Scald v Bowyer - [2017] ACTSC 309

SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY

Case Title:	Scald v Bowyer
Citation:	[2017] ACTSC 309
Hearing Dates:	15-17 May 2017
DecisionDate:	25 October 2017
Before:	Burns J
Decision:	See [202]
Catchwords:	BUILDING AND CONSTRUCTION – joint venture for the construction of a residential apartment complex – defendant allegedly made representation that was misleading and deceptive – Fair Trading Act 1992 (ACT) – trade or commerce – whether there was a misrepresentation – adequacy of evidence concerning alleged errors in scope and effects on cost of construction –– reasonable grounds for making the representation – experience in the construction industry – legal onus – whether causal link to loss was shown NEGLIGENCE–– whether representation was made negligently – alleged lost opportunity – duty to take reasonable care – whether duty was breached LIMITATION OF ACTIONS – commencement of limitation period – prima statute barred – Limitation Act 1985 (ACT) s 33(1) – where alleged deliberate concealment to fact relevant to cause of action – the fact concealed must be a fact which should be pleaded in a Statement of Claim – plaintiff alleged the fact was flawed – whether Limitation Act 1985 (ACT) s 33(3) applied – inconsistency in argument regarding representation
Legislation Cited:	ACT Civil and Administrative Tribunal Act 2008 (ACT) Administrative Appeals Tribunal Act 1989 (ACT) Corporations Act 2001 (Cth) ss 189, 190(2) Fair Trading Act 1992 (ACT) ss 5, 12, 46(1) Limitation Act 1980 (UK) c 58, s 32 Limitation Act 1985 (ACT) ss 11, 33 Trade Practices Act 1974 (Cth) s 52(1)
Cases Cited:	AIC Limited v ITS Testing Services (UK) Ltd (The ‘Kriti Palm’) [2006] EWCA Civ 1601; [2007] 2 C.L.C. 223 Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; 238 CLR 304 Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594 Innes v Commonwealth [2015] ACTCA 33 Paramasivam v Flynn [1998] FCA 1711; 90 FCR 489 Taco Co of Australia v Taco Bell Pty Ltd (1982) 42 ALR 177 Wagdy Hanna and Associates Pty Ltd v National Library of Australia [2012] ACTSC 126; 7 ACTLR 70 Whittle v Filaria Pty Ltd & Ors [2004] ACTSC 45
Parties:	Scald Pty Ltd (Plaintiff) Peter Bowyer (Defendant)
Representation:	Counsel Mr D Ash (Plaintiff) Mr C Cassimatis (Defendant)
Solicitors Joe Weller & Associates (Plaintiff) Meyer Vandenberg Lawyers (Defendant)
File Number:	SC 412 of 2012

BURNS J:

Background

These proceedings arise out of a joint venture for the construction of a residential apartment complex on land situated at Turner in the Australian Capital Territory (ACT). The development was to proceed in two stages, and the events with which these proceedings are concerned occurred as part of Stage 1 of the development. Stage 1 was commenced in the latter half of 2002 and was completed in 2005.

The joint venture was established by a Deed of Agreement in December 2000. It was agreed that land would be acquired on trust for members of the venture by Turner Developments Pty Ltd. Each initial member invested $370,000.00, save that the investing vehicles controlled by the defendant, Peter John Bowyer, and Mr Goran Adzic contributed $240,000.00 each, to reflect their personal involvement in the development. The vehicle used by Mr Bowyer was Fastlook Pty Ltd, which operated as trustee for the Bowyer family trust.

The plaintiff, Scald Pty Ltd (Scald), was not one of the initial members of the venture. It became a member in June 2001 by means of a Deed of Amendment and Assumption. Scald also contributed $370,000.00 to the venture.

The joint venture was not a success, and Scald lost its investment.

On or about 29 November 2012, Scald commenced the present proceedings. As ultimately refined by amendment, Scald’s claim is that in or around September 2001, after Scald had joined the joint venture, Mr Bowyer in his capacity as project manager of the development or as a director of the trustee, Turner Developments Pty Ltd, represented that the likely cost of Stage 1 was in the order of $21 million. Scald alleged that this representation was misleading and deceptive and contrary to the provisions of the Fair Trading Act 1992 (ACT) (the FTA), as it was at that time, or was made negligently by Mr Bowyer. The plaintiff alleged that the true position, as known by Mr Bowyer at the time, was that the true cost of Stage 1 of the development, in the form proposed at that time, was estimated to be in the order of $26 million. The figure of $26 million was a figure derived from a report prepared by a cost planner, Konrad Trankles, in June 2001 (the Trankles Cost Plan).

The plaintiff alleged that as a result of the misrepresentation by Mr Bowyer it lost the opportunity to:

(a) revisit the design of Stage 1 so as to bring it back within the budget of $21 million; or

(b) sell out its interest in the venture; or

(c) engage the dispute mechanism found in the joint venture agreement with a view to winding-up and sale of assets if agreement between the members could not be reached.

In his Amended Defence, Mr Bowyer admitted that as at 8 December 2000 he was the sole director and shareholder of Fastlook Pty Ltd, one of the joint venturers, and was also a director of Turner Developments Pty Ltd. He admitted that clause 1.1 of the Deed of Agreement nominated him as project manager, but said that he was not a party to the Deed of Agreement and that he did not enter into any contract to provide project management services to the joint venture. Mr Bowyer said that project management services were provided by a company called Space Developments Pty Ltd. He further said that at a meeting of joint venture members in or about early June 2002 it was decided that Goran Adzic would be the project manager.

Mr Bowyer denied that he provided the alleged information or advice about the costing of Stage 1 to the plaintiff in any of the alleged capacities. Alternatively, he said that if he did so provide it, it was not reasonable in the circumstances for the plaintiff to rely upon it. Mr Bowyer said that any representation about costings were made to the joint venturers by Goran Adzic, and were not made at the direction or request of Mr Bowyer.

Mr Bowyer admitted that he was aware of an initial cost plan prepared by a third party which assessed the cost of Stage 1 as approximately $26 million, and that he knew that project finance would only be forthcoming if the likely cost was reduced to the order of $21 million. This information, he said, was provided to him by Goran Adzic.

10. In its Further Amended Statement of Claim (FASOC), Scald alleged that Mr Bowyer procured a further costing from Colliers International Ltd (Colliers) which provided a likely cost in the order of $21 million, but still with a material profit for the joint venturers. Scald alleged, however, that Mr Bowyer as project manager was aware that “material changes” would need to be effected to the project in order to effect the reduction of cost to $21 million. Mr Bowyer denied receiving a further costing from Colliers, and said he received a valuation from Colliers which was provided to him by Goran Adzic, who had independently briefed Colliers.

11. Scald alleged that it relied upon the representation that the cost of Stage 1 was likely to be in the order of $21 million and continued to participate in the joint venture on the assumption that the project would be managed on the basis of “the further costing” from Colliers. Scald further alleged that Mr Bowyer failed to correct that assumption, and that it only became aware of “the true state of affairs” at a meeting on 6 December 2006. Mr Bowyer alleged that Mr Adzic, either as an employee of Space Developments Pty Ltd, a director of Turner Developments Pty Ltd, or a member of the joint venture, made a number of representations to Scald and other joint venturers about costings after receiving advice from external service providers between June 2001 and December 2006. Mr Bowyer said that he was not aware of the assumption referred to by Scald, and was under no obligations to correct any such assumption. He further said that the relevant documents relating to costing of the project were at all times available for joint venture members to review.

12. Mr Bowyer denied that any such representation as alleged by Scald had been made in trade or commerce as required by the provisions of the FTA. He further denied that he owed Scald a duty of care as alleged or, alternatively, that he had breached any duty of care. In the further alternative he denied that any breach of a duty of care he owed to Scald caused the losses alleged by Scald. He further alleged contributory negligence on the part of Scald. Finally, he alleged that Scald’s claim was statute barred by s 11 of the Limitation Act 1985 (ACT) (the Limitation Act). With regard to this last allegation, Scald claimed that the commencement of any limitation period was postponed by virtue of s 33(1)(b) of the Limitation Act, by reason of Mr Bowyer deliberately concealing a fact relevant to Scald’s cause of action, being the existence and/or contents of the Trankles Cost Plan.

The plaintiff’s case

13. A tender bundle was prepared by the parties. I will refer to documents in the tender bundle by using their tender bundle number, i.e. the letters “TB”, followed by the page number in the tender bundle. On behalf of the plaintiff, Mr Scott Kovacs gave evidence. Mr Kovacs is the sole director of Scald. His evidence in chief was given by way of an affidavit sworn 8 September 2015.

14. Mr Kovacs was educated to year 12, and then obtained an electrical trade certificate and an advanced certificate in industrial electronics. He worked as an electrician until 1994, when he moved into management with an organisation called Electrical and Plumbing Services. He moved to Bovis Lend Lease as a project engineer in 1997. In about 1999 he became a senior project engineer (electrical). In 2003 he was asked to undertake a services manager’s role looking after all services on projects, and he remained in that role until 2010. He subsequently undertook a design manager’s role until 2013. Since then he has been a project manager.

15. Prior to December 2000, Mr Kovacs was working with Mr Bowyer and Mr Adzic at Bovis Lend Lease. In November 2000, Mr Adzic told Mr Kovacs that “we” had purchased a block of land for $6.6 million. In December 2000, Mr Adzic told him that he would be leaving Bovis Lend Lease to work on the “joint-venture” and that Mr Bowyer was staying on with Bovis Lend Lease working on producing a cost plan. Mr Kovacs said that from that time he observed Mr Bowyer working on a cost plan for the joint venture within the offices of Bovis Lend Lease, and that Mr Bowyer and Mr Adzic would do “measures of plans” and “go through these measurements” at the site office. Mr Kovacs saw quotes for the project on Mr Bowyer’s desk from time to time, and Mr Adzic would call from time to time to provide Mr Bowyer with updated design drawings.

16. In early February 2001 Mr Kovacs had a telephone conversation with Mr Adzic in which he was invited to join the joint venture. Mr Adzic told him that the capital needed to buy in was $370,000.00, that the project would take approximately 12 months to build, and that he would get his original capital back plus about $500,000.00-$600,000.00 profit. He was told that if he wanted to buy in, the money was required within a week. After discussing the proposition with his wife, Mr Kovacs agreed. For the purpose of participating in the joint venture, Mr Kovacs arranged for his lawyers to set up the plaintiff company. At the time that Scald joined the joint-venture, Mr Kovacs had a conversation with Mr Adzic asking how the profit for the development was to be calculated. Mr Adzic responded “[t]he design is being done and the initial costings are based on square metre rates and sales in the area”.

17. From February 2001 Mr Kovacs attended meetings of the joint venturers, although Scald was not formally admitted as a member until June 2001. Mr Kovacs said that “early meetings” addressed the progress of the design of the development. At one or more of those meetings, he said that Mr Bowyer made a statement to the effect that he, Mr Bowyer, was working on producing the cost plan from the design drawings which were being produced from the design which Mr Adzic was working on. After Scald became a member, Mr Kovacs became involved in electrical design for the development, and would provide Mr Bowyer and Mr Adzic with his “estimates”. Mr Kovacs said that during this time he was not asked for cost savings, and as part of the design team no value management exercise was undertaken to reduce costs from the current design.

18. Mr Kovacs, on behalf of Scald, prepared the electrical budget. When the budget was completed, he gave a copy to each of Mr Bowyer and Mr Adzic. This occurred around May or June 2001. Mr Kovacs said that Mr Bowyer then asked him to speak with “Konrad” about the electrical estimate. I understand this to be a reference to Konrad Trankles. Mr Kovacs said that Konrad was the cost planner used to put the actual cost plan together based upon information provided by Mr Bowyer. Mr Kovacs said that Konrad discussed with him Scald’s estimate to ensure that items in his initial costing were not being duplicated.

19. Mr Kovacs said that during members meetings there were conversations to the effect that it was necessary to make decisions as to the feasibility of the venture if the mix and unit prices and construction costs were not commercially viable. Mr Kovacs said that on more than one occasion Mr Adzic said words to the effect of “[i]f this is the case then the designs will be changed, unit mixing could be changed and value management undertaken. If this then could not be achieved there was the option to sell the land with a DA approval”. Mr Kovacs said that Mr Bowyer said words to the effect that he agreed with these statements by Mr Adzic.

20. At a meeting of members in May or June 2001, Mr Kovacs said, Mr Bowyer told members that the cost plan was nearly completed, and would be ready for the next meeting.

21. Mr Kovacs said that at a meeting in August 2001, members were advised by Mr Bowyer and Mr Adzic that “Project costings/budgets have been completed for the development” and that Mr Bowyer and Mr Adzic were approaching financiers on behalf of the joint venture based on those figures. It was at this meeting, Mr Kovacs said, that he received from Mr Adzic the first paperwork providing the commercial numbers for the venture and development realisations. This document was headed “Funding Comparisons – Stage 1 Only as at 19 August 2001” (TB 392). The figures in this report outlined the commercial feasibility for Stage 1 of the development, along with funding options. The report showed a total construction cost including design and preliminaries of $20,969,442.00. Mr Adzic said that a minimum 20% was needed as a profit for the banks to look at providing finance.

22. In late 2001, the joint venture experienced a delay with DA approval due to objections by a residents group. The matter proceeded to the Administrative Appeals Tribunal (the AAT), and a decision largely in favour of the joint venture, Mr Kovacs said, was delivered in June 2002. In the meantime, joint venture members and their families and friends were provided with the first opportunity to purchase apartments in the development. From the early sales, the estimated value of the apartment development was increased as people were paying above the market rates which had been provided by Leader Real Estate.

23. I will digress at this point to note that a number of witnesses referred to the proceedings concerning the development application as having taken place in the ACAT (the ACT Civil and Administrative Tribunal). This was clearly an error as the ACAT was not created until 2008: see the ACT Civil and Administrative Tribunal Act 2008 (ACT). The Administrative Appeals Tribunal was the body which preceded the ACAT, having been created by the Administrative Appeals Tribunal Act 1989 (ACT). To avoid confusion, I will refer to the correct body, being the AAT.

24. At a joint venture meeting around September or October 2001, Mr Adzic and Mr Bowyer advised members that conventional lenders wouldn’t finance the development and that they would need to look at other means of finance and speak to second tier lenders.

25. Mr Kovacs said that in December 2001 members were given a document headed “Project Cost Report Summary – Stage 1 As at 3 December 2001” (the 3 December 2001 report). Sometime after August 2001 at another meeting Mr Kovacs said that Mr Adzic provided him with a copy of a valuation prepared by Colliers and dated 13 August 2001, although he did not read it. With regard to that valuation, Mr Kovacs observed that it referred to “Construction Costs Remaining” as $20,700,000.00, whereas the 19 August 2001 report (TB 392) referred to a design and construction cost total of $20,969,442.00, and the 3 December 2001 report gave a final forecast cost of $20,671,592.00 under the heading “Construction Totals”. Mr Kovacs said that at no time up until late 2006 was he told that the “actual costing” differed from the order of $21 million by an amount of millions of dollars. Mr Kovacs said that if he had been informed of the “true state of affairs” and, “in particular of the value of the June 2001 Cost Plan” (the Trankles Cost Plan), there were a number of options available to him at that time including changing the design of the development, selling the land with a DA approval, or engaging the dispute mechanism in the joint venture agreement with a view to winding up the development. With regard to the prospect of sale of the land, Mr Kovacs said that the land had been purchased in December 2000 for a total of $6,600,000.00, and was valued by Colliers in its report dated 13 August 2001 at $7,200,000.00.

26. Due to delays in the proceedings in the AAT, the ACT Planning and Land Authority could not issue a development approval. This prevented the next stage of the approval process, which was to lodge a building application which was needed to allow construction to commence.

27. By letter dated 30 August 2002, Mr Adzic wrote to the representatives of the other members (including Mr Kovacs) in his capacity as a director of Turner Building Company Pty Ltd concerning issues raised by the other members regarding Mr Adzic and Mr Bowyer making decisions in the tender process without recourse to the other members. Mr Adzic wrote:

We are surprised why these issues are raised now when it was very clear and agreed at the time of formulating the Turner Building Company Pty Limited that the role of Peter Bowyer and Goran Adzic as the only directors of the Company, was to project manage and construct the development, no other member expressed any desire for involvement in the day-to-day construction decisions.
[…]
Every document, file, cheque-book, invoice etc is available to every member at any time for their perusal and any questions or clarifications are most welcome.

28. A meeting was subsequently held at which it was voted that Mr Adzic would be the project manager for Stage 1 and Mr Bowyer would assist.

29. After the AAT decision was handed down, building approval was granted, allowing construction to commence. Cost Report Summaries were prepared and presented at joint venture meetings through 2003 and 2004. These Cost Report Summaries provided up to date costs and estimates of future costs for construction items, which could be compared to the estimate made by Mr Bowyer in his $21 million Cost Plan.

30. Mr Kovacs said that Mr Adzic stepped aside as project manager in April 2005 before ceasing to be a director of Turner Developments Pty Ltd and Turner Building Company Pty Ltd in December 2005. From April 2005 onward, Mr Kovacs said, Mr Bowyer took over the day-to-day running of Stage 2. Construction of Stage 2 commenced in or around the middle of 2006.

31. At a members meeting in November 2006, Mr Adzic offered to prepare a post-mortem report on Stage of 1, notwithstanding that he was no longer involved in the day-to-day running of the project. It appears that this report was prepared by Mr Adzic in late 2006 and was distributed to members on 6 December 2006. In this document Mr Adzic referred to a June 2001 cost plan for Stage 1 showing a “value” of $26 million, and referred to $5 million being “stripped from the cost plan for the Development Commerce to work”. This is the document, as I understand it, that Mr Kovacs says first alerted him to the existence of the Trankles Cost Plan and the estimate of $26 million for construction of the project in that cost plan. Mr Kovacs said that he then went to the office of the joint venture in mid-January 2007 and copied the cost report folder. As I understand it, a copy of the Trankles Cost Plan was in the folder.

32. In cross-examination Mr Kovacs said that he left Bovis Lend Lease in 2004. At that time he was a service manager with experience in managing subcontractors. He agreed that he had experienced cases where there were delays in construction and where the price of work had increased between the time that quotes were obtained and the time that contracts were entered for the work to be performed.

33. Mr Kovacs said that he believed that Mr Trankles was, in 2001, a quantity surveyor employed by Bovis Lend Lease. He was aware that Mr Trankles was involved in the costing of the development, and that he ultimately prepared a cost plan “for $26 million”. Mr Kovacs agreed that he was aware that Mr Trankles was working on costing the development, but said he never asked Mr Trankles about his conclusions, despite them both working at Bovis Lend Lease at the time. Mr Kovacs explained that he did not speak to Mr Trankles as he was receiving information about costing at the joint venture meetings.

34. In cross-examination Mr Kovacs made it clear that the document he received in 2001, and which he alleged contained the misrepresentation, was the three-page document found at TB 392, the first page of which is headed “Funding Comparisons-Stage 1 Only as at 19 August 2001”, the second page of which is headed “Funding Analysis-Stage 1 Only as at 19 August 2001”, and the third page of which is headed “Funding Comparisons-Stage 1 only as at 19 August 2001”. I note that despite the first and third pages having the same title, the information contained on each is not always consistent; for example the first page contains two options, Funding Option 1 and Funding Option 2, while the third page only contains one option, described as Funding Option 1. The figures under Funding Option 1 on the third page are not entirely consistent with those found in Funding Options 1 or 2 on the first page. It is not clear why this should be so, but nothing appears to turn upon it.

35. Mr Kovacs agreed that the cost for electrical installations increased over the period of construction from the budget estimate he initially prepared. He said that this was because of changes in design. He was taken to a number of cost reports prepared by Mr Adzic over the period of construction of Stage 1 and agreed that they showed increasing costs in various areas, including construction costs, such that by September 2005 it was clear that the initial cost plan could not be achieved.

36. Mr Kovacs was taken to a document CB 347 (part of Exhibit 5), which is described as page 2 of an “Estimate Summary” and dated 21 June 2001. This shows a grand total of just over $26 million for construction, design development, preliminaries and design fees. Mr Kovacs agreed that this was probably a document prepared by Mr Trankles, but he denied ever receiving a copy of CB 347 prior to January 2007.

37. In an affidavit sworn by Mr Kovacs on 9 May 2014, he described a collection of documents exhibited to his affidavits as having been provided to the joint venture meetings to substantiate the costings for the project. One of those documents was CB 347. Mr Kovacs said that he had been mistaken when he swore the affidavit and that he was not provided with CB 347 at a joint venture meeting. He said that he had subsequently sworn a further affidavit correcting this error. Mr Kovacs was not challenged on that statement. With regard to CB 347 the following cross-examination occurred:

You received this document in 2001 and you didn’t do anything about it because it was consistent with what Mr Trankles told you while you were at Bovis, wasn’t it?--- Never given it in 2001.
And the other reason you accepted it was because you didn’t really know if $26 million was achievable because the designs had not been developed by then, had they?--- That’s correct.
And in June when the $21 million cost plan was created - or distributed, the same ignorance applied didn’t it? Nobody knew as much as they could have because the plans were not developed?--- Correct.
So it’s not true, is it, that the $21 million cost plan was misleading, is it?--- Yes, it is.
Well sir, you just told his Honour that the designs were not developed enough?--- No.
So how could the plan be any more real, if I can use that, than it was?--- Because you have a budget estimate which was put together with experts. It’s like anything: you do a feasibility. The first thing you do when you do the feasibility is you need to understand whether the project is viable and if some experts are telling you that the cost is 26, which we didn’t get told, the thing doesn’t go forward.

38. Mr Kovacs agreed that some of the units had been sold before the development application was approved, which resulted in the joint venture being locked into selling apartments at a certain price. He said that the management committee, of which he was a member, agreed to proceed in this way based on the cost of construction they had been given. He then gave the following evidence:

But you had no design plans at that stage either, did you?--- No.
So everybody did the best they could, didn’t they?--- Not really, no.
By the time the apartments were - construction commenced on stage 1, the cost of the construction items had increased, hasn’t it - wouldn’t it - it didn’t it?--- I don’t know.
Well - - - ?--- That I can’t answer.
The cost reports tell you that, don’t they?--- Well, the cost went up but you’re - the cost went up for what reason? Was it mis-scope? Did they not get it right? Did the - was there a time delay cost? You know, there is a whole raft of issues that could be related to that particular costing (indistinct).

39. Mr Kovacs agreed that one of the then joint venture members had initially indicated that he could do the joinery for the project for $2 million. When he left the joint venture the best quote that the remaining joint venturers could obtain for that work was $2.85 million, resulting in an increase of $850,000.00 to the cost estimate for joinery.

40. Mr Adzic was called as a witness for the plaintiff. As with Mr Kovacs, his evidence in chief was received by way of affidavit. The first affidavit of Mr Adzic was dated 12 May 2014. Mr Adzic said that he and Mr Bowyer were employed by Bovis Lend Lease in Canberra in 2000. During the second half of that year they discussed the idea of leaving Bovis Lend Lease and setting up their own construction entity developing and delivering projects for themselves and third parties. They undertook feasibilities on a number of development opportunities and attended a number of property auctions together. In November 2000, land in Turner was being offered for sale by auction by the ACT Government. Prior to the auction, Mr Adzic and Mr Bowyer undertook a commercial feasibility analysis based on the conceptual design presented by the ACT Government as part of the sales and marketing material and also the maximum development potential of the site under the terms of the Crown Lease. They concluded that the scale of the project was beyond their financial capacities. They decided to approach other potential investors with the aim of putting together a joint venture to develop and construct the project. They also saw a benefit in approaching some of the key trade contractors within the construction industry who in addition to investing in the project could also undertake the trade specific works on the project. They also agreed to approach a local residential real estate sales and marketing group with a view to a member of such a group becoming one of the joint venturers.

Mr Adzic said that he and Mr Bowyer jointly approached prospective participants for the joint venture, to have them participate in the project both as equity investors and as contractors. In the case of the real estate agent, his role would be to invest equity personally, and his agency would be undertaking the sales and marketing of the project. Mr Adzic said that he and Mr Bowyer envisaged that individual participants in the joint venture would make an individual equity share contribution of approximately $370,000.00. He and Mr Bowyer, however, would each contribute $240,000.00 in view of their proposed contribution by undertaking all the development and project management functions at a less than commercial fee. This proposition was put to investors on the basis that it would involve a considerable savings to the project. In his affidavit Mr Adzic said that he believed that to be the case. The proposition was accepted and agreed to by the joint venturers. Mr Adzic, Mr Bowyer and some of the other initial joint venturers attended the auction of the Turner land in November 2000, and were successful in purchasing the land for $6,600,000.00. The land purchase was funded through equity from the project participants and a land loan from the St George Bank.

42. On the basis of legal advice, three companies, Turner Joint Venture, Turner Developments Pty Ltd and Turner Building Company Pty Ltd were established as project delivery vehicles.

43. During the initial months of the joint venture, it was decided to test the market assumptions in relation to the type of residential product which the joint venture should be offering to the market. The joint venturers relied on the real estate member of the venture for this market information and his recommendation. Mr Adzic said that the information received, when tested, proved to be commercially unviable. The joint venture members then agreed to produce a design concept based on larger residential apartments predominantly targeting the owner occupier market. The joint venture subsequently elected to engage Leader Real Estate as the sales and marketing agents for the project. As a consequence, the real estate member left the joint venture.

44. Mr Adzic said that during the initial period he was preparing and presenting a commercial feasibility analysis for the project based on the concept design. As the relevant project data was confirmed, the information was fed back into the project feasibility and updated. With the sales figures appearing to be higher than initially forecast, the project feasibility was looking positive, leaving the cost of construction as the last significant figure to be confirmed. In the absence of confirmed construction costs, Mr Adzic used square metre rates from industry literature and information from local quantity surveyors.

45. At some time “in or around 2001” Mr Adzic and Mr Bowyer agreed to split the project management functions, with Mr Bowyer taking over the costing of the construction, and Mr Adzic focusing on design development and the development application. They entered into an arrangement with one of Bovis Lend Lease’s cost planners for him to privately undertake a cost planning exercise on the development. I interpolate at this point to note that I understand that this person was Mr Trankles. Mr Adzic said that he passed on design documentation to Mr Bowyer for costing as it was completed. He also provided Mr Bowyer with quotations and measurements he had undertaken until that point.

Mr Adzic said that Mr Bowyer began working full-time on the project in April 2001. The development application was lodged in mid-2001 and the construction costing was completed at approximately the same time. Mr Adzic said that he then used the firmed up construction figure provided by Mr Bowyer “for inputting into the project feasibility”. Mr Adzic said that he did not check or review any of the cost planning work undertaken by Mr Bowyer, and he accepted them as being true and accurately reflecting the scope of works.

47. As part of the process of obtaining construction funding, Turner Developments Pty Ltd commissioned Colliers to undertake an updated valuation of the Turner land. Colliers valued the land at $7.2 million. The report estimated the construction cost of approximately $21 million “based on Rawlinsons” and other project comparisons available to their office. Mr Adzic said that he and Mr Bowyer had reservations with the report because they felt that the revenue adopted in the report was significantly lower than the actual pre-sales revenue they were achieving. Colliers, however, would not accept that the sales figures already achieved were likely to be consistently achieved, and adopted a more conservative approach.

48. Traditional senior lenders would not fund the project unless a major builder was engaged to build the project. Through a firm of mortgage brokers, the joint venture was ultimately able to negotiate funding for construction from LM Investment Management (LM). During the finance approval process LM engaged the services of WT Partnership (Quantity Surveyors) (WT) to undertake a cost analysis of the project. Mr Adzic said that Mr Bowyer worked closely with WT and exchanged relevant costing information which they had obtained from the market as part of the cost planning exercise. WT signed off on the project cost in around mid-2002.

49. In the meantime, problems had arisen with respect to the development application. A number of resident groups objected to the approval and the matter was referred to the AAT. The matter was heard in late 2001, and the AAT handed down its decision in early 2002. The decision of the AAT was that the project could not be approved and the development application was referred back to the planning authorities. Joint venture members approached the Planning Minister in relation to the matter and the Minister used his powers to approve the development in mid-2002.

50. At a joint venture meeting in early 2002, the members considered who was to be the project manager. The meeting agreed that Mr Adzic would be the project manager. Mr Adzic said that Mr Bowyer continued to work on the project full-time until April 2003. He then worked part time until December 2003, at which time he ceased work on the project.

51. Construction of Stage 1 of the project commenced in the latter half of 2002 and continued through until mid-2005. The project, Mr Adzic said, progressively deteriorated financially over the course of that period. He continued to report cost overruns against budget as they occurred. Mr Adzic said that it appeared that the budgets set in some trades did not reflect the documented scope of the work to be done, and the programmed allowance of 11 months on time related costs was too optimistic. Mr Adzic noted that the cost plan file prepared by Mr Bowyer had multiple cost plan versions which “were higher than the $21 million”. I take this to mean that these cost plan versions showed a cost of construction in excess of $21 million. Mr Adzic said that that was not unusual, and that as the design developed the numbers were reviewed. Mr Adzic said “[h]ow those costs at that time related to the scope of works I could not say”.

52. Mr Adzic swore two further affidavits, on 12 August 2016 and 8 May 2017 respectively, which were in response to affidavits sworn by Mr Bowyer. It is more convenient to deal with these affidavits when considering the evidence led by Mr Bowyer.

53. In cross-examination, Mr Adzic agreed that he was aware that in about the beginning of 2001 Mr Trankles was preparing a cost plan for Stage 1 of the development. He said that Mr Trankles was a cost planner at Bovis Lend Lease, but he could also be described as a quantity surveyor. He was not aware of what training or qualifications Mr Trankles possessed.

54. Mr Adzic was taken to a document headed “Commercial Analysis” (TB 87) and agreed that he had prepared it. That document has the date “19-3-2001” written on it in handwriting, but it is unclear whether the document was in fact prepared on that date. Mr Adzic appeared to accept that the document would have been prepared sometime around March 2001. In that document Mr Adzic included a figure for the construction of Stage 1 of $18,333,100.00.

55. Mr Adzic was aware that Mr Trankles prepared a subsequent cost plan estimating the cost of construction at approximately $26 million. Subsequently, Mr Bowyer prepared a cost plan estimating the cost of construction at about $21 million. Mr Adzic said that he did not assist Mr Bowyer in the preparation of that cost plan. Mr Adzic said that he was not sure whether he provided diagrams of the development to Mr Trankles, but he did provide the quotes that he had at the time, the measurements which he had undertaken, and could possibly have passed on some initial documents and drawings. When Mr Bowyer began working full-time on the development, material was channelled through him to Mr Trankles.

56. Mr Adzic agreed that Mr Kovacs participated as a design committee member from when he joined the joint venture in about June 2001. At that time Mr Adzic was working from his home office in Nicholson. Meetings with the joint venturers occurred at his home, although meetings of the design committee usually took place at the architect’s office. He could not recall whether Mr Kovacs had attended any of the meetings at his home.

57. Mr Adzic denied the suggestion that in the early stage of the development there were difficulties caused by the fact that the design was not very developed. He said that the drawings that they had from the architect were very detailed.

58. The report prepared by Mr Trankles is found at pages 205 to 216 of the Tender Bundle. That report is dated 21 June 2001 and shows a grand total for construction, including design development, preliminaries and design fees, of just over $26 million. Mr Adzic agreed that the cost of constructing Stage 1 was ultimately greater than the estimate provided by Mr Trankles. Mr Adzic believed that the cost of construction of Stage 1 was ultimately about $29.9 million. Mr Adzic agreed that, with the benefit of hindsight, the estimate by Mr Trankles had also been incorrect.

59. Mr Adzic agreed that he and Mr Bowyer shared the role of project manager until early 2002. Initially, Mr Adzic asserted that Mr Bowyer remained involved as a project manager into 2003, but when it was put to him that he was voted as project manager from the beginning of 2002, he said “Look, could be. Could be.” He was then taken to a number of quotes provided in June 2001 addressed either to him, or to him and Mr Bowyer. He agreed with regard to some of those quotes that he would have provided either a diagram or specifications for the purpose of obtaining the quote. He said that he did not assess the quotes as they came in, but simply passed them on to Mr Bowyer or Mr Trankles. Mr Adzic was then taken to the Colliers report of 13 August 2001 (TB 327 to 391) and agreed that Colliers had valued the construction costs of the development at about $20.7 million. Mr Adzic agreed that he was involved in providing instructions to Colliers for the preparation of this report, but he could not remember whether he had provided them with his “Commercial Analysis” document (TB 87). He said that it was normal to provide a floor plan, the inclusions list and realisations.

60. Mr Adzic described his “Commercial Analysis” document as “a fluid document”, the figures included in which would be firmed up as the development progressed. He prepared the document (TB 87) using square metre rates rather than actual quotations. He said that the allowances which he made “for above ground was 1200, car parks at 20,000 a car park, (indistinct) at 1200 basement”. By this I understood him to mean that he allowed for construction costs of $1200.00 per square metre for construction above ground and in the basement, and allowed $20,000.00 per car park. He said that Mr Trankles’ report was different, because in his cost plan 80% of the concept was locked in, allowing for greater accuracy and certainty in costing. He accepted that the cost of items set out in Mr Trankles’ report could vary, but appeared to suggest that those variations would be relatively minor. Mr Adzic accepted that the estimate formed by Mr Trankles turned out to be very different to the final outcome, and provided the following explanation: “Sometimes we make decisions - that particular allowances that Mr Trankles made was based on a certain component, and we might decide we’re not going to run with that component, we’re going to run with a different component; and you make that decision.” Mr Adzic did not provide any examples of where this may have occurred. Mr Adzic was cross-examined about the Colliers Report:

Do you recall whether you were troubled with the figure of 20,700,000 as the valuation of cost?---No, because they don’t know either. That figure has to be firmed up by a quantity surveyor at a later point in time.
But, it’s fair to say is it not- - - ?--- From a feasibility point of view, I we accept that those realisations are correct in their valuation, if we accept that those realisations are correct you work your way back, at the land figure; then you’re left with a sum of money which your construction component has to fit into. So if we accept those realisations then the cost of construction has to be roughly around that figure, yes.

61. I will interpolate at this point to note that it is clear from the Colliers report that when Mr Adzic refers to “realisations” in the above extract, he is referring to the gross receipts for sale of the apartments to be constructed in the development. The exercise which Mr Adzic has undertaken in the above extract therefore appears to be: realisations minus land costs gives you the outside parameters for construction costs. I would add at this point that this does not appear to be the way in which Colliers approached the determination of construction costs in its report.

62. Mr Adzic agreed that one of the reasons for the cost escalation on Stage 1 was delay. In particular, there was a significant delay occasioned by the rejection of the development application. This was unforeseen. Mr Adzic was taken to a number of Project Cost Report Summaries prepared by him between 2001 and 2004, and agreed that the forecast costs for a number of items, being design, authorities, labour and supervision, preliminaries and trade packages, were projected to increase over that period, and that this would have been apparent to the management committee. Mr Adzic, however, appeared to reject any suggestion that any of the increases in costs which occurred could not have been foreseen in mid-2001, other than costs associated with the delay in obtaining the development approval.

63. Mr Adzic said that the first problem to arise was with the costing of formwork. He suggested that the quote received had “omissions of massive areas of scope”. This was the result of an error in the quote. He did not agree that this was an unexpected or undetectable error. He said that it could have been detected by measurement of the relevant components on the drawings. He was asked whether this was usually the responsibility of the person providing the quote, and he said: “Doesn’t have to be. On this particular case WT Partnership did the area measure and it was given to the formwork contractor to price.” Mr Adzic agreed that neither he nor Mr Bowyer had undertaken that measurement.

64. Mr Adzic agreed that the project funders, LM, had their own assessment of the cost of construction undertaken by WT. He believed that WT did not receive a copy of the Cost Plan Summary of 12 September 2001 (TB 415) prior to undertaking their assessment, and he said that they should not have received a copy of the Funding Comparison as at 19 August 2001 (TB 392). In that regard he said:

Look, I wouldn’t think so because initially they’ve got to do their own assessment and their figure came in even higher than the initial cost plan, okay, and even their original figure right, it was a matter of okay, well you’ve come up with a figure, we’ve got a figure, now we have to go through it and make sure that it is correct and – and you know that we’re talking apples and apples, not apples and bananas.

65. The following cross-examination then occurred:

You now say do you that the assessor or the valuer came - - -? ---The quantity surveyor.
The quantity surveyor arrived at a figure higher than Mr Trankles, do you?---Yes.
Did you report that to the management committee?--- No.
Why is that?--- Because we need to review it and check it, okay, once we know that it’s accurate, once we know that the scope is covered then we’ll take a figure to the committee members.
So you didn’t provide this cost plan summary at 415 that you told his Honour?--- I didn’t provide this page, I provided this in the format of the cost report.
And you didn’t provide the news of the quantity surveyor reaching a conclusion that the figure was higher than Mr Trankles’ figure?--- Yes, and I also didn’t advise him of the initial figure either.
In fact you didn’t tell them about the $26 million figure either?--- No.
The reason you didn’t tell the management committee of any of those figures or summaries or plans is because at that stage it was irrelevant, wasn’t it?--- No, it was relevant, okay, we’ve got information on the table which is conflicting, okay, the task for us now is to go through it and see who’s right and who’s wrong and make sure we have an accurate figure to the scope that’s documented, that was the task that we had to perform.

66. Mr Adzic was then taken to the McCann Report of 8 April 2003 (TB 571). Mr Adzic agreed that he provided instructions to McCanns for the purpose of preparation of the report. The purpose of the valuation was to determine the value of the share of one of the members who wanted to opt out of the joint venture. He agreed that McCanns assessed the development costs at $22.4 million, which was close to the $21 million attributed to Mr Bowyer in 2001, saying “Look, end of the day they can make their own determination what they think the figure is, yes”.

67. The McCann Report said that construction costs “have been adopted at $1,350/m² for residential units and once incorporating carparking and landscaping equates to approximately $1,745/m² of GFA, which is considered in line with construction costs in the locality.” Mr Adzic said that by that time they had firm figures for some of the work, and when that was factored in the cost per square metre for construction suggested in the McCann report was the sort of figure “that you build basement car parks for” and should have rung alarm bells. He agreed that the Cost Plan Summary of 12 September 2001 should have rung alarm bells, but he did not tell the management committee that it was an alarming cost plan because there were quotes to support the costing of the various items. Later in cross-examination Mr Adzic said that he did not review the $21 million costing attributed to Mr Bowyer in 2001 “because [of] the supporting documents sitting behind it to confirm these numbers”.

68. Mr Adzic denied that he had reached his own conclusion similar to the $21 million costing attributed to Mr Bowyer in 2001. When it was suggested to him that the costing prepared by Mr Bowyer was not “glaringly obviously wrong”, Mr Adzic said:

No, I’d have to go sit down and look at the figures and you know when you look – if I go back in time I’m thinking okay you’ve done the work, you’ve got quotes and you’ve applied an element of time and at that time the program was 12 months, you applied 12 months to those figures, that’s the number you get, it seems a reasonable outcome.

69. Mr Adzic agreed that the cost of some items increased because of delays in construction. He agreed that because of pre-sales, the developers were locked in to a particular inclusions list for all apartments, and he was not sure whether the cost of those inclusions increased by the time they had to be provided. He agreed that as project manager he had determined to substitute stainless steel for Colorbond flashing and guttering, resulting in a significant increase in cost. He did not seek approval from the joint venture management committee before incurring this cost. In addition he approved the installation of granite bollards which had not previously been part of the design, as well as vergolas on two balconies and changes to balustrades without reference to the management committee.

70. As costs increased, Mr Adzic said, these increases were reflected in the Cost Report Summaries he prepared and provided to the members of the committee.

The defence case

71. On behalf of the defendant Mr Malcolm Pratt gave evidence. Mr Pratt swore an affidavit on 15 July 2016, which became his evidence in chief. Mr Pratt is a quantity surveyor of approximately 40 years experience. He is employed by WT. His role as a quantity surveyor includes preparing cost assessments of construction work. He estimated that by 2001 he had prepared hundreds of cost assessments of construction work. Based on his experience, a quantity surveyor’s cost assessment of construction work includes an estimate of:

(a)the cost of design;
(b)the cost of construction (broken down into each relevant trade); and
(c)the cost of preliminaries and supervision.

72. In or around late 2001 or early 2002 he became aware that WT had been engaged by LM to provide it with an independent report which, among other things, was to contain an estimate of the cost to construct Stage 1 of the Turner development. Mr Pratt was responsible for working with a team of people to produce the estimate, and he was also responsible for conducting a final review of the estimate, which he undertook independently. He recalled that WT was provided with a copy of the design documents commissioned by the developers on which to base the estimate.

73. Mr Pratt said that WT adopted the following method to produce its independent estimate of the cost of construction:

(a)reviewing and measuring the design drawings commissioned by the developers;
(b)applying rates to the measurements based on WT’s internal database;
(c)contacting relevant subcontractors in the market to ensure that the rates obtained from the database were current and reflective of market cost;
(d)consulting with the developers to gain further input in relation to the cost of certain elements of construction; and
(e)conducting a final review of the estimate to ensure that it was feasible based on the design drawings provided.

74. During this process Mr Pratt had a number of conversations with Mr Adzic and Mr Bowyer, who he understood to be two of the developers and joint project managers of Stage 1. He recollected that either Mr Bowyer or Mr Adzic provided him with a copy of the Cost Plan prepared by the developers. At the time that he swore his affidavit Mr Pratt was unable to recall the estimate of the cost of construction in the Cost Plan. He was able to recall that if Mr Bowyer or Mr Adzic received a quotation for a certain element of construction which was less than had been estimated by WT, they provided a copy of the quotation to him and he accepted that quotation if appropriate and incorporated it into the estimate.

75. While Mr Pratt consulted with Mr Bowyer and Mr Adzic about the estimate, the final decision about whether or not to accept their comments was the responsibility of WT and he never accepted their comments or advice without independently considering the issue and determining whether or not he believed their comments or advice to be accurate and appropriate. It was also his responsibility to conduct a final review of the estimate prepared and ensure that it was appropriate for the scope of works based on the design drawings provided. He conducted this review without any assistance or input from Mr Bowyer or Mr Adzic.

76. Mr Pratt said that he had searched his records and the records of WT but he had been unable to locate a copy of the report provided to LM.

77. In cross-examination Mr Pratt said that WT was acting on behalf of the prospective lender, and its task was to provide a realistic cost of construction for that party. He confirmed that in undertaking that exercise he was entirely independent.

Mr Bowyer’s evidence

78. Mr Bowyer affirmed affidavits on 8 July 2016 and 21 April 2017 which were read as his evidence in chief. In his first affidavit he provided some general background to his experience and the commencement of the joint venture. Mr Bowyer said that the evidence that he gave in his affidavit was based on his experience working as a project manager for approximately 19 years and as a construction manager for approximately 10 years as well it as his directorship of:

(a)Fastlook Pty Ltd as trustee for the Bowyer Family Trust;
(b)Space Developments Pty Ltd;
(c)Turner Developments Pty Ltd; and
(d)Turner Building Company Pty Ltd.

79. Mr Bowyer deposed to having experience in reviewing construction cost reports and construction cost plans since he began working as a project manager approximately 29 years ago. He has also reviewed commercial assessment for construction projects since approximately 2001, although he did not begin preparing such assessments until approximately mid-2005.

80. Mr Bowyer said that he had done his best to recollect the events the subject of these proceedings, noting that these events occurred 10 to 15 years before he affirmed his affidavit.

81. Mr Bowyer said that he first met Mr Adzic in 1989 when they were both working together at Bovis Lend Lease. At that time he was a project manager and Mr Adzic was a site engineer at one of the projects he was managing. Mr Bowyer subsequently became a construction manager within Bovis Lend Lease and Mr Adzic became a project manager and reported to Mr Bowyer on a number of projects.

82. In or around early 2000, according to Mr Bowyer, Mr Adzic suggested that they should become developers. In or around November 2000, the Turner property, which was owned by the ACT government, was up for auction. That property was very large and Mr Bowyer and Mr Adzic knew that development of it would be beyond their financial capacity. As a result, in or around November 2000 they decided to approach a number of people for the purpose of raising finance, and potentially purchasing the Turner property as a joint venture among those persons. The initial participants in the joint venture were:

(a)Fastlook Pty Ltd as trustee for the Bowyer Family Trust, a company controlled by Mr Bowyer;
(b)Smarthand Pty Ltd as trustee for the Adzic Family Trust, a company to be controlled by Mr Adzic;
(c)R.B.F. Nominees Pty Ltd, a company to be controlled by Robert Fenderson, a person known to Mr Adzic and director of the joinery company called Designcraft Pty Ltd;
(d)S.C.I. Nominees Pty Ltd, a company to be controlled by Michael De Simone, a person known to both Mr Adzic and Mr Bowyer and a director of a formwork company IC Formwork Services Pty Ltd;
(e)SBRM (Aust) Pty Ltd, a company to be controlled by Lovre Vatavuk, a friend of Mr Adzic who was also a director of a fitout sub-contractor, Evenfive Pty Ltd; and
(f)Brennan Investments Pty Ltd as trustee for the Brennan No 2 Trust, a company controlled by Rowan Brennan, who was a real estate agent at Independent Property Group.

83. The initial joint venture participants arranged for the joint venture to be structured as follows:

(a)on or around 7 December 2000, a new company, Turner Developments Pty Ltd (Turner Developments) was incorporated for the purpose of acquiring the Turner property. Mr Fenderson, Mr Brennan, Mr De Simone, Mr Vatavuk, Mr Adzic and Mr Bowyer were the initial directors of Turner Developments;
(b)Turner Developments was to hold the Turner property on trust for the initial joint venture participants;
(c)on 7 December 2000 Turner Building Company Pty Ltd was incorporated, with a view to it holding the principal construction contracts for the development and entering into trade contracts. The initial directors were Mr Bowyer and Mr Adzic; and
(d)the joint venture arrangements between the initial joint venture participants were formalised by way of a Deed of Agreement dated 28 December 2000.

84. The initial equity contribution of each of the initial joint venture participants, other than Fastlook and Smarthand, was $360,000.00. It was agreed between the initial joint venture participants that Fastlook and Smarthand would contribute $240,000.00 each. This lesser amount reflected that it was intended that Mr Adzic and Mr Bowyer would be largely responsible for the construction management of the development. On or around 28 December 2000 the Turner property was purchased by Turner Developments for the sum of $6.6 million, financed in part by equity and in part by a loan from St George Bank Ltd. The bank took a first ranking mortgage over the Turner property.

85. Mr Bowyer said that in the early months of the joint venture a falling out occurred between Mr Brennan and Mr Adzic. Subsequently the joint venture participants, other than Mr Brennan’s company, decided that Independent Property Group should no longer perform any of the sales and marketing for the development. This resulted in Mr Brennan, and his company, leaving the joint venture. Mr Kovacs then became a member of the joint venture through his company, Scald Developments. Mr Bowyer recalled Mr Kovacs being involved in joint venture meetings prior to Scald formally joining the joint venture. From around early 2001, he observed Mr Kovacs attend various joint venture meetings and receive various documents which were distributed at the meetings.

86. Mr Bowyer recalled that in the early stages of the development it was decided amongst the joint venture participants that the work involved in the development was to be offered, in the first instance, to the joint venture participant who had the relevant qualifications to do the particular work. Mr Kovacs was an electrician, and Scald was engaged by Turner Building Company to do the electrical design work for Stage 1 of the development, on the basis that Mr Kovacs would design the plans and have them sign off by an electrical engineer.

87. Scald formally became a member of the joint venture on or about 29 June 2001. On that date Mr Kovacs also became a director of Turner Developments.

88. On or about 4 July 2001, Mart Pty Ltd as trustee for the Martone Family Trust also became a participant in the joint venture. This was a company controlled by John Martone, a hairdresser who Mr Bowyer understood to be a personal friend of Mr Adzic.

89. After Turner Developments purchased the Turner property, it was necessary for the joint venture participants to undertake more comprehensive and accurate cost planning for the development. According to Mr Bowyer, the initial project management of Stage 1 of the development was largely undertaken by Mr Adzic. Mr Adzic had resigned from Bovis Lend Lease in or around December 2000 in order to work full time on the proposed development, whereas Mr Bowyer continued to work at Bovis Lend Lease until April 2001.

90. Mr Bowyer said that in his experience, the process of cost planning a project is that the design documents are created and developed and then the cost planner looks at the design and develops a cost plan in conjunction with the project manager. This was, he said, the course that was adopted for Stage 1 of the development. At the outset of the development, Mr Adzic engaged Townsend Architects to develop the concept plan for the development. Mr Bowyer had had no previous experience with that firm. A development application for Stage 1 was prepared and lodged on 18 June 2001. This required some modifications, and it was not approved until 28 November 2001.

91. Mr Bowyer believed that on or about 19 March 2001, Mr Adzic prepared a document entitled “Commercial Analysis” (TB 87). Copies of this document were produced to a meeting of the joint venture participants, but in any event they were filed with other documents relevant to the development which were initially kept at Mr Adzic’s house and subsequently in an office at the Turner development site. Mr Bowyer said that he had no input into the creation of this document. In that document Mr Adzic estimated:

(a)a net realisation (after GST, agents fees and legal fees) of $28,664,591.00;
(b)the total costs for:
(i)“design” as $660,890.00;

(ii)“construction” as $18,333,100.00 and

(c)a total profit of $3,316,236.00 to the joint venture members.

92. Mr Bowyer also said that Mr Adzic prepared the construction programme for Stage 1, which allowed for a total construction period of 12 months. This was done without any assistance or input from Mr Bowyer. Mr Bowyer could not recall whether the construction programme was provided to the joint venture participants, but it was filed with other documents which were initially kept at Mr Adzic’s house and subsequently in an office on site at the Turner development.

93. In early 2001, while Townsend Architects were initially preparing the documents for the development application of Stage 1, either Turner Developments or Turner Building Company engaged Konrad Trankles, a quantity surveyor employed at Bovis Lend Lease, to prepare an initial cost plan for Stage 1. Mr Trankles was instructed by Mr Adzic, with Mr Bowyer playing no role in instructing him. Based upon his experience reviewing cost plans and commercial assessments, Mr Bowyer said that a cost plan differs from a commercial assessment such as that undertaken by Mr Adzic in March 2001 in that it does not consider the entire finances and development costs of the project, but only the cost of design, preliminaries and construction. On or about 21 June 2001, Mr Trankles provided Mr Adzic with the initial cost plan for Stage 1 in the amount of $26,054,991.39.

Mr Bowyer could not recollect whether the initial cost plan prepared by Mr Trankles was provided to joint venture participants, however he was able to recall that it was filed with other documents relevant to the development which were initially kept at Mr Adzic’s house and subsequently in an office at the site in Turner. The initial cost plan prepared by Mr Trankles was an estimation of the cost of design, preliminaries and construction and was not based on any quotes provided by subcontractors or suppliers. As at June 2001, Mr Bowyer had not completed a cost plan for Stage 1, but he had, on behalf of Turner Building Company, obtained some quotations from various subcontractors and suppliers, and he was subsequently requested by Mr Adzic to “firm up” the initial cost plan prepared by Mr Trankles. As far as he could recall, Mr Bowyer also believed that it was about this time that Mr Adzic prepared an Inclusions List for inclusion in the sales contracts and preliminary “off-the-plan” sales in relation to Stage 1 began.

While Mr Bowyer was described in the Joint Venture Deed as the project manager, prior to April 2001 he had minimal involvement in Stage 1 as he was still employed by Bovis Lend Lease. Initially the project management services he performed in relation to Stage 1 were provided by him to Turner Building Company as an employee of Fastlook. The cost of this work was invoiced to Turner Building Company by Fastlook. Prior to August 2001, the project management services that Mr Adzic performed in relation to Stage 1 were rendered to Turner Building Company through Smarthand. On 6 August 2001, Mr Adzic, Mr Bowyer and Mr Murray Bowyer set up a company called Space Developments Pty Ltd for the purpose of providing project management services to Turner Building Company. Each of them was a director of, and employed by, Space Developments and were paid for their time. From 6 August 2001, project management services performed by Mr Adzic and Mr Bowyer were invoiced to Turner Building Company through Space Developments.

96. Mr Bowyer said that in early 2002 he attended a meeting of the joint venture participants which resulted in Mr Adzic being identified as the project manager. He believed that Space Developments was in fact the project manager, and that Mr Adzic, as an employee of Space Developments, would be responsible for the day-to-day management of Stage 1.

97. Soon after receipt of the Trankles Cost Plan, Turner Developments commissioned Colliers to determine the feasibility and valuation of various stages of Stage 1 of the development, and to assess the vacant land value of the land to be used as security for mortgage advance purposes. Mr Adzic was responsible for briefing Colliers. In its report dated 13 August 2001, Colliers provided the following valuations:

(a)gross realisation “as if complete” as $32.5 million (excluding GST);
(b)current market value of the Stage 1 land as $4.1 million;
(c)construction costs remaining for Stage 1 as $20.7 million; and
(d)current market value of the vacant land to be used in Stage 2 as $3.1 million.

Mr Bowyer said that after Turner Developments received the Colliers valuation, he had a conversation with Mr Adzic in which Mr Adzic told him that the cost plan prepared by Mr Trankles was “too high” and that a bank wouldn’t lend based on it. Mr Adzic said that the construction costs needed to be more in line with the valuation prepared by Colliers. Mr Bowyer agreed with Mr Adzic that the cost plan prepared by Mr Trankles was probably high as it was not based on quotations provided by relevant subcontractors or suppliers, but on square metre rates. Mr Bowyer also said that in his experience cost plans repaired by quantity surveyors were generally up to 10 per cent high.

Subsequently, Mr Bowyer as an employee of Space Developments, went through the Trankles Cost Plan and targeted various trade budgets in order to bring the estimated cost of construction and preliminaries down. At this stage, in or around July 2001 and August 2001, contracts for sale had been sent to prospective buyers, with the inclusions list prepared by Mr Adzic forming part of the contract.

The method which Mr Bowyer said that he and Mr Adzic adopted to reduce the cost plan for Stage 1 was to:

(a)investigate each of the trade packages and obtain quotations from subcontractors and potential suppliers of relevant materials. In this way, they sought to confirm whether the budget allocated to different trades or materials by Mr Trankles was accurate or not, and to change the cost plan accordingly; and
(b)reduce the cost plan by adopting quotes for labour and materials that were less expensive than the cost Mr Trankles had provided for. Mr Bowyer said that to some extent he was constrained by the inclusions list prepared by Mr Adzic, although he was able to achieve some savings with regard to inclusions.

In his affidavit of 8 July 2016 Mr Bowyer set out some of the quotations obtained from subcontractors and suppliers that he relied upon in producing his amended cost plan. These involved quotations for formwork, provision of elevators and joinery. In addition, the allowance for “Design Fees” made by Mr Trankles, being just on $2 million, was simply a percentage of the total construction, design development and preliminaries costs. Mr Bowyer said that he adopted a figure of $669,442.00 based on the fee proposals provided by the various design consultants to Mr Adzic, and which were then passed on to him.

Mr Bowyer said that throughout this process of revising the Trankles Cost Plan for Stage 1, he and Mr Adzic sat at tables in Mr Adzic’s house that faced one another. He said they had conversations daily about the cost plan and how it was progressing.

In or around August 2001, Mr Bowyer, as an employee of Space Developments, and Mr Adzic, on behalf of Fastlook, prepared an estimated budget for preliminaries and supervision for Stage 1 based on the construction programme prepared by Mr Adzic, which allowed for a total period of 12 months for the construction of Stage 1. Mr Bowyer could not recall whether the estimated budget for preliminaries and supervision for Stage 1 was provided to joint venture participants, although it was stored with the other project documents.

In or around August 2001 Mr Bowyer, as an employee of Space Developments, and Mr Adzic, on behalf of Fastlook, completed an amended cost plan for Stage 1 (TB 415) which estimated the cost of construction at just on $21 million. Mr Bowyer did not believe that the amended cost plan was provided to joint venture participants, although it was filed with other documents relevant to the project.

Mr Bowyer said that at the various meetings of the joint venture participants from the period in mid-2001 until about mid-2005, Mr Adzic, as an employee of the Turner Building Company and subsequently of Space Developments, would provide to the joint venture participants various financial reports that he had prepared as to the progress of Stage 1. Mr Adzic would chair the meetings of the joint venture and generally take the minutes. After mid-2005, Mr Adzic was no longer involved in the development on a day-to-day basis. Mr Bowyer said that on or about 19 August 2001, Mr Adzic, on behalf of Space Developments, presented the following documents to a meeting of the joint venture participants:

(a)“Funding Analysis – Stage 1 Only as at 19 August 2001”; and
(b)“Funding Comparisons – Stage 1 Only as at 19 August 2001”.

I interpolate at this point to observe that these documents (TB 392) are the documents that Mr Kovacs says contained the misrepresentations that are the basis of these proceedings.

When an application for construction finance was made to LM, it engaged its own quantity surveyor, WT, to review the cost plan for the development prior to approving the application. Mr Bowyer recalled that WT reviewed the amended cost plan that he had produced, as he had a number of conversations with Mr Pratt about the figures adopted in the amended cost plan. In response to those telephone calls, he recalled sending Mr Pratt copies of the quotations upon which he based his estimations. After receiving independent advice from WT, LM approved the application for construction finance. Mr Bowyer said that LM, as a second tier lender, charged a higher interest rate than a top tier lender, making this financing option more expensive than others that had been considered by the joint venture.

In mid-2001 resident groups objected to the development approval for Stage 1. The matter was then referred to the AAT. The respondent to those proceedings was the Commissioner for Land and Planning, and Turner Developments was joined as a party. Mr Adzic took on the responsibility of preparing the case and instructing lawyers to appear on behalf of Turner Developments. Mr Bowyer said that as a consequence of the uncertainty as to when Stage 1 would be able to commence, he did not act to lock in any trades or subcontractors for Stage 1, except for the lifts for the tower building as they had a significant lead time. The previous quotes for trade packages on which he had prepared the amended cost plan were indicative only, and he continued to seek competitive quotes after the amended cost plan was completed.

It was Mr Bowyer’s contention that Mr Adzic, as an employee of Space Developments, set up the cost reporting controls for Stage 1, and provided financial reporting to the joint venturers at the joint venture meetings. By reference to a number of Project Cost Report Summaries prepared by Mr Adzic between 2001 and 2005, Mr Bowyer said that the Cost Report Summaries showed increasing costs over that period. Mr Adzic, in his capacity as a director of Turner Building Constructions, and the employee of Space Developments nominated as the project manager:

(a)engaged and oversaw the work of all of the subcontractors and liaised with all of the suppliers for Stage 1; and
(b)had responsibility for overseeing the finances, producing project cost reports, including reporting against budget items and forecasting the expected costs and the profit or loss of Stage 1, and reporting this information to meetings of the joint venture participants.

At a meeting of the joint venturers on or about 29 August 2002, Mr Adzic informed the other members that Turner Building Company would not seek approval from any of the other joint venture participants in relation to the acceptance of tenders, the assessment or payment of progress claims or any other normal day-to-day functions of the Turner Building Company. He also advised them that all financial records were available to every joint venture participant at any time and that any questions about those documents were welcome.

Mr Bowyer said that at a meeting of joint venture participants on 6 September 2002 it was confirmed that his, Mr Adzic’s and Mr Murray Bowyer’s services were being provided through Space Developments.

In his first affidavit, Mr Bowyer then referred to numerous financial documents, including Project Cost Report Summaries, prepared by Mr Adzic in the period between 2002 and 2005. It is unnecessary to set out the contents of each of those documents. It is sufficient to note that they show variations in the estimates for the cost of the development of Stage 1 over time, with a general trend of increasing costs. By November 2003 the reports prepared by Mr Adzic showed significant deterioration in the financial position of the joint venture with regard to Stage 1, with a projected loss of $1.9 million, as opposed to the projected profit of $4.2 million shown in the May 2003 figures. Mr Bowyer said that he could recall Mr Adzic explaining the deterioration to the joint venture members in the following terms:

The deterioration is due to the delays at the start of the project caused by the AAT, the programme blow outs (referring to the construction programme prepared by him), increasing the P&S (referring to the cost of preliminaries and supervision), additional interest as a result of the extension of the programme and increases in construction costs.

Mr Bowyer said that he worked full-time on Stage 1 until April 2003, and then part time until December 2003. He then ceased working on the development in December 2003, other than to occasionally supervise construction on a weekend. During the time that he was not working full-time on the Turner development, Space Developments undertook contracts unassociated with the Turner development. As such, in the period between April 2003 and early 2005 he was not closely involved in the day-to-day running of Stage 1. Mr Bowyer said that Mr Adzic made all of the day-to-day decisions, oversaw the finances and produced all of the project cost reports.

In or around early 2005, Mr Bowyer recalled Mr Adzic began pushing the joint venture participants to agree to commence Stage 2 of the development, in order to get funding in place and pay some of the debts from Stage 1. A disagreement then occurred between Mr Adzic and Mr De Simone over whether to continue with LM as the source of funding for Stage 2. Mr De Simone then declined to sign any more loan documents until Mr Adzic was removed as project manager. As a result, Mr Adzic formally ceased day-to-day operations on the development in mid 2005. Construction of Stage 1 concluded in or around early 2005.

From mid-2005, Mr Bowyer said that he began working for Space Developments in the capacity of a project manager for Stage 2 of the Turner development. He became aware that Mr Kovacs was upset that Mr Adzic was no longer actively involved in the project. Mr Bowyer said that he had a conversation with Mr Kovacs about this issue, and said to him: “You do understand what he has done, don’t you? He has responded badly to criticism. It is his contempt for other people that has brought him undone. He wore out De Simone.” Mr Bowyer said that in this conversation he was referring to Mr De Simone’s questioning of Mr Adzic’s choice of architect early in the development, and his choice of lending institution for Stage 2. After having this conversation with Mr Kovacs, Mr Bowyer observed that Mr Adzic became very hostile towards him and their relationship deteriorated.

On 20 October 2005 Mr Adzic sent an email to Mr Martone, saying:

John,
I forgot to mention in the previous email that we need to also look at the project holistically across both stages and not look at stage 1 so much in isolation.
Stage 1 is carrying the burden of:
1. Stage 2 Land $3m plus interest.
2. $500,000 in marketing costs which should be amortised across both stages.
3. $970,000 paid out to Fenderson & Lorincz
4. $1.3m Development Approval delay costs.
We need to take the above into account when assessing the position of stage 1.

Mr Bowyer said that at the beginning of the project, the joint venture participants agreed that any joint venture member who wanted to could nominate a unit in the development that they wished to purchase for themselves with a view to taking the unit in lieu of profits at the end of Stage 1 of the development. A number of joint venture members took up this opportunity, including Mr Adzic and Mr Kovacs, and the units that they requested were taken off the market. By November 2003 it became clear to Mr Bowyer that Stage 1 of the development would not make a profit. He recalled that in or around December 2005 the issue of the joint venture participants taking a unit in lieu of profit at the end of Stage 1 came to a head. A dispute arose between Mr Adzic and Mr Bowyer about Mr Adzic’s entitlement to purchase his selected unit under the original agreement, and the other joint venturers agreed to allow him to purchase the unit at the 2001 book value, being $520,000.00 plus interest and costs. It eventuated that Mr Kovacs did not purchase the unit in the development as the joint venture could not afford to return additional capital Scald had invested and upon which Mr Kovacs was relying in order to settle on the purchase of the unit. Mr Bowyer said that this outcome resulted in animosity between Mr Kovacs and himself, and marked the beginning of the breakdown in his relationship with Mr Kovacs.

On or about 8 November 2006, there was a meeting of the joint venture participants. At that meeting there was a heated exchange between Mr Kovacs and Mr Bowyer in which Mr Kovacs demanded an explanation for the overrun of costs in Stage 1. Mr Bowyer said that he told Mr Kovacs that he would need to speak to Mr Adzic about that, because he was the project manager and did all of the cost reporting for Stage 1. He further told Mr Kovacs that he could go and look at the costing documents in the site office for himself. At that meeting Mr Adzic volunteered to produced a “post mortem” report into the construction costing of Stage 1 of the development. Mr Bowyer considered Mr Adzic to be the appropriate person to produce such a report, as he was the person who had managed Stage 1 and had produced and distributed all of the cost reports during construction of that stage.

Mr Bowyer said that by the time he replaced Mr Adzic as project manager for Stage 2 in mid-2005, construction of Stage 1 was already complete. Mr Bowyer said that it became increasingly apparent to him from approximately October 2002, and was in any event apparent to him at least from the time that he received the 12 November 2003 Project Cost Report and Commercial Figures which had been prepared and distributed to the joint venture participants by Mr Adzic, that Stage 1 of the project was going to experience significantly greater design, preliminaries and supervision, and construction costs than had originally been estimated by Mr Bowyer in his amended cost plan.

It was the evidence of Mr Bowyer that all of the relevant documentation, including his amended cost plan, TB 392 prepared by Mr Adzic and the Trankles Cost Report, were all kept in an office at the Turner site and were always available for every member to inspect should they wish to. Mr Bowyer said that he did not know of any reason preventing Mr Kovacs from viewing the documents at any time prior to mid-January 2007 and that, in fact, Mr Kovacs worked out of the site office for approximately 2 years.

With regard to the affidavit sworn by Mr Adzic on 8 September 2015, Mr Bowyer said that Mr Adzic had never told him, or any of the joint venture members in his presence, that the design or mix of units could or would be altered if the commercial analysis was not viable. He said that in the early stages of the project, Mr Adzic’s position was that the design and mix of units was commercially viable.

(b)second, once the relevant section of the public is established, the matter is to be considered by reference to all who come within it, “including the astute and the gullible, the intelligent and the not so intelligent, the well educated as well as the poorly educated, men and women of various ages pursuing a variety of vocations”;
(c)thirdly, evidence that some person has in fact formed an erroneous conclusion is admissible and may be persuasive but is not essential. Such evidence does not itself conclusively establish that conduct is misleading or deceptive or likely to mislead or deceive. The Court must determine that question for itself. The test is objective; and
(d)finally, it is necessary to inquire why proven misconception has arisen. The fundamental importance of this principle is that it is only by this investigation that the evidence of those who are shown to have been led into error can be evaluated and it can be determined whether they are confused because of misleading or deceptive conduct.

Adopting the four-stage test, the defendant submitted that the only people who could have been misled were the co-owners, or joint venture members. With regard to the second stage, the defendant submitted that I should note that Mr Kovacs was “a project engineer” with experience in the building industry. While there was evidence from Mr Kovacs that he was misled by the Funding Comparison document (TB 392), the defendant submitted that there is no evidence that any part of the $21 million Cost Plan prepared by him and Mr Adzic, and upon which Mr Adzic said he relied in producing TB 392, was misleading at the time it was made. The defendant submitted that to determine whether it was misleading in hindsight was wrong, and that none of the estimate for construction prepared at the time corresponded with the ultimate actual cost of $29 million.

The defendant also noted that the plaintiff had not called any expert evidence to assist the Court in determining that any part of the $21 million Cost Plan prepared by himself and Mr Adzic was misleading or deceptive.

The defendant further submitted that as the $21 million Cost Plan was a representation in respect of a future matter, and s 11 of the FTA applied, it merely placed an evidentiary burden on the defendant. Once that evidentiary burden is satisfied, the legal burden of proving that the representation was misleading falls upon the plaintiff. In that regard, s 11 of the FTA provides:

Interpretation
11. (1)     For the purposes of this Part, where a person makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act) and the person does not have reasonable grounds for making the representation, the representation shall be taken to be misleading.
(2)     For the purposes of the application of subsection (1) in relation to proceedings concerning a representation made by a person with respect to any future matter, the person shall, unless he or she adduces evidence to the contrary, be deemed not to have had reasonable grounds for making the representation.
(3)     Subsection (1) shall be deemed not to limit by implication the meaning of a reference in this Part to a misleading representation, a representation that is misleading in a material particular or conduct that is misleading or is likely or liable to mislead.

Mr Bowyer submitted that the fact that some items in the $21 million Cost Plan prepared by him and Mr Adzic ultimately cost more does not justify a conclusion that the cost plan, or any representation in it, was misleading or deceptive.

Turning to Scald’s claim pleaded in negligent misstatement, Mr Bowyer noted that the duty pleaded by Scald is a general law duty of care, as opposed to any equitable, contractual, fiduciary or statutory duty. The scope of the duty alleged is a duty to exercise reasonable care in the provision of information and advice he chose to give to Scald in relation to the joint venture. This duty of care is alleged to arise

by virtue of the relationships pleaded: paragraph 6 of the FASOC. The relationships alleged in the FASOC are, regarding Mr Bowyer:

(a) as a director of Fastlook, one of the plaintiffs follow joint venture member;

(b) as a director of the trustee of the land, as the plaintiff was one of the beneficiaries for which the trustee held the land on trust; and

(c) as project manager of the joint venture.

Mr Bowyer admitted the first two relationships, but did not admit that at all material times he had been a project manager of the joint venture. He accepted that a duty of care to prevent economic loss by misstatement may arise when:

(a) a defendant knows, or ought to realise, that the words are such as to engender in another reasonable reliance on the words stated and when the defendant accepts the consequent responsibility for taking care in making the statement;

(b) if the plaintiff has a financial interest in the transaction, that financial interest may suffice to make clear that reliance is being placed on the words;

(c) the defendant proffers a statement, that is made with the intention of inducing an individual or a limited class of people, in reasonable reliance on those words, to act in a particular way which may cause the recipient economic loss if the statement is inaccurate or unsound.

Mr Bowyer submitted, however, that the circumstances revealed by the evidence in the present case militates against a finding that he owed a duty of care to Scald as alleged. In that regard, he referred to the following matters:

(a) he made no direct representation to Scald regarding the likely construction costs;

(b) there was no objective evidence of reliance, or reasonable reliance, by Scald on any representation made by him as alleged;

(c) in respect of foreseeability of harm, it is not open to challenge that undertaking a large property development for the purpose of profit, through a joint venture or otherwise, involves substantial and significant risk that a profit will not be achieved;

(d) he also accepted that the information and advice provided (or not provided) to a member of a joint venture regarding the project/venture may contribute to harm of the nature alleged by the plaintiff – namely the loss of opportunity to negotiate an exit from the joint venture, to wind up the joint venture or negotiate that material changes be made in the management of the project;

(e) the degree and nature of control able to be exercised by him to avoid harm was very low, and not materially different from Scald’s, for example:

(i) the evidence established that apart from preparing the $21 million Cost Plan Summary with Mr Adzic after obtaining trade quotes around August 2001, the defendant had very little control or, involvement in the management of Stage 1 of the project and/or decisions around what information was or was not provided to members of the joint venture through financial reporting or otherwise – these functions were carried out by Mr Adzic;

(ii) the trustee acquired and held blocks 11 and 12, Section 58 Turner, Canberra as bare trustee for the beneficiaries (that is, members of the joint venture) and had no responsibility for or control over the management of the joint venture, therefore the defendant derived no degree of control over the provision of information regarding the management of the project in his capacity is a director of the trustee (and/or no more control than the plaintiff’s principal Mr Kovacs who was also a director of the trustee between 29 June 2001 and 29 May 2009);

(f) the degree of vulnerability of the plaintiff to harm from Mr Bowyer’s conduct was extremely low. The arrangements between the parties, (and/or their related entities) was of a purely commercial kind and they dealt with each other at arms’ length and on an equal footing. The loan agreement between the plaintiff and Deborah Graeme and Mr Kovacs dated 23 February 2001 suggests that the plaintiff had access to independent financial and legal advice. It is well established that commercial parties are presumed to be responsible for protecting their own interests, including carrying out of their own due diligence. Also, the plaintiff’s guiding mind, Mr Kovacs, was experienced with large construction projects. Over the period of the plaintiff’s involvement in Stage 1 of the joint venture (2000-2005), Mr Kovacs was a senior project engineer (electrical) at Bovis Lend Lease and a services manager looking after all electrical services on projects carried out by Bovis Lend Lease. During the periods that the defendant was not working on the project he had access to the same amount of information as the plaintiff via management meetings;

(g) the evidence showed a low degree of reliance by the plaintiff on the defendant in the plaintiff’s decision to enter into the joint venture or during the course of the joint venture;

(h) the defendant did not assume responsibility to manage and report on the project costs, either subjectively or objectively. To the contrary:

(i) Mr Adzic admitted that during 2001 he set up the cost reporting controls (incorporating the budgets for the various trade packages, and the land purchase and financing costs for the project) and he was the person who prepared the costs reporting summaries which were distributed to the members of the joint venture;

(ii) under the Joint Venture Deed, the business and affairs of the joint venture were to be under the control and direction of the management committee (which included representatives of all members of the members of the joint venture). Mr Kovacs was the guiding mind of the plaintiff. The plaintiff’s acceptance of the members’ joint responsibility is implicit in Mr Kovacs’ statement that had he known that the project cost was likely to be in the order of $26 million or higher, he would have pressed the other joint venture participants to significantly alter the way the project was being managed; and

(iii) all construction contracts and trade contracts were entered into by Turner Building Company, with Space Developments and/or Mr Adzic negotiating the contracts on Turner Building Company’s behalf.

(i) Kovacs and the defendant were ex-colleagues at Bovis Lend Lease, but there was nothing significant about the proximity or nearness in a physical, temporal or relational sense;

(j) the nature of the activity undertaken by Mr Bowyer in preparing an initial costs plan in August 2001 and/or whether he provided or did not provide the Trankles Cost Report to the plaintiff did not directly or indirectly influence the obtaining or availability of funding for the project (with Turner Building Company, the trustee and financiers obtaining and relying on other independent cost estimations and assessments);

(k) there is no evidence to support a finding that the defendant had knowledge (either actual or constructive) that his conduct would cause harm to the plaintiff;

(l) the nature and consequences of any action that could be taken to avoid harm to Scald was at all times in its control and not in the control of Mr Bowyer;

(m) unlike a partnership, which may impose a duty (express or implied) on each partner to act in the best interests of the partnership, the law has recognised a joint venture member’s right to pursue one’s own interests. Therefore, imposition on the autonomy or freedom of individuals of the members of the joint venture should be limited to the agreed terms of the joint venture, as set out in the Joint Venture Deed (to which Mr Bowyer was not a party); and

(n) no issue arose as to consistency (or inconsistency) with any statute or the desirability or need for conformance and coherence in the structure and fabric of the common law that would provide reasons to impose upon the defendant a duty of care in the nature pleaded in the FASOC or otherwise.

In the event that he was found to owe Scald a duty of care of the type pleaded, Mr Bowyer submitted that he had not breached his duty of care. He submitted that in preparing the $21 million Cost Plan with Mr Adzic, there was a reasonable and fact-based basis for the reduction in the construction costs estimated in the Trankles Cost Plan.

Mr Bowyer further submitted that to the extent he owed Scald a duty of care as alleged in relation to the provision of information and advice regarding the project, he is relieved from liability to Scald because he:

(a) delegated such functions to his fellow director, Mr Adzic. Pursuant to s 190(2) of the Corporations Act 2001 (Cth) (the Corporations Act), he submitted that he not responsible for the actions of Mr Adzic in performing those delegated functions, as at all times, the defendant believed on reasonable grounds and in good faith that Mr Adzvic would carry out those functions appropriately. The defendant’s reasonable belief was based on Mr Adzic’s experience, knowledge and capabilities in construction management, the trusted personal and working relationship established with Mr Adzic, Mr Adzic’s knowledge of the joint venture (in particular the design for Stage 1) and his personal investment in the project;

(b) relied on the information and advice provided by people such as Mr Adzic (e.g. Mr Adzic’s construction program was relied on by Mr Bowyer to prepare the $21 million Cost Plan Summary and Mr Adzic’s reports were relied on to track the financial status of Stage 1), Mr Trankles and Colliers. Pursuant to s 189 of the Corporations Act, such reliance was reasonable in that he believed his fellow director Mr Adzic to be reliable, trustworthy and competent in relation to construction management and in relation to Mr Trankles and Colliers, he believed that estimating construction costs and assessment of development’s viability (in the case of Colliers) were within their respective professional competence.

Mr Bowyer submitted that if the existence of a duty as alleged, and breach of that duty were established, Scald has not proven causation of any damage. He further submitted that Scald had failed to prove that he lost an opportunity of any value, that he would have pursued that opportunity, and, if it had been pursued, what amount should be awarded having regard to Scald’s prospects of success.

Mr Bowyer also submitted that Scald had been guilty of contributory negligence by failing to take care in protecting its own financial interests by:

(a) joining the joint venture without undertaking due diligence regarding the viability of the project; and

(b) waiting until January 2007 to review the records of the joint venture concerning costing, notwithstanding its availability and the gradual financial deterioration of Stage 1 throughout 2002 and 2003.

Finally, Mr Bowyer submitted that the causes of action pleaded by Scald were barred by s 11(1) of the Limitation Act, which states “an action on any cause of action is not maintainable if brought after the end of a limitation period of 6 years running from the date when the cause of action first accrues to the plaintiff”. Mr Bowyer submitted that both the action under s 12 of the FTA and the action for negligent misstatement first accrue upon some loss or damage being sustained, citing Innes v Commonwealth [2015] ACTCA 33 at [27]-[29]. The damage pleaded by Scald is the loss of an opportunity to attempt to sell its interest in the venture, to negotiate as to the feasibility of the project, to engage the dispute resolution mechanism in the Joint Venture Deed or to wind up the nature and sell the land. In its FASOC, Scald does not plead when it first suffered loss. Mr Bowyer submitted that there were three alternatives:

(a) as early as September 2001, the date the alleged misrepresentation was made;

(b) when the actual project costs reached $26 million, namely October 2003; or

(c) no later than 8 November 2006, when minutes of the meeting of joint venture members record discussion of the extent of the funding shortfall.

Mr Bowyer submitted that no matter which of these options is adopted, these proceedings were statute barred.

Mr Bowyer also submitted that Scald had not established deliberate concealment of a relevant fact for the purposes of s 33(1)(b) of the Limitation Act.

Scald’s submissions in reply

Scald submitted that what Mr Bowyer did in reducing the estimated cost of construction in the Trankles Cost Plan amounted to an amendment of that cost plan and not the preparation of a separate cost plan. What Mr Bowyer did in amending the Trankles Cost Plan bore no resemblance to the proper method of preparing a cost plan. Scald submitted that by August 2001, the project managers, including Mr Bowyer:

(a) were choosing to tell the other joint venturers that $21 million was commercially feasible and that they were approaching funders on that basis; and

(b) were choosing not to tell the other joint venturers:

(i) that the Trankles Cost Plan was too high and finance could not be got on it;

(ii) that there was a higher figure than $21 million which had been put on the cost of construction; and

(iii) that the difference between the estimated cost of construction in the $21 million Cost Plan and the Trankles Cost Plan exceeded 10%.

Scald submitted that Mr Bowyer had chosen to hide the facts set out [at 175(b)(i), (ii) and (iii)] above, and that the action of choosing to hide those facts was a deliberate commission of a breach of duty in circumstances in which it was unlikely to be discovered for some time. The email exchange between Mr Bowyer and Mr Adzic in December 2006 demonstrated, Scald said, that Mr Bowyer was “still actively hiding things” from the other joint venturers at that time.

With regard to the submission by Mr Bowyer that Scald could have, with reasonable diligence, discovered the allegedly concealed facts prior to November 2006, Scald submitted that it trusted Mr Bowyer, and that it was reasonable to trust him. Scald accepted that “over the years, the budget overrun gave good reason to a reasonable co-investor to question the way the project was not running to budget”, but there was no good reason for it to question that the budget itself was untrue. It was only upon the production of the post-mortem by Mr Adzic in December 2006, Scald submitted, that a reasonable person in its position would have discovered that its trust was misplaced.

Towards the end of Scald’s submissions in reply, it raises for the first time an allegation of a misrepresentation by Mr Bowyer on the basis that he misrepresented to the other joint venturers that an appropriate cost planning process had been engaged in. The submission of Scald was that the $21 million Cost Plan was not a cost plan at all, “but a superficial review of an earlier costs plan which compounded rather than unmasked incorrect assumptions by the earlier author.”

Consideration

As might be expected, the evidence of all witnesses was adversely affected by the passage of time since the relevant events. None of the witnesses struck me as being clearly dishonest or unreliable. Perhaps more to the point, I saw no reason to reject the evidence of Mr Bowyer. I accept, therefore, that the $21 million Cost Plan (CB 307, Exhibit 5) was prepared by Mr Bowyer and Mr Adzic jointly, and in the way described by Mr Bowyer.

The plaintiff’s case, as pleaded in the FASOC, is that the representation that the likely cost of construction of the venture as at September 2001 was $21 million, was wrong. Whether one considers the plaintiff’s case under the FTA or in negligent misrepresentation the position is the same: the plaintiff says that the figure of $21 million was wrong. Where is the evidence to support the proposition that this figure was “wrong”, in the sense that it did not represent the likely cost of construction as at September 2001? The plaintiff called no expert evidence to the effect that the figure of $21 million did not represent the likely cost of construction as at September 2011. The only evidence from which I could infer that the figure was wrong is:

(a) the evidence that the ultimate cost of construction was more than $29 million; and

(b) the evidence that the Trankles Cost Plan estimated the cost of construction at $26 million.

I am not satisfied that I can infer from this evidence that the estimate of $21 million was wrong as at September 2001. No real attempt was made in the hearing before me to demonstrate why the ultimate cost of construction exceeded the estimates made by Mr Trankles or Mr Bowyer and Mr Adzic. In a case such as this, one would expect expert testimony by an appropriately qualified person or persons who had examined the plans, accounts and other documents of the joint venture development, explaining how the final cost of construction came to differ so markedly from the estimate of Mr Trankles and Mr Bowyer. Was a mistake made by Mr Trankles? Was a mistake made by Mr Bowyer? Were decisions made during the process of construction that increased the cost of construction? To what extent did delays in the approval and construction processes add to the ultimate cost? These questions echo those asked by Mr Kovacs at [38] above, and simply remain unanswered. Vague reference was made in the evidence of Mr Adzic to a suggestion that there were “errors of scope” in some of the quotations obtained, and by reference to which the Trankles Cost Plan was revised. I approach the evidence of Mr Adzic with caution because he was not an independent witness; he was, in fact, an active participant in the relevant events. He was responsible for managing the construction of Stage 1 from early 2002 until mid-2005, so it is clear that he is potentially a person who may have been responsible, in whole or in part, for cost overruns. The evidence does not permit me to lay any blame at the feet of Mr Adzic, for the same reasons that it does not permit me to blame Mr Bowyer. In any event, the evidence concerning the alleged errors in scope and how they may have affected the final cost of construction was entirely inadequate.

Some of these issues were briefly touched upon in the evidence, but not in such a way that I can draw the inference that the estimate of $21 million was, in any relevant sense, wrong. In order to infer that the $21 million estimate was wrong by comparison with the actual cost of construction I would need to be satisfied that this was a true comparison, that I am comparing “apples with apples”. The evidence simply does not establish that such a comparison can be made.

Another important aspect of the plaintiff’s case is that there was something fundamentally wrong with the process by which Mr Bowyer arrived at the $21 million Cost Plan. No expert evidence was adduced by the plaintiff to the effect that there was something improper in the manner in which Mr Bowyer went about reducing the estimate of $26 million for construction costs in the Trankles Cost Plan. It was no part of the plaintiff’s case that there was anything improper or inappropriate in Mr Bowyer and Mr Adzic retaining Mr Trankles to prepare a cost plan. There was no suggestion that Mr Trankles was not qualified or sufficiently experienced to undertake the task. No reason was advanced by the plaintiff to suggest that Mr Bowyer was not entitled to rely upon the Trankles Cost Plan. The Trankles Cost Plan was based upon square metre rates. It is obvious that the final cost of construction would depend on the actual cost of the construction, and would not be dictated by square metre rates, as useful as they may be in providing an estimate. The actual cost of construction, would be dictated by the quotes that the joint venture was able to obtain to have the necessary work performed, and to have necessary goods provided. The substitution of quotes, or even estimates based upon Mr Bowyer’s and Mr Adzic’s knowledge and experience, for estimates based on square metre rates would logically appear to provide greater accuracy. In the absence of expert evidence to the contrary, I am not prepared to find that the exercise engaged in by Mr Bowyer and Mr Adzic was inappropriate, or likely to lead to a false or misleading outcome.

It is convenient at this point to consider the limitation issue. The relevant limitation period for Scald’s claim is 6 years running from the date on which the cause of action first accrued: s 11 of the Limitation Act. The claim by Scald is based upon an alleged misrepresentation made in August 2001. The loss which it claims to have suffered is a loss following immediately upon the alleged misrepresentation, so that any course of action in misrepresentation or negligence would not be maintainable by virtue of s 11 of the Limitation Act if brought after August 2007. As noted earlier, these proceedings were not commenced until 29 September 2012, so that prima facie they are statute barred. Scald sought to avoid the operation of the limitation period provided by s 11 by pleading the operation of the limitation period provided by s 11 by pleading the operation of s 33(1)(b) of the Limitation Act, which relevantly provides:

33Fraud and concealment
(1) Subject to this section, if –
[...]
(b) a fact relevant to a cause of action ... is deliberately concealed;

the time that elapses after a limitation period fixed by or under this Act for thecause of action begins to run and before the date when a person having (either solely or with other persons) the cause of action first discovers, or may with reasonable diligence discover, the ... concealment, as the case may be, does not count in the reckoning of the limitation period for an action on the cause of action by him or her or by a person claiming through him or her against a person answerable for the ... concealment.
[…]
(3) Without limiting subsection (1), deliberate commission of a breach
of duty in circumstances in which it is unlikely to be discovered for
some time amounts to deliberate concealment of the facts involved
in that breach of duty.

In its written submissions Scald accepted that if s 33 did not operate to postpone the statutory bar, its claims must fail. I accept that Scald, through Mr Kovacs, was unaware of the existence of the Trankles Cost Plan until he was provided with Mr Adzic’s post-mortem report on Stage 1 on 6 December 2006. But the fact that Scald was unaware of the Trankles Cost Plan is not evidence that Mr Bowyer deliberately concealed the Cost Plan. The fact that Mr Bowyer, nor Fastlook Pty Ltd, nor Mr Adzic, nor Smarthand Pty Ltd told Scald of the existence or contents of the Trankles Cost Plan is not evidence that any of them deliberately concealed the Cost Plan or its contents. I am perfectly satisfied that as part of the internal arrangements within the joint venture, some aspects of the responsibilities of the joint venture were delegated by the joint venture to individual members. One such aspect was the development of a cost plan. I am satisfied that Scald was content to leave the development of the Cost Plan to others. There is no suggestion that Mr Kovacs, as the representative of Scald, required that he be provided with every source document from which the Cost Plan was prepared: he was prepared to leave preparation of the Cost Plan to Mr Bowyer and Mr Adzic. In these circumstances, the fact that Mr Bowyer did not provide Scald with a copy of the Trankles Cost Plan, or advise Scald of its contents, is not evidence of deliberate concealment of the Cost Plan by Mr Bowyer. I note that the evidence of Mr Adzic was to the effect that not all documents used in the preparation of financial documents prepared by him were provided to the other joint venturers, and there was no evidence that there was any obligation to provide all such documents, or an expectation that they would be provided. To the extent that there is evidence about how Mr Bowyer dealt with the Trankles Cost Plan, it does not support the allegation of deliberate concealment made against him. Mr Bowyer testified that the Trankles Cost Plan was filed in the appropriate records of the joint venture, which were available for inspection by all members of the joint venture. The fact that Scald took no steps to inspect the costing documents between 2001 and 2007 is not evidence that Mr Bowyer deliberately concealed the document or its contents. It must have been apparent to Scald from at least the end of 2001 onwards that projected costs for various aspects of Stage 1 were increasing, including projected costs for construction, but despite this fact Scald made no effort to exercise its right to “inspect the books” of the project, or have its experts do so. By December 2006, when the email correspondence between Mr Bowyer and Mr Adzic occurred (see [134]-[137] above), it was plain to Mr Bowyer that Scald, amongst others, may have been looking to hold him responsible for their losses. One would think that if there was going to be an attempt at deliberate concealment of the Trankles Cost Plan, then it would have occurred at about that time. The fact is, however, that in January 2007 Mr Kovacs had no difficulty in locating the Trankles Cost Plan in the relevant records of the joint venture.

I am not satisfied, as a question of fact, that Mr Bowyer did deliberately conceal the Trankles Cost Plan from Scald.

In any event, I have great difficulty in understanding how the existence of the Trankles Cost Plan can be said to be a “fact relevant to a cause of action” for the purposes of s 33(1)(b) of the Limitation Act.

In Paramasivam v Flynn [1998] FCA 1711; 90 FCR 489, the Full Federal Court (Miles, Lehane and Weinberg JJ), sitting on an appeal from this Court (Gallop J) said in relation to s 33(1)(b), at 511:

It was further submitted that pursuant to s 33(1)(b) time did not run against the appellant because the respondent had deliberately concealed from the appellant the appellant’s entitlement to sue the respondent for assault. However, in our view, the appellant’s entitlement to sue is not “a fact relevant to a cause of action” within the scope of s 33(1)(b). The facts relevant to a cause of action, within the context, are those facts in a sequence of events which, once the sequence is concluded, bring the cause of action into existence. Once the cause of action is brought into existence, other matters which may relate to it, such as a person’s right to sue or liability to be sued on that cause of action, are not relevant for the purpose of s 33(1)(b).

Subsequently, in Wagdy Hanna and Associates Pty Ltd v National Library of Australia [2012] ACTSC 126; 7 ACTLR 70, Refshauge J reviewed the UK authorities regarding s 32 of the Limitation Act 1980 (UK) c 58, upon which s 33 of the Limitation Act was based. He referred with evident approval to the judgments of Rix LJ and Elias LJ which, on the basis of earlier jurisprudence, concluded that a fact relevant to the plaintiff’s right of action, as the fact concealed, must be a fact which should be pleaded in a statement of claim: see also AIC Limited v ITS Testing Services (UK) Ltd (The ‘Kriti Palm’) [2006] EWCA Civ 1601; [2007] 2 C.L.C. 223. As Elias LJ expressed it (at [62]): “The cases have distinguished between facts relevant to the cause of action itself and facts which evidentially strengthen a party’s case”. In the present case the fact allegedly concealed was the cost estimate of $26 million in the Trankles Cost Plan. Whether the representation made by Mr Bowyer and Mr Adzic that the likely cost of construction was $21 million was a misrepresentation does not depend upon the existence of the $26 million estimate in the Trankles Cost Plan. The plaintiff’s approach to the Trankles Cost Plan is inconsistent. On the one hand it relies upon the Trankles Cost Plan as evidence that the representation by Mr Bowyer and Mr Adzic of a construction cost estimate of $21 million was a misrepresentation, but on the other hand (in submissions in reply) dismissed it as containing incorrect (but unspecified) assumptions. Proof of the existence of the Trankles Cost Plan is entirely unnecessary in order to plead either of the causes of action pleaded by the plaintiff; at best, the Trankles Cost Plan may provide evidence that supports the plaintiff’s case as pleaded, but even that is a factually dubious proposition. As such, even were I to be satisfied that Mr Bowyer had, in the relevant sense, deliberately concealed the Trankles Cost Plan and the information contained therein, I am not satisfied that what was concealed was a fact relevant to a cause of action for the purposes of s 33(1)(b) of the Limitation Act.

In its submissions in reply, Scald sought to call in aid the provisions of s 33(3) of the Limitation Act, which provides that a “deliberate commission of a breach of duty in circumstances in which it is unlikely to be discovered for some time amounts to deliberate concealment of the facts involved in that breach of duty.” In its submissions in reply Scald does not identify the duty allegedly breached by Mr Bowyer, or the source of that duty. One may speculate that the relevant duty must be a duty to reveal to Scald the estimate of $26 million in the Trankles Cost Plan, but I am unable to discern how Scald says such a duty on the part of Mr Bowyer arose. It is not alleged to be a contractual or equitable duty, or a fiduciary duty. It is particularly difficult to discern how such a duty could arise where the plaintiff itself alleges that the Trankles Cost Plan was flawed; Mr Bowyer could not have been under a duty to provide misinformation to Scald. I am satisfied that s 33(3) of the Limitation Act does not apply.

For the above reasons, I am satisfied that s 33 of the Limitation Act does not apply in the present case. On any analysis, the plaintiff’s claims are statute barred.

While this finding is sufficient to dispose of this matter, I will briefly touch upon the merits of the plaintiff’s claim.

With regard to the plaintiff’s claim under the FTA, for the reasons I have given I am not satisfied that the representation by Mr Bowyer and Mr Adzic that the likely cost of construction of Stage 1 as at September 2001 was a misrepresentation. The representation was, in any event, a representation as to a future matter. Mr Bowyer has satisfied the evidentiary onus placed on him by s 11 of the FTA to adduce evidence that there were reasonable grounds for making the representation. That evidence consists of the evidence that he retained an appropriately qualified person, Mr Trankles, to prepare a cost plan, which he then refined by reference to actual quotations for aspects of the construction work estimated by Mr Trankles based on square metre rates. Further, I am satisfied that in preparing the $21 million Cost Plan Mr Bowyer and Mr Adzic relied upon their extensive experience in the construction industry. These are all matters suggesting that they had reasonable grounds for making the representation. I should add at this point that to the extent it may be argued that Mr Bowyer had an ongoing obligation to be satisfied of the correctness of the representation, the contents of the Colliers Report provided a basis for such satisfaction, as did the later assessment by WT on behalf of LM, and the McCann Report. I accept that by early 2002 Mr Bowyer no longer had a role in project managing Stage 1, and that from April 2003 until December 2003 he only worked part-time on Stage 1, after which he ceased working on Stage 1.

The legal onus therefore falls on Scald to prove that Mr Bowyer made a representation that was misleading or deceptive, or likely to mislead or deceive, when he and Mr Adzic estimated the cost of construction of Stage 1 at $21 million. I am not satisfied that the plaintiff has satisfied that onus.

In light of the above it is unnecessary for me to determine whether any conduct engaged in by Mr Bowyer was “in trade or commerce” as required by s 12 of the FTA. I will simply observe that there is considerable strength in the submissions made by Mr Bowyer, despite the extended meaning given to the term “trade or commerce” by s 5 of the FTA. The conduct complained of was engaged in by Mr Bowyer either in his capacity as a director of Fastlook or as a director or employee of Space Developments. In any event, his conduct was engaged in as part of a joint enterprise with the other joint venturers, in a joint venture in which each joint venturer held equal rights and responsibilities. The preparation of the $21 million Cost Plan was part of the process of advancing the aim of the joint venture. It is, in my view, difficult to characterise the conduct engaged in by Mr Bowyer, which was conduct within the joint venture, as conduct engaged in “in trade or commerce”. As I have said, however, it is not necessary to finally decide this point.

The provisions of s 46(1) of the FTA permitted a person who had suffered loss or damage by conduct of another person done in contravention of Part 2 (which included s 12) to recover the amount of the loss or damage. It follows that in order to recover any loss or damage, a causal link between the conduct complained of and the eventuation of the loss or damage must be shown. In the present case Scald alleges that if it had known of the $26 million estimate in the Trankles Cost Plan it would have taken action either to attempt to change the design of Stage 1 (including unit mix), or would have taken other action to protect its investment. I am not satisfied that this was the case. I have no doubt that before instituting such action, Scald would have sought to verify the accuracy of the estimate in the Trankles Cost Plan, and would not have taken the suggested measures if a review of the Trankles Cost Plan brought the figure down to about $21 million. This is precisely what Mr Bowyer and Mr Adzic did, utilising an apparently logical methodology that has not been demonstrated to be inappropriate or likely to lead to a false or misleading outcome.

For these reasons, the claim under the FTA would not have succeeded.

Turning to the claim in negligent misstatement, I think that Mr Bowyer owed a duty of care to the other members of the joint venture to take reasonable care to ensure that information provided to the joint venturers was accurate. In forming that conclusion I do not take into account Mr Bowyer’s position as an employee of Space Developments, or how his position as director of Fastlook or other corporate entities may affect the question whether he personally owed Scald a duty of care, as these issues were not canvassed by the parties.

For the reasons I have already given, I am not satisfied that Mr Bowyer breached his duty of care.

The fact that Mr Bowyer did not personally provide the information in TB 392 to Scald would not have exculpated him from liability for either of the pleaded causes of action, if he had otherwise been found liable. Mr Bowyer knew that the figures he was preparing with Mr Adzic would be used in other documents and were likely to come to the attention of the other joint venturers. He knew that the joint venturers would rely upon those documents. It is not to the point in these circumstances that he did not personally provide the information to Scald.

It is unnecessary to consider the other issues raised by Mr Bowyer in his submissions.

Conclusion

There will be judgment for the defendant against the plaintiff. Unless an application is made within 14 days of publication of these reasons for a different costs order, I order the plaintiff to pay the defendant’s costs of the proceedings.

I certify that the preceding two hundred and two [202] numbered paragraphs are a true copy of the Reasons for Judgment of his Honour Justice Burns.

Associate:

Date: 25 October 2017