Scanlan v Greenport Nominees Pty Ltd
[2001] WASC 337
SCANLAN & ANOR -v- GREENPORT NOMINEES PTY LTD & ORS [2001] WASC 337
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2001] WASC 337 | |
| Case No: | COR:308/1998 | 12-22 NOVEMBER 2001 | |
| Coram: | WHITE AUJ | 13/12/01 | |
| 35 | Judgment Part: | 1 of 1 | |
| Result: | Judgment in favour of the second applicant in the sum of $128,000 | ||
| B | |||
| PDF Version |
| Parties: | LAWRENCE SCANLAN L J SCANLAN & ASSOCIATES PTY LTD GREENPORT NOMINEES PTY LTD (ACN 067 084 057) PETER JERMYN CAPITAL ALLIANCE PTY LTD (ACN 008 802 757) |
Catchwords: | Companies Membership Oppression or unfair prejudice to minority The "interest of the members as a whole" Whether appropriate to order the company to purchase the applicant's one share at a premium Contract for the provision of architectural services Oral contract Turns on its own facts |
Legislation: | Corporations Law |
Case References: | John J Starr (Real Estate) Pty Ltd v Robert A Andrew (A’asia) Pty Ltd (1991) 6 ACSR 63 Voli v Inglewood Shire Council [1963] ALR 657 Wayde v NSW Rugby League Ltd (1985) 3 ACLC 799 Fexuto v Bosjnak Holdings Pty Ltd (1998) 28 ACSR 688 Hogg v Dymock (1993) 11 ACSR 14 Quinlan v Fiboze Pty Ltd (1988) 14 ACLR 312 Re Bird Precision Bellows Ltd [1984] Ch 419 Re Bodaibo Pty Ltd (1992) 6 ACSR 509; 10 ACLC 351 Scottish Co-op Wholesale Society Ltd v Meyer [1959] AC 324 Vujnovich v Vujnovich [1988] 2 NZLR 129 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
Greenport Nominees Pty Ltd (ACN 067 084 057)
BETWEEN : LAWRENCE SCANLAN
- First Applicant
L J SCANLAN & ASSOCIATES PTY LTD
Second Applicant
AND
GREENPORT NOMINEES PTY LTD (ACN 067 084 057)
First Respondent
PETER JERMYN
Second Respondent
CAPITAL ALLIANCE PTY LTD (ACN 008 802 757)
Third Respondent
(Page 2)
Catchwords:
Companies - Membership - Oppression or unfair prejudice to minority - The "interest of the members as a whole" - Whether appropriate to order the company to purchase the applicant's one share at a premium
Contract for the provision of architectural services - Oral contract - Turns on its own facts
Legislation:
Corporations Law
Result:
Judgment in favour of the second applicant in the sum of $128,000
Category: B
Representation:
Counsel:
First Applicant : Mr P G McGowan
Second Applicant : Mr P G McGowan
First Respondent : Mr N W McKerracher QC & Mr R A C Cullen
Second Respondent : Mr N W McKerracher QC & Mr R A C Cullen
Third Respondent : Mr N W McKerracher QC & Mr R A C Cullen
Solicitors:
First Applicant : Tottle Christensen
Second Applicant : Tottle Christensen
First Respondent : Dwyer Durack
Second Respondent : Dwyer Durack
Third Respondent : Dwyer Durack
(Page 3)
Case(s) referred to in judgment(s):
John J Starr (Real Estate) Pty Ltd v Robert A Andrew (A’asia) Pty Ltd (1991) 6 ACSR 63
Voli v Inglewood Shire Council [1963] ALR 657
Wayde v NSW Rugby League Ltd (1985) 3 ACLC 799
Case(s) also cited:
Fexuto v Bosjnak Holdings Pty Ltd (1998) 28 ACSR 688
Hogg v Dymock (1993) 11 ACSR 14
Quinlan v Fiboze Pty Ltd (1988) 14 ACLR 312
Re Bird Precision Bellows Ltd [1984] Ch 419
Re Bodaibo Pty Ltd (1992) 6 ACSR 509; 10 ACLC 351
Scottish Co-op Wholesale Society Ltd v Meyer [1959] AC 324
Vujnovich v Vujnovich [1988] 2 NZLR 129
(Page 4)
WHITE AUJ:
The background
1 This application pursuant to the Corporations Law proceeded on the basis of affidavit evidence and the cross-examination of many of the deponents to such affidavits. The nature of the claims made indicate that it would have been preferable, particularly in relation to the respondents' claim for a set-off, to have proceeded on pleadings.
2 The first applicant, Lawrence Scanlan, ("Mr Scanlan") is an architect and the second applicant, L J Scanlan and Associates Pty Ltd is the vehicle through which he operates his architectural practice and it is the corporate trustee of the Mill Point Unit Trust.
3 The first respondent is a company, Greenport Nominees Pty Ltd ("Greenport") that was set up by Mr Scanlan and the second respondent ("Mr Jermyn") as the corporate body which would develop the site of the Indiana Teahouse and be the lessee thereof from the Town of Cottesloe if the tender submitted by Mr Scanlan were successful.
4 The redevelopment of that site for the purposes of a restaurant facility is hereinafter referred to as "the Project".
5 The major areas of dispute between the parties are as follows:
1. Mr Scanlan's allegations of oppression;
2. The terms of the oral agreement between Mr Scanlan and Mr Jermyn entered into in or about October or November 1994, particularly with reference to the basis of the charge for architectural services to be rendered by the second applicant, namely
(i) the percentage rate at which the charge was to be levied;
and
(ii) the amount to which that rate was to be applied;
and
- the question of the "success fee", "pre-tender costs" or "spotter's fee" claimed by Mr Scanlan in the event that the tender for the Project were successful.
(Page 5)
- second applicant's fees an amount for loss and damage caused to it thereby.
6 I refer to each of these areas below.
Mr Scanlan's claim
7 The claim by Mr Scanlan, based upon the anti-oppression provisions of the Corporations Law, alleges:
"(a) that the affairs of Greenport are being conducted in a manner that is oppressive or unfairly prejudicial to, or unfairly discriminatory against Mr Scanlan or contrary to the interests of the members as a whole; and/or
(b) that a relevant act or omission, or proposed act or omission, by or on behalf of Greenport, or resolution, or proposed resolution, of a class of members of Greenport was or would be oppressive or unfairly prejudicial to, or unfairly discriminatory against Mr Scanlan or contrary to the interests of the members as a whole; or, alternatively
(c) that the second applicant is contractually entitled to payment of professional fees or alternatively a quantum meruit for architectural and other work completed."
8 Originally, Mr Scanlan sought the following orders, with costs:
"1. The second and third respondents cause sufficient shares in Greenport to be transferred to Mr Scanlan to increase his shareholding to 25% of the issued shares of Greenport.
2. Alternatively, Greenport allot sufficient shares in Greenport to Mr Scanlan to increase his shareholding to 25% of the issued shares.
3. Alternatively, the second and third respondents purchase Mr Scanlan's shareholding at a premium value to be determined by the Court.
4. Alternatively, Greenport be wound up by the court
5. An official liquidator be appointed the liquidator for the purpose of Greenport's winding up."
(Page 6)
9 In the light of subsequent developments, only the third of those claims is now persisted in by Mr Scanlan. As I understand it, Mr Scanlan seeks an order that Mr Jermyn and the third respondent purchase his one share at a price equivalent to the amount claimed by the second applicant for architectural and other services. That claim is made as an alternative to the relief sought by Mr Scanlan.
10 Mr Scanlan's complaints set out in detail hereunder, expressed briefly, are that he was excluded from the management of Greenport and that the majority restricted the allocation to him of further shares in Greenport.
The complaints as to oppression
11 Mr Scanlan's specific complaints (which have been subsequently altered, as will appear hereunder) in relation to the alleged oppression were that he was not consulted as to:
"1. The introduction of Mark Smyth as a third partner in the project and the cancellation of the allotment of 100,000 shares to Mr Scanlan;
2. The issue of 600,000 shares in Greenport to Union Petroleum;
3. The issue of 250,000 and 40,000 convertible notes in Greenport to Capital Alliance Pty Ltd;
4. The issue of 32,222 convertible notes in Greenport to Romarcam Investments Pty Ltd;
5. The issue of 77,778 shares in Greenport to Llanbedr Holdings Pty Ltd;
6. The appointment of Kathal Spence as a general manager of Greenport;
7. The dismissal of Ivan Rutherford as general manager and the appointment of Arthur Murphy to oversee and look into the administration of the restaurant;
8. The dismissal of Shirley Lynette Scanlan;
9. A loan or loans made by Greenport to Valiant Consolidated;
(Page 7)
- 10. The removal of Mr Scanlan as company secretary of Greenport;
11. The refusal by Greenport to pay the fees of Mr Scanlan and/or Mr Jermyn or to transfer the appropriate number of shares;
and
12. That he was refused access to the books of Greenport so as to ascertain whether it had received the interest payable by Max Resources."
12 In addition to the foregoing, Mr Scanlan complained that Mr Jermyn threatened to remove him as a director of Greenport, that he has been refused access to the books and records of Greenport, that he was removed as a director of Greenport, and that the transfer and issue of shares and convertible notes was made without Council approval. Nothing seems to turn upon that last point. The other matters complained of appear to have arisen after Mr Scanlan had raised the disputed invoices, the subject of the second applicant's claims.
13 At the conclusion of the hearing, counsel for the applicants abandoned certain of the grounds of alleged oppression, saying:
"Can I tell your Honour now in relation to that that as my learned friend has already urged upon your Honour and we accept, that the effect of the evidence means that there are a number of heads which we accept cannot be found in favour of the applicants. As a group they primarily relate to the complaints about non-advice or non-involvement in loans or the introduction of capital raising. We accept on the basis of Mr Scanlan's evidence they are not capable of being pursued. So what follows on (sic as) acts of oppression are those which in our respectful submission remain which relate to appointment to (sic of) Mr Spence, appointment of Mr Murphy and then what follows are the various dealings in Max Resources. 30(o) is the appointment of - the removal of Mr Scanlan on the failure to pay the fees, the ultimate removal of Mr Scanlan, refusal of access to books and records and a number of other matters which I will come back to. So what we have taken out are, as I say, that group of complaints (sic that) relate to that area which we accept are no longer maintainable."
(Page 8)
14 The acts of oppression finally relied upon (in relation to each of which I comment hereunder immediately after the description of the act in question) are, therefore, the following (and, as will be seen, some of the following grounds are different from those originally relied upon and some rely on matters arising after the commencement of these proceedings and represent alleged causes of action not raised in the original affidavits):
1. That Mr Scanlan was not consulted in relation to the appointment of Kathal Spence as a general manager of Greenport;
15 Mr Spence was and is now again the accountant employed by Mr Scanlan (or his company). There were continuing discussions between Messrs Spence, Scanlan and Jermyn as to the Project. Mr Spence was a guarantor, together with Mr Scanlan and others, of the lease and was intimately involved with the Project. I do not accept that Mr Scanlan was excluded from the appointment of Mr Spence. He did not complain to Mr Jermyn when he became aware of the appointment. In my opinion, the position was that Mr Scanlan was content to leave the business and administration to Mr Jermyn while he concentrated on the architectural and construction requirements. I am not persuaded that this allegation establishes oppression.
2. That Mr Scanlan was not consulted in relation to the appointment of Arthur Murphy to oversee and look into the administration of the restaurant;
16 It seems plain that Mr Scanlan left exclusively to Mr Jermyn the financial and administrative arrangements of Greenport. He acknowledged Mr Jermyn's superior business experience and knowledge and even suggested that he felt intimidated by Mr Jermyn.
3. That Greenport has failed to report and properly account for the transaction whereby moneys were advanced to Max Resources;
17 I accept the respondents' explanations concerning the moneys advanced to Max Resources. This transaction was part of the financial activities which Mr Scanlan left to Mr Jermyn and I do not consider that there is any evidence of impropriety in relation to the transaction. In any event, if I am wrong in that regard, the matters complained of do not, in
(Page 9)
- my judgment constitute oppression within the meaning of that term in the Corporations Law.
4. The removal of Mr Scanlan as company secretary of Greenport;
18 At p 301 of the transcript, Mr Scanlan said, under cross-examination:
"I told Peter I didn't even want to be company secretary. As you can see from this experience, I'm not good at that area. It's not my expertise, it's not my forte. I was there virtually as a signatory."
19 In my opinion, his removal as company secretary in these circumstances can hardly be described as oppressive.
5. The refusal of Greenport to pay the fees claimed by the second applicant or to transfer the appropriate number of shares to Mr Scanlan pursuant to the oral agreement between him and Mr Jermyn;
20 In my opinion, it is inappropriate to describe as oppressive conduct a refusal to pay a disputed claim by a member of a company against that company. Counsel for Mr Scanlan relied upon the decision in Wayde v NSW Rugby League Ltd (1985) 3 ACLC 799 in support of the proposition that a failure by Greenport to honour the terms of the agreement between Mr Scanlan and Mr Jermyn could not be other than unfair. That may be so, but I am not persuaded that a bona fide refusal by a company to pay a disputed claim can be so categorised.
6. A threat by Mr Jermyn to remove Mr Scanlan as a director of Greenport;
21 Mr Scanlan said, in his affidavit sworn on 5 November 1998 that:
"When it came to discussion about the accounts of Lawrence J Scanlan & Associates Pty Ltd I excluded myself due to a conflict. As I was departing Jermyn said that he would call a shareholders meeting to sack me. I responded that I would not resign."
22 Mr Jermyn disputes that statement and I prefer his version of what took place. In any event, a threat by Mr Jermyn to call a shareholders'
(Page 10)
- meeting to remove Mr Scanlan as a director could not properly be described as oppressive conduct by Greenport.
7. The refusal to permit Mr Scanlan access to the books of Greenport on 13 May, 7 July, 19 August, 12 October and 9 December 1998 and on various other dates;
23 As I understand it, the refusal took place after Mr Scanlan had threatened action against Greenport and at a time when there was a conflict of interest between him and Greenport. In his affidavit sworn on 29 January 1999, Mr Jermyn says:
"Scanlan was informed and is aware that his actions against Greenport has caused its board to consider that the provision of information to Scanlan was, in those circumstances prejudicial to the interests of the company and its shareholders and was not sought by Scanlan for bona fide reasons as a director but for his personal interest and gain, and placed him in a position of conflict with Greenport and its shareholders."
24 In my opinion, Greenport was, in the circumstances, justified in adopting the attitude there expressed.
8. The threat by Arthur Murphy in 1998 to destroy books and records relating to contingent liabilities of Greenport;
25 While Mr Murphy was the company secretary of Greenport, I do not consider that a threat by him can be regarded as a threat by Greenport.
26 In his affidavit sworn on 4 May 1999, Mr Holyoak, the internal accountant of Greenport, said:
"On 15 May 1998 I became aware that I did not have access to weekly employee time sheets for the period May 1997 to January 1998. When I asked Murphy where these records were located he replied that the documents had been removed by him, were stored at his house and that he intended to destroy the employee time sheets from the beginning of operations to the end of January 1998."
27 There is no evidence that Mr Murphy did destroy any records and nothing to suggest that his statement was made as an agent of Greenport. I do not consider that this allegation establishes oppression.
(Page 11)
9. The instructions to Mr Holyoak by Mr Murphy not to provide financial information to Mr Scanlan throughout 1997 and 1998;
28 It is not apparent that Mr Scanlan sought any information which was withheld from him or that Mr Scanlan complained to Mr Jermyn or at all about a failure to provide him with financial information, nor is there any evidence that Mr Scanlan called a directors' or shareholders' meeting to discuss the issue.
10. The removal of Mr Scanlan as a director of Greenport on 8 January 1999;
29 As this took place after the institution of the present proceedings, I am not persuaded that it affords grounds for an allegation of oppression.
11. The engagement of Mr McLernon to investigate the financial affairs of Mr Scanlan;
30 There is nothing to indicate that the engagement of Mr McLernon for the purpose stated was unfair or otherwise oppressive to Mr Scanlan . I do not find that it amounts to oppressive conduct by Greenport.
12. Threats made to Mr Scanlan by Mr McLernon;
31 There is no evidence that, if the alleged threats were made by Mr McLernon, he had any authority from Greenport to make them. He denies the alleged threats and Mr Jermyn denies that he was authorised by Greenport to make them. This ground is not made out.
13. The execution by the respondents of a contract for the sale of the issued shares in Greenport as to which Mr Scanlan was not consulted nor offered the right to acquire such shares pursuant to his pre-emptive rights under the Articles of association of Greenport;
32 As I understand it, this contract, which Mr Scanlan was invited to execute, was not proceeded with. In any event, it was executed in or about March 2000, after the institution of the present proceedings.
(Page 12)
14. The sale by Greenport of its assets, despite Mr Scanlan's objection thereto;
33 This sale took effect in or about October 2000, after the institution of the present proceedings.
15. The repayment of alleged creditors of Greenport without consultation with Mr Scanlan and without informing him;
34 Again, this was done on or about 11 and 12 October 2000, after the institution of the present proceedings.
Conclusions as to Mr Scanlan's claims
35 The first applicant sought relief pursuant to s 246AA of the Corporations Law(1998). That section has since the institution of these proceedings been repealed and the position is now governed by Pt 2F.1 of the Corporations Law.
36 The relief sought is discretionary. In John J Starr (Real Estate) Pty Ltd v Robert A Andrew (A’asia) Pty Ltd (1991) 6 ACSR 63 at 74, Young J said:
"It is incumbent upon the court when making an order under s 320 to endeavour to find a scheme, short of winding up, if possible, which will 'put the company back on the rails' and avoid the caused of conflict and oppression, yet will as far as possible allow all members to participate in the business."
37 Although Mr Scanlan has raised the foregoing matters as incidents of oppression, it is admitted by him that he never complained to Mr Jermyn about any of them at the time and he does not contend that the acts of Mr Jermyn in obtaining investments into Greenport were other than beneficial for that company. The evidence of Mr Scanlan was to the effect that he had many discussions with Mr Jermyn in relation to the affairs of Greenport and I am not persuaded that the matters which he says constituted his exclusion from management can properly be regarded as acts of oppression. I find that he left the management side of the company's affairs to Mr Jermyn and was happy to rely upon the latter's business experience, while he attended to the architectural requirements of the Project. (In fact, although I regard this as an exaggeration, he claimed to have been spending 100 hours and seven days a week working on the Project.)
(Page 13)
38 Mr Scanlan signed the minute recording his entitlement to acquire 100,000 shares in Greenport in consideration of a payment of $100,000. Although he has contended that he was entitled to have those shares issued to him in satisfaction of a "success fee", the fact is that he has never applied for the issue to him of any shares in Greenport other than the one share he still holds.
39 In my opinion, Mr Scanlan has not established that the matters complained of constitute oppressive conduct entitling him to the relief he seeks, or to any relief.
40 In the result and for the foregoing reasons, I find against Mr Scanlan in relation to the allegations of oppression.
41 The only relief now sought by Mr Scanlan, based upon the alleged grounds of oppression, is an order that Greenport purchase his single share in Greenport, at a premium. The other forms of relief originally claimed by Mr Scanlan have, in effect, since been overtaken by events. However, Mr Scanlan has not attempted to prove that his share has a value other than its par value of $1 and I am not persuaded that it would, in any event, be appropriate to direct that his share be purchased by Greenport at a premium. On the basis of the net tangible assets of Greenport, I am of the view that his share is probably worth less than $1. I intend to allow, in part, the alternative claim by the second applicant, and I dismiss Mr Scanlan's claims.
The agreement between Messrs Scanlan and Jermyn
42 There is a direct conflict between Mr Scanlan and Mr Jermyn as to the terms of the oral agreement between them. The important conflicts arise in the following areas, namely:
"1. As to whether it was agreed between them at the outset that Mr Scanlan would be entitled to have a 'success fee' of $100,000.00 paid to the second applicant in the event of the tender submitted to the Town of Cottesloe being successful;
2. If so, whether it was agreed that Mr Scanlan would be entitled to choose to be issued with 100,000 shares in Greenport, at the par value of $1.00 each, in satisfaction of the claim to a success fee.
(Page 14)
- 3. As to whether the architect's fees to which the second applicant would be entitled were to be calculated on the contract price of the building works, excluding fittings and non-construction items, as contended for by Mr Jermyn, or were to be calculated on the final inclusive cost, as contended for by the second applicant.
4. The rate at which the architectural fees were to be charged.
5. As to whether there were acts of oppression by Greenport as alleged by Mr Scanlan."
43 I have dealt above with the last of those issues.
44 In relation to the success fee, Mr Scanlan contended that it was agreed that he should receive such a fee, in the sum of $100,000, from Greenport if the tender submitted by him to the Town of Cottesloe were successful. Mr Jermyn denied that the second applicant was entitled to any success fee. However, he accepted that there was an obligation to pay $20,000 in respect of pre-tender costs if the tender were successful and said that this sum had been paid.
45 In relation to the allotment of 100,000 shares to Mr Scanlan, Mr Jermyn said that such shares were to be allotted against payment in cash of their par value. Mr Scanlan contended that the resolution on 17 July 1995 concerning the allotment to him of 100,000 shares in Greenport at par was, in fact, a recognition of his entitlement to the success fee. The shares had not been allotted to Mr Scanlan by August 1996, when Mr Scanlan was told by Mr Jermyn (in company with Mr Spence) that Mr Jermyn had arranged to introduce Mark Smyth as a shareholder to have a 10 per cent interest in Greenport and that, in consequence, it would be necessary to cancel the allotment of 100,000 shares to Mr Scanlan pursuant to the resolution of 17 July 1995.
46 Mr Scanlan said that the rate at which the architectural fees were to be charged was not precisely agreed but it was said to be within the range of 7.5 per cent to 12.5 per cent and that the rate should be capable of bearing scrutiny from third parties. He said also that the rate was to be assessed against the final total cost of construction of the Project. Mr Jermyn agreed that the rate was not precisely agreed but said it was to be within the range of 5 per cent to 10 per cent and to be charged on the greater of the contract price and the price stated in the lease from the Town of Cottesloe.
(Page 15)
Mr Scanlan's evidence
47 Mr Scanlan filed five affidavits, sworn by him on 5 November 1998, 8 February 1999, 25 May 1999, 6 July 2000 and 8 August 2001 respectively, comprising, with their annexures, some 293 pages. He described having become aware in early 1994 that the Cottesloe Town Council had put out to tender a new commercial operation for the site of the former Cottesloe Beach Bathing Pavilion and having submitted a tender with a concept for a restaurant facility. Having been told privately by a Council officer that his tender was the preferred option but that it required "more financial clout", Mr Scanlan approached Mr Jermyn and it was agreed between them, he said, after some discussions, that:
"1. Mr Scanlan would continue to do all work necessary to win the tender and Mr Jermyn would nominate himself as 'one of the partners and guarantors'.
2. They would incorporate a body (Greenport) to be the tendering body and to run the Project if the tender was obtained and they would be equal directors and shareholders in Mr Jermyn.
3. If the tender were successful, they would jointly develop the Project through Mr Jermyn.
4. Mr Scanlan was to receive a $100,000.00 fee for payment for his work in winning the tender.
5. Mr Jermyn would be responsible for the funding of the Project through debt and equity.
6. Mr Scanlan would contribute his share of equity through cash or services and work performed and would retain between 25% and 50% of equity depending upon his ability to fund the shares. The services or work performed would be the provision of architectural and 'other required services' from himself or from the second applicant.
7. He would pay the same price for the shares to be issued to him as was paid by Mr Jermyn and any other 'partners' introduced would pay a premium for their shares.
8. Mr Scanlan would be entitled to a delay in payment for his share of the equity on the basis that this would depend
(Page 16)
- on his or the second applicant's architectural and consultant's fee and what percentage of that fee he or the second applicant could afford to use as equity capital and what other funds he had available through other projects.
9. The fee to be charged by the applicants for the provision of architectural services was to be 'a fee that was capable of bearing scrutiny from third parties'. As this was a commercial arrangement, Mr Scanlan understood that 'this implied that a fee consistent with practice in the industry could be charged. No exact fee was agreed, however mention was made of a fee for architectural services only of between 7.5% and 12% of the actual cost of the works."
The credibility of Mr Scanlan and Mr Jermyn
48 It is apparent that important issues as to the credibility of the parties arise in this matter and I propose to refer to each of Mr Scanlan and Mr Jermyn respectively and to examine the factors which seem relevant to those issues.
Mr Scanlan
49 It is a matter of some significance in relation to the credibility of Mr Scanlan to have regard to the two financial statements of assets and liabilities prepared by him and filed in these proceedings.
50 In one of those statements (but not in both), being the statement as at 31 May 2000, Mr Scanlan listed an asset consisting of 1.5 acres of land in Bali, at a figure of $750,000. In fact, he did not own such land which was the property of an Indonesian company, PT Indosail Sakti, in which an Australian company, Silver Sails Pty Ltd, held a 70 per cent interest as a shareholder. In turn Mr Scanlan claimed to hold approximately 12 per cent of the shares in Silver Sails Pty Ltd. That company was deregistered on 24 June 1993 and remains deregistered to this day. There was a conditional contract dated 16 July 1998 (Ex 4) for the sale of the Bali land at a price of US$1 million, (although, in the financial statement to which I have referred above Mr Scanlan described the price as being US$2 million) conditioned upon the grant of certain approvals by Indonesian government authorities, which approvals were not in fact ever obtained. In the result, the contract never came into effect. Despite that, Mr Scanlan claimed his interest in the Bali land as having a value of $750,000. The fact seems clear that Mr Scanlan did not, at any material
(Page 17)
- time, have a realisable interest in the Bali land of any value to him. Moreover, even at best for Mr Scanlan, taking his evidence at face value and disregarding the facts that Silversails Pty Ltd has been deregistered for the past eight years and more and that the contract for the sale of that land has never come into effect, a rough calculation, treating the exchange rate, most favourably to Mr Scanlan, as equivalent to $2 per US$1, would reflect Mr Scanlan's interest as equal to $168,000 at most. (That calculation is as follows: $2,000,000 x 70 per cent x 12 per cent = $168,000.)
51 It was a term of the conditional contract that the directors and shareholders of Silver Sails Pty Ltd would ensure that the company was maintained and managed under the laws, regulations and statutes of Australia and was at all times financially solvent during the period of the agreement. As Mr Scanlan well knew, Silver Sails Pty Ltd was at the relevant time deregistered and its shareholders were without the funds required to have it re-instated.
52 The claim to the asset in question was clearly false and deliberately so. The financial statement was used by Mr Scanlan in support of his application for a Mareva injunction in these proceedings.
53 In the other financial statement which is not dated but which bears the imprint of a facsimile transmission dated 20 July 1999, Mr Scanlan listed as his asset a house at a value of $780,000. The house belonged not to him but to his wife as sole registered proprietor. Mr Scanlan explained this by saying he was asked by a finance broker to include the property as an asset, although it was not his. His evidence (T511) was as follows:
"I think your first item there is the $780,000 for the house?---That's correct.
20 Warnham Road. That's your wife's property?---That's correct.
Did you say that you were asked to include it in the statement by somebody?---Absolutely, the finance brokers.
Who was the finance broker who asked you to do that?
--- Oliver Douglas and Peter Fermanis.
Did he offer some stated reason for your doing that?---They did say they wanted to increase the assets. It wasn't going to be
(Page 18)
- used anywhere else. They just wanted a bit of paper. It would not be used by any third parties.
They wanted the assets to be increased?---That's what they were obviously getting towards.
Did you understand they wanted you to put in an alleged asset which was not an asset?---They actually said - they described that because of my marital status it was acceptable that we put it in at a value and that's what they asked me to do and I did it. I regret it but I did it."
54 The statement that the list of assets and liabilities was not to be used by any third parties is implausible and I am not persuaded that, if this had been said to him, Mr Scanlan could have believed it to be true.
55 The evidence that Mr Scanlan was working 100 hours and seven days a week on the Project was highly improbable in the light of the evidence of other witnesses as to the extent of his attendance at the site and the fact that he was doing several other, unrelated, jobs at the time, from which he earned $178,000. (At the time, he was paid a total of some $172,000 by Greenport for his work on the Project.)
56 Mr Scanlan said that he had not previously submitted the invoices, the subject of the second applicant's claim, as he wanted to discuss the matter with Mr Jermyn and that he was unable to have such a discussion during a period of 14 months. He gave the following evidence in this regard:
"You say it was some 14 months or so before you could pin Mr Jermyn down in order to discuss the amounts which you say the company owed you and Scanlan and Associates. Is that right?---Yes. I believe the times I met with Peter it wasn't the right time to discuss these matters.
Why didn't you exercise your right to call a directors meeting during that period of time?---It's just not my nature to do that. I wasn't trying to force an issue, I was just trying to get together with Peter to discuss the matter.
Well, you know it's your legal right to call a directors meeting?---Yes, I know it's my legal right, but it's not something that - it's not my nature.
(Page 19)
- You're complaining now of lack of meetings - - -?---That's correct.
- - - when it was always within your power to call a meeting?---I accept that."
57 The allegation that for 14 months after the completion of the building and before submitting the relevant invoices he was unable to have a discussion with Mr Jermyn is hardly credible.
58 In a letter to the builder, Mr Scanlan expressed the belief that he had over-certified the moneys to which the builder was entitled. He gave the following evidence when I asked him about this letter:
"When you said there, 'I believe I have overcertified many of your claims' was it the fact that you did not have such a belief at the time?---Yes, that's correct. I mean, it really was a - saying to try to get this guy to back off but I've never believed I've overcertified. In fact, my history is I'm undercertifying so much that the builders hate me."
59 It seems that Mr Scanlan is quite prepared to state untruths if he considers it to his advantage to do so.
60 In his affidavit sworn on 5 November 1998, Mr Scanlan says, in par 29:
"I have never attended a meeting of members of Greenport otherwise I have been asked to sign minutes and other documents at short notice without the opportunity to consider the contents and seek advice."
61 That statement is, in my opinion, an extraordinary one for Mr Scanlan to make. He is an experienced architect who has been in practice for several years and he has been an officer of some 20 companies from time to time. If he had wished to consider the contents of documents he was asked to sign or to seek advice thereon, there is no reason for his not doing so. There is no suggestion of duress or coercion of any sort which might override his desire to consider documents he was asked to sign. Commonsense would indicate the necessity to consider any document before it is signed.
62 In par 31 of that affidavit reads as follows:
(Page 20)
- "To the best of my knowledge the meeting of directors and members on 17 July 1995 did not formally take place however the minutes were signed by myself on the understanding that the allotment of 100,000 shares to myself conditional on receipt of $100.000.00 was in satisfaction of the success fee for winning the tender. Myself or Lawrence J Scanlan & Associates Pty Ltd had not rendered an invoice for this amount in order to minimise the requirements for further capital injection and therefore the cash to fund this issue of equity was not yet available."
63 That latter allegation makes no sense at all. The allotment of 100,000 shares in satisfaction of the alleged claim to a success fee would not have involved Greenport in any requirement for a capital injection and no cash would have been necessary to "fund this issue " of shares.
64 Furthermore, the proposition in par 31 is contrary to the express wording of the resolution and, surprisingly, if what Mr Scanlan says were true, no reference is made in the minute to an entitlement to a "success fee" or to the right to have the shares issued, not for cash but in satisfaction of that success fee.
65 In par 60 of his first affidavit, Mr Scanlan says, inter alia: "The Project has totally consumed the time of both myself and my wife Shirley from its inception".
66 Nonetheless, it seems that, during the relevant period, the second applicant was able to charge architectural fees on unrelated matters in an amount in excess of $170,000, which is wholly inconsistent with the statement in par 60 which I have quoted above.
67 In all the circumstances, I hesitate to accept Mr Scanlan's testimony unless it is supported by other acceptable evidence.
Mr Jermyn
68 In relation to Mr Jermyn, Mr McGowan submitted that there are several matters relevant to his credibility that have arisen during the trial.
69 One of the matters which Mr Scanlan submits constitutes oppression relates to the transaction between Greenport and Max Resources NL and Union Petroleum SA. Mr Scanlan said that he was not consulted as to this transaction which, he considered, was an arrangement to the detriment of Greenport designed to benefit Mr Jermyn personally. Mr Scanlan denied
(Page 21)
- that there had been a meeting of the directors on 11 July 1995 (or at all) at which the alleged transaction was discussed. A minute of a meeting said to have been held on 11 July 1995 was created by Mr Murphy, on instructions from Mr Jermyn, some considerable time after the date of such meeting. Unlike the other minutes, this document was not specifically discovered in the respondents' first discovery but was separately discovered in November 2000, after the application had been entered for hearing. It is the submission of Mr Scanlan that that minute is a forgery. That minute records an approach by Max Resources for a loan facility of $1,600,000 with interest at 12 per cent per annum, the first 12 months being paid up front with no rebate for early payment. An amount of $800,000 was to be repaid within seven days and security was provided over certain shares. The minute also states:
"In view of the fact that the Company does not have the funds to advance the loan facility, it is proposed to offer all the interest and other proceeds from the transaction to Union Petroleum SA on the basis that union subscribe for 600,000 fully paid one dollar ordinary shares at a one dollar fifty premium to Greenport Nominees Pty Ltd prior to 21st July 1995. Union Petroleum SA is to be paid a consulting fee of $192,000 with the remaining proceeds from the transaction being retained by Greenport Nominees Pty Ltd."
71 On the whole, I did not find Mr Jermyn to be a witness to be disbelieved on his oath and I am prepared to accept his evidence in preference to the unsupported evidence of Mr Scanlan where they disagree.
The findings of facts
72 In addition to any findings otherwise expressed herein, I make the following specific findings of facts:
(Page 22)
- 1. In 1994, the Town of Cottesloe put out to tender a new commercial operation for the site of the former Cottesloe Beach Bathing Pavilion;
2. Mr Scanlan, in association with his fellow members of a syndicate, submitted a tender for development of the site for a restaurant.
3. In October 1994, some of the other members of the syndicate withdrew and Mr Scanlan submitted a further tender, putting forward his family company (Carbridge Pty Ltd) as the proposed lessee.
4. Tenders closed on 20 October 1994 and Mr Scanlan was told that his tender was the preferred option but that it required "more financial clout".
5. Mr Scanlan then approached Mr Jermyn and they had a number of discussions in late October and early November, 1994 which resulted in a verbal agreement which included terms that:
(1) If successful, they would incorporate a company to be the tendering body and the lessee of the restaurant and would jointly proceed with the Project;
(2) Mr Jermyn would be one of the guarantors, along with Mr Scanlan and others;
(3) Mr Scanlan would do all the architectural work required for the Project;
(4) (i) Mr Jermyn would attend to the financial requirements, including the raising of moneys needed and the introduction of further shareholders and would attend to the business side of the Project on the basis that he and his investors would hold a controlling interest in Greenport;
(ii) Mr Scanlan was satisfied to leave the financial side of the Project to Mr Jermyn;
(5) Mr Scanlan or his nominees would be entitled to acquire at par up to 50 per cent of the shares in Greenport, either for cash or in satisfaction of the second applicant's claim for architectural fees. There was no agreement as to the number of shares that Mr Scanlan could acquire as this would depend upon what he could afford and what number of shares Mr Jermyn would, when the time came, agree he could have. Accordingly, in this regard, an essential term
(Page 23)
- was left for subsequent agreement and no such agreement was reached at any time;
- (6) Mr Scanlan's entitlement to acquire shares would be deferred and would remain in force for a period to enable him to ascertain what amount he would be able to afford for such shares;
(7) There was no agreement as to the rate at which the second applicant would be able to charge for architectural services, but it was said that the rate would fall within a range (either of 7.5 to 12.5 per cent, according to Mr Scanlan or of 5 to 10 per cent, according to Mr Jermyn.) It was said that the fees to be charged would have to be capable of bearing scrutiny from third parties. Mr Scanlan caused the second applicant to charge at the rate of 10 per cent of the cost of the works and at least two invoices reflected that rate. Mr Jermyn considered 10 per cent too high;
(8) In the event that the tender were successful, the second applicant would be entitled to payment of an amount to cover the cost of the work done to secure the lease for the site of the Indiana Teahouse ;
- 6. The tender was successful and Greenport (which Mr Scanlan had already caused to be incorporated) became the developer and lessee in relation to the Project. Mr Scanlan and Mr Jermyn were the original subscribers and directors of Greenport and Mr Scanlan was appointed as the company secretary of Greenport. The second applicant was appointed by Greenport as the architect for the Project, the architectural work to be done by Mr Scanlan.
7. Mr Scanlan and Mr Jermyn each holds one share in Greenport and Mr Jermyn's company, the third respondent, owns 100,000 shares in Greenport. The par value of the shares is $1 each.
8. In a minute of shareholders' meeting, dated 17 July 1995 and signed by Mr Scanlan, it is recorded that:
"It was resolved that the Directors be authorised to issue 100,000 ordinary $1.00 shares to Lawrence John Scanlan (or his nominee) upon receipt of a completed Share Application Form and payment of the consideration of $1.00 per share."
9. Mr Scanlan did not at any time complete a Share Application Form or make any payment in respect of such shares.
(Page 24)
- 10. In or about August 1966, Mr Jermyn informed Mr Scanlan that he was arranging for one, Mark Smyth, to acquire a 10 per cent interest in Greenport and that it would accordingly be necessary to cancel the allotment of 100,000 shares to Mr Scanlan in accordance with the resolution of 11 July 1995 and this was done.
11. Mr Scanlan agreed to that proposal and signed a minute dated 16 August 1996 which contained the passage reading:
"The issue of 100,000 shares to Lawrence John Scanlan (or nominee) referred to in the meeting of members dated 17 July 1995 has not yet been taken up. Lawrence John Scanlan advised the meeting that he did not intend to take up the issue of shares referred to in that minute and that he had no objection to the minute being rescinded."
12. In or about February 1995 a lease was entered into between the Town of Cottesloe and Greenport and in July 1995 building approval was granted by the Town of Cottesloe Council to Greenport for the construction of the restaurant.
13. The building contract was let to Beechboro Building Company at a total contract price (which included provisional sums) of $1,465,000.
15. The construction sum referred to in the lease between Greenport and the Town of Cottesloe was $1,600,000.
16. On or about 26 March 1995, Beechboro Building Company became insolvent and moved off the site, going into liquidation in due course.
17. Work on the Project proceeded and was completed in or about October 1996 at a total cost greater than the original budgeted figure.
18. The third respondent rendered accounts to Greenport from time to time during the construction of the Project and was paid a total of $172,000 for architectural fees.
(1) Some considerable time after the completion of the building, Mr Scanlan caused the second applicant to submit, in February 1998, four further invoices, numbered 030, 031, 032, and 033, all dated 31 January 1998. There had been no previous indication that such invoices would be raised by him. There was no agreement at any time
(Page 25)
- between Mr Scanlan and Greenport for the payment of these invoices or their respective subject matter.
- (2) Invoice 030, in the sum of $100,000 gives the particulars: "Preparation and submission of initial tender to Town of Cottesloe for the redevelopment of the Cottesloe Beach Bathing Pavillion."
(3) Invoice 031, in the sum of $155,067.25, provides:
- "Completion of design, design development, contract documentation and contract administration including interior fit out and landscaping
10% of the actual cost of the works $300,000.00
Less already invoiced $146,000.00
$154,000.00
Disbursements:
200 photocopies @ 10c each 20.00
354 prints @$2.50 each 885.00
Building Permit fees 162.25 1,067.25
TOTAL DUE & PAYABLE $155,067.25"
(4) Invoice 032, in the sum of $28,700.00 provides:
"Operating an office for Greenport Nominees Pty Ltd including supply and payment of all consumables & outgoings
December 1994 to March 1995
16 months @ $800 per month $ 12,800.00
Provision of office accommodation;
Supply and payment of all consumables and outgoings including payment of office staff
(Page 26)
- April 1996 to May 1996
2 months @ $2,700.00 per month $ 5,400.00
Provision of office accommodation;
Supply and payment of all consumables
and outgoings
June 1996 to December 1996
7 months @ $1,500 per month $ 10,500.00
TOTAL DUE & PAYABLE $ 28,700.00"
(5) Invoice 033 in the sum of $62,800 provides:
"FOR Additional fees payable for:
During the entire duration of the project, Mr L Scanlan of LJ Scanlan & Associates Pty Ltd acted in the capacity of Project Manager or managed the affairs of the company in relation to this project in a capacity far in excess of the standard architectural services and more as a Project Manager. The standard fees for a project manager range between $50,000-$90,000.
This fee: 50% of lowest cost range (nominal charge only)
$25,000
(b) As full time builder April 1996 to September 1996
During the period between April 1995 after the contract builder, Beechboro Building Company went into liquidation and the completion of the project in September 1996 (and further during the period to April 1997) the office of LJ Scanlan & Associates Pty Ltd assumed the role of primary building contractor to complete the works. During this period over $1,900,000 of capital works were carried out. This invoice for the
(Page 27)
- primary period of April to September 1996 only at a nominal rate to cover costs:
5 months @ $5,400 per month $37,800
- TOTAL DUE & PAYABLE $62,800"
(5) Invoice 034, in the sum of $21,000.00 provides:
"FOR: Time spent on legal matters involving the company's cases with Innovative Precast Systems, Beechboro Building Company and others Period: September 1996 to December 1997
120 hours @ $175 per hour 21,000.00
TOTAL DUE & PAYABLE $21,000.00"
- 19. In fact, the second applicant had been paid a total of $172,000 and not only $146,000 as reflected in Invoice 031.
20. Mr Scanlan's evidence that he had worked on the Project seven days a week and with most weeks exceeding 100 hours, substantially overstated his contribution to the Project. While working on the Project, Mr Scanlan was also engaged in other work for which he received payment from his other clients, in addition to the payments received from Greenport.
21. Mr Jermyn also carried out work for the Project for which he, too, was not remunerated. Both Mr Scanlan and Mr Jermyn were "passionate" about the Project and anxious that it should be completed satisfactorily.
22. In addition to the architectural work carried out by Mr Scanlan in relation to the Project, he did other work which did not form a part of the third respondent's contract and in relation to which there was no agreement that he would be remunerated. Some of the additional work was done by Mr Scanlan in supporting Greenport's legal advisers in relation to a dispute with IPS in relation to certain defective work done by that company in relation to the manufacture of concrete panels. In addition, after the failure of Beechboro Building Company, Mr Scanlan took on additional activities in relation to the retention of the sub-contractors engaged to complete the Project.
(Page 28)
- 23. This other work done by Mr Scanlan was done in his capacity as a director of Greenport, rather than as an agent for the second applicant.
24. There was no written agreement between Greenport and the second respondent in relation to the architectural work to be carried out by the latter (although it is usual in architectural practice to have such an agreement in writing, for obvious reasons) and Greenport was not provided with a copy of the building contract whereby Beechboro Building Company was engaged as the builder.
25. In accepting appointment as the architect for the Project at the time that he was a director and shareholder in Greenport as the client, Mr Scanlan was involved in a conflict of interest.
26. I find that there was no precise agreement as to the rate at which the architectural fees were to be calculated. In the letter to Messrs Tottle Christensen dated 19 July 2000 and annexed to his affidavit sworn on 20 July 2000, Mr Duncan says that an appropriate architect's fee at the time would have been in the range of 7.1 and 8.4 per cent and that an additional 3 per cent to cover consultants' fees would have been very reasonable. Mr Jermyn said that he had told Mr Scanlan that 10 per cent was too high for the architectural fees. In my opinion, a rate of 10 per cent of the total cost of the building works and inclusive of architectural fees and all other consultants' fees, represents a reasonable rate. It was the rate which appeared in the second applicant's invoices and it is the rate which should be applied.
27. As recorded in Inv 031, the total cost of the Project was ultimately $3 million. At the rate of 10 per cent, the total fees payable to the second applicant were:
$3 million x10 per cent $300,000
Less paid $172,000
Balance due $128,000
28. If, as alleged by Mr Scanlan, threats were made to him by Mr Terry McLernon, who was engaged by Greenport as a private investigator to investigate the financial affairs of Mr Scanlan, as to which I make no finding, such threats were not shown to have been made with the authority of Greenport. Mr McLernon was not called as a witness at the trial.
(Page 29)
- 29. Mr Scanlan undertook to subscribe for shares in Greenport at various times from the outset and to contribute an amount of up to $600,000 to the capital of Greenport, but he never did so. That failure on his part, in my opinion, had the result that he was thereafter not entitled to be treated as the holder of a half interest in Greenport.
30. Mr Scanlan at all material times accepted that Mr Jermyn and his investors would have a controlling interest in Greenport.
31. Mr Scanlan has at all material times been a minority shareholder in Greenport, holding only one share therein.
32. Mr Scanlan was not in breach of his duty to Greenport as alleged or at all.
Was Mr Scanlan entitled to claim a "success fee"?
73 There is a conflict between the evidence of Mr Jermyn and that of Mr Rutherford over the issue of the "success fee" or "spotter's fee" as it has been described. Mr Jermyn denies that there ever was an agreement that the second applicant would receive such a fee for successfully tendering for the Project. Mr Rutherford's affidavit sworn on 20 April 1999 contains in paragraph the following statement:
"I recollect asking Jermyn who were the directors and shareholders of Greenport. In particular I had been alarmed by a newspaper report which had indicated that there was offshore ownership of Greenport. Jermyn said that the directors of the company where (sic were) Jermyn, Scanlan and Smyth. During the course of this conversation I recall that Jermyn said words to the effect that 'Laurie Scanlan is being looked after – he will be getting a spotter's fee and otherwise was off-setting his hours against equity'. Jermyn may have said that the spotters (sic) or success fee was of the order of $100,000.00 but I cannot accurately recollect that this was mentioned at this particular meeting and the specific figure may have arisen from other conversations that I have had with Jermyn but that the $100,000 is the figure I understood from these discussions to be the agreed spotters (sic)fee."
74 Mr Rutherford was not specifically cross-examined on this evidence, although when I asked Mr McKerracher QC about that fact, he pointed out that the following evidence was elicited in cross-examination:
(Page 30)
- "But you didn't ask him any questions about the financial structure of the company? --- I didn't. We hadn't gone that far. I certainly would have if it had have proceeded.
"Did you ask him any questions at any stage about the financial situation? --- I was aware in a minor way only because of the association with Arthur Murphy.
When you say in a minor way - - - ? ---Well, bank balances and the position of debtors and creditors, etcetera.
So you had no occasion to ask anything about the financial arrangement between directors at all? --- As I said, it hadn't gone that far."
75 In my opinion, that exchange was not adequate to put fairly to the witness a challenge to his evidence as to what had been said by Mr Jermyn in regard to the success fee.
76 However, while the deponent’s evidence as to what was said by Mr Jermyn about a "spotter's fee" is clear, his evidence as to the quantum seems less so. Mr Scanlan described an item in a budget he prepared, as "pre-tender costs" and, so far as I understood him, that was intended to represent what he referred to as a "success fee". Accordingly, a reference to a "spotter's fee" by Mr Jermyn is not necessarily inconsistent with "pre-tender costs" which Mr Jermyn accepted he had agreed should be paid to Mr Scanlan.
77 In his affidavit sworn on 5 November 1998, Mr Kathal Spence says that, at a meeting with Mr Jermyn on 13 June 1996 he made notes of calculations as to the various capital contributions made or to be made by various parties and he annexes a copy of his manuscript document which contains the following annotation, among other, illegible or unintelligible, writings and figures:
"Workings from meeting with P Jermyn 13/6/96
LJS $500K - $100K
Procurement, $50 K office
$350 K architectural."
78 This evidence supports to some extent Mr Scanlan's statement that it was agreed that there would be such a fee payable to him. However,
(Page 31)
- Mr Jermyn denies the allegations of Mr Spence and it seems probable that, if such figures were mentioned, they were derived rather from Mr Scanlan than from Mr Jermyn and I place little weight, if any, on the evidence of Mr Spence in this regard.
79 To the contrary, of course, there are the facts that the allotment to Mr Scanlan of 100,000 shares at par recorded in the minutes of 17 July 1995 expressly stated that the consideration was payment in cash and, perhaps more significantly, that Mr Scanlan did not apply to take up those shares in satisfaction of his claim to a success fee or at all. I say more of this elsewhere in these reasons.
80 Mr Jermyn said that he had agreed with Mr Scanlan to pay an amount of $20,000 for Mr Scanlan's pre-tender costs and that he had done so. There is no invoice from the second applicant (or from Mr Scanlan) which expressly relates to pre-tender costs. There is an invoice No 013 from the second applicant dated 23 November 1995 which reads in relevant part:
"FOR: Consultants fees 20,000.00
TOTAL DUE & PAYABLE $20,000.00"
81 There is no reference there to pre-tender costs nor any other support for the proposition that it relates to such costs. In fact, the invoice could hardly be less informative as to its subject matter. Senior counsel for the respondents suggested that that was the invoice in question but there is no evidence to that effect.
82 No attempt was made by Mr Scanlan to justify the amount of the "success fee" for which he contended and there is nothing before me to demonstrate that $20,000 would not adequately cover the pre-tender costs incurred by Mr Scanlan. In the absence of a written contract in which the rights of the parties are set out, I am not satisfied on a balance of probabilities that the amount of the pre-tender costs (or "success fee") was in fact $100,000. Accordingly, Mr Scanlan has not discharged the onus upon him to establish an entitlement to a further $100,000, payable to the second applicant.
The second applicant's claims
83 I have dealt above with the claim for a "success fee" or "pre-tender costs" claimed by Mr Scanlan on behalf of the second applicant.
(Page 32)
84 The second applicant's claims (framed in the alternative to the claim by Mr Scanlan which I have described above) are made against Greenport for the payment of a total $367,567.25 on the following grounds (which I summarise hereunder):
"1. By an oral agreement made in October or November 1994 between Mr Scanlan, on behalf of the second applicant and Mr Jermyn, it was agreed that:
(1) Mr Scanlan and Mr Jermyn would incorporate a company for the purpose of tendering to develop a restaurant facility at Cottesloe ("the Project");
(2) that company (Greenport) would engage the second applicant to carry out architectural and other services for the Project;
(3) the second applicant would be paid a fee for architectural services between 7.5% and 12% of the actual costs of the works or, alternatively a fair and reasonable fee;
(4) the company would, if the tender for the Project was successful, pay a success fee to the second applicant in the sum of $100,000.00
2. The first and second applicants carried out all necessary works to enable the tender to be submitted and the tender was successful, whereby the second applicant became entitled to be paid the $100,000.00 success fee.
3. The second applicant carried out architectural services between December 1994 and February 1998 in respect of the Project and thereby became entitled to be paid $367,567.25, in accordance with certain invoices dated 31 January 1998 submitted to Greenport.
4. Alternatively, for and at the request of Greenport, the second applicant provided architectural and other services in respect of the Project for the period December 1994 to February 1998 and is entitled on a quantum meruit basis to be paid for that work and the second applicant claims $367,567.25 or such other amount as is found to be a fair
(Page 33)
- and reasonable entitlement in respect of the work so carried out."
85 Mr Jermyn is a businessman who was approached by Mr Scanlan to provide financial backing in relation to the Project. The respondents deny the allegation that there was an agreement between Mr Scanlan and second respondent for the payment of a success fee in the event that the tender were successful. They also deny that Mr Scanlan is entitled to the other relief claimed by him. It would be reasonable for Greenport to pay an amount to Mr Scanlan in recognition of and recompense for the costs incurred in the preparation and submission of the tender to the Town of Cottesloe and in the subsequent dealings in relation thereto, of which Greenport became the beneficiary in due course.
86 I consider it probable that Mr Jermyn did agree to allow Greenport to pay a "success" fee and that the figure agreed upon was $20,000.
The respondents' claim for a set-off
87 It is common cause that Mr Scanlan owed to Greenport a duty to exercise reasonable care and skill. In Voli v Inglewood Shire Council [1963] ALR 657 at 661, Windeyer J said that:
"An architect undertaking any work in the way of his profession accepts the ordinary liabilities of any man who follows a skilled calling. He is bound to exercise due care, skill and diligence. He is not required to have an extraordinary degree of skill or the highest professional attainments. But he must bring to the task he undertakes the competence and skill that is usual among architects practising their profession."
88 The respondents have alleged that, as the result of Mr Scanlan's fault, the construction was delayed by a year and substantial additional costs incurred. A good deal of evidence was adduced through Mr Johan Dietrich who was the Site Supervisor employed originally by Beechboro Building Company and, after that firm ceased to operate, by Greenport. He has now retired from active work as a builder but has been a registered builder since 20 June 1969, having emigrated to Australia in 1956. In August 1995, he was asked by Mr Scanlan to prepare tenders for projects other than the Project and he did so.
(Page 34)
89 He said that Mr Scanlan had told him a number of times over the course of the construction of the Indiana Teahouse that he had other projects running concurrently with the Project.
90 Mr Dietrich alleged that over-payments had been made to Beechboro Building Company by Mr Scanlan. Mr Dietrich said that he had formed the view that only 25 per cent of the work contracted for by Beechboro Building Company had in fact been completed by the time that Beechboro Building Company left the job. He said in par 70 of his affidavit that the total amount paid to Beechboro Building Company by Greenport, pursuant to Mr Scanlan's certificates, was $697,250, whereas he was of the opinion, expressed in par 68 and 69 of his affidavit, that Beechboro Building Company was, by the time it left the site, entitled to 25 per cent of $606,500 for the building work, namely $150,000 and to $28,000 as a provisional payment, plus $135,000 for variations, a total of $313,000. The alleged overpayment to Beechboro Building Company was, therefore, the difference between $313,000 and the total paid, being $697,250, namely $384,250.
91 Mr Dietrich said that the overpayments identified by him were:-
"Beechboro Building Company 384,250.00
Beach Steps 10,500.00
Able Air Pty Ltd 27,692.00
Total overpayments $422,442.00"
92 Those figures were modified in his later affidavit sworn on 15 October 2001 in which he referred to a total overpayment of $347,768.
93 Mr Dietrich also identified certain matters of delay which he attributed to the fault of Mr Scanlan and he was critical of Mr Scanlan's conduct as architect in relation to the Project generally.
94 It is however, of some significance that in a draft letter prepared by Mr Jermyn in response to the invoices numbered 030 to 034 presented by Mr Scanlan, no mention is made either of overpayments or of delays attributable to the fault of Mr Scanlan. Those complaints arose only when Mr Dietrich swore his affidavit in April 2001.
95 In the course of his cross-examination, however, it became apparent that his affidavits had been drawn up by Mr Murphy in consultation with
(Page 35)
- Mr Dietrich and that there were errors in his affidavits. Interestingly enough, Mr Murphy was not called as a witness.
96 In listing the variations to be taken into account, Mr Dietrich had completely omitted an amount of $40,000 for additional concrete work (a concrete floor). His answers to my questions in this regard were evasive (T768-769).
97 In his assessment of 25 per cent, Mr Dietrich did not rely upon a detailed list or breakdown sheet of the items in question but on a general overview. Accepting the accuracy of the breakdown sheet annexed as "JD10" to Mr Dietrich's affidavit sworn on 30 April 2001 the position is as follows:
"(1) If one applies the figure of $99,000.00 as the cost of 'Mechanical' (that is, for the air conditioning) the calculated value of the percentages of the itemised work completed totals $664,940;
(2) If one takes the figure of $113,329 as billed for the air conditioning, the calculated value of the percentages of the itemised work completed totals $679, 269.00."
98 In either case, that exceeds the amount certified by Mr Scanlan.
99 I am not satisfied that the assessment can be made that there were delays caused by Mr Scanlan which resulted in loss to Greenport.
100 In my opinion, the respondents have not discharged the onus upon them to establish the set-off claimed and I decline to order any such set-off.
Conclusions as to the claims of the second applicant
101 For the reasons which I have indicated above, I am of the opinion that the second applicant has made good its claims to be paid an amount of $128,000 and I am prepared to enter judgment in that sum in favour of the second applicant.
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