reliance on any of the representations. Mr Kerr had a PhD in financial mathematics (stock market movements) and ten years of experience in commercial and residential property development. Initially, he was very enthusiastic about the development. I am not satisfied that he entered the JVA in reliance on any or all of the representations.
On the SAS cross claim, there is a verdict for Mr Kerr, the cross defendant. On Mr Kerr's cross claim, there is a verdict for Mr Kerr against the cross defendants, SAS and Mr Shen, in the sum of $453,252.05 plus interest from 2 November 2010 to 12 June 2012 in the sum of $53,252.050.
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Decision last updated: 03 August 2012
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