Scott v Medley Close Pty Ltd

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION
COMMERCIAL LIST

No. 4254 of 2004

DAVID JOHN SCOTT	Plaintiff
v
MEDLEY CLOSE PTY LTD (ACN 007 135 186) and TIMOTHY KEITH MAXWELL	Defendants

AND BETWEEN

MEDLEY CLOSE PTY LTD (ACN 007 135 186) and TIMOTHY KEITH MAXWELL	Plaintiffs by counterclaim
v
DAVID JOHN SCOTT	Defendant by counterclaim

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JUDGE:	HABERSBERGER J
WHERE HELD:	MELBOURNE
DATE OF HEARING:	22-25, 29 MARCH 2004
DATE OF JUDGMENT:	14 OCTOBER 2004
CASE MAY BE CITED AS:	SCOTT v MEDLEY CLOSE PTY LTD
MEDIUM NEUTRAL CITATION:	[2004] VSC 395

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Contract – Terms of agreement concerning share of profits of property development – Whether losses also to be shared – Whether agreement terminated – Whether there was an honest belief based on reasonable grounds for the lodging of caveat – Section 118 of the Transfer of Land Act 1958.

Contract – Whether property purchased in joint names was to be held in equal shares – Terms of agreement – Whether terms breached – Order for sale of the property in lieu of partition – Whether valuation should be ordered, one party having undertaken to purchase the other party's interest at valuation – Sections 221 to 225 of the Property Law Act 1958.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr C.R. Northrop	Harwood Andrews Laywers
For the Defendants	Mr M.D.G. Heaton QC with Mr J.B. Nunns	Maddens Lawyers

HIS HONOUR:

The Issues in the Proceeding

This proceeding is a continuation of the protracted and bitter dispute between Mr David Scott and Mr Timothy Maxwell and their corporate entities arising out of their relationship as purported property developers. The particular question raised by this proceeding is precisely what that relationship was in respect of the proposed developments of the properties at 48 Queens Park Road, Newtown ("the QPR property/project/development") and at the two lots both known as Lot 2, LaTrobe Boulevard, Geelong ("the LTB property/project/development"). A similar question arose in respect of a third development at Allenby Road, Hillside which led to earlier litigation between the parties ("the Allenby Road proceeding").[1]
[1]Maxwell v Moorabool Developments Pty Ltd [2004] VSC 392

The plaintiff, David John Scott, commenced this proceeding against the first defendant, Medley Close Pty Ltd ("Medley Close"), the registered proprietor of the QPR property, and the second defendant, Timothy Keith Maxwell, following the withdrawal of a caveat lodged by him over the three lots now comprising the QPR property. The three town houses which had been built by Medley Close on the QPR property had been sold and the caveat had to be removed in order to allow the sales of the townhouses to settle. After paying out the first mortgagee and prior caveators, the net proceeds of the three sales are being jointly held by the parties' solicitors pending the outcome of this proceeding.

Mr Scott's caveat claimed, and his claim in this proceeding is, that the QPR property was held on trust by Medley Close for itself and Mr Scott to repay him his $60,000 contribution to the development and then to pay to each of them half of the profits of the development, pursuant to an agreement made in about November 2001 between Mr Scott and Mr Maxwell on behalf of Medley Close. The plaintiff also alleged in his statement of claim that the defendants represented and warranted that:

(a)       the $60,000 sum would be repaid to him;
(b)      there would be a profit of $200,000 from the development;
(c)       the development would be completed by March 2002; and
(d)(after amendment of the pleading), the development would not make a loss.

Mr Scott alleged that these representations were false and that as a result he had suffered loss and damage.

In their defence, Medley Close and Mr Maxwell denied the agreement pleaded by Mr Scott. The defendants pleaded that originally the agreement was that, subject to the approval of Mr Simon O'Keefe, a director of Medley Close and a partner in the development of the QPR property, Mr Scott would contribute $100,000 to Medley Close for the full duration of the development project for a half share in the development. It was further pleaded that Mr Scott later told Mr Maxwell that he could only contribute $60,000 and that Mr Maxwell then agreed that, subject to the approval of Mr O'Keefe, Medley Close would accept $60,000 for a half share in the development. The defendants alleged that as neither Mr O'Keefe nor Medley Close agreed to accept the payment of $60,000 by Mr Scott for a half share in the development, there was no agreement between Mr Scott and Medley Close.

Alternatively, the defendants pleaded that if the agreement was that alleged by the plaintiff, then that agreement was terminated by the consent of the parties in August 2002 in the following circumstances. The defendants asserted that in May 2002 Medley Close had agreed to lend Mr Scott $100,000 for a week or two, and that this sum was lent on 18 June 2002 by paying it at the plaintiff's direction to Harwood Andrews, solicitors. Mr Scott was, however, unable to repay the loan and it was then agreed that he would relinquish any interest in the development of the QPR property and repay only $40,000 of the $100,000 loan. Medley Close therefore counterclaimed in this proceeding for the $40,000.

In the further alternative, the defendants pleaded that if the agreement was still on foot, then it was an implied term that Medley Close and Mr Scott were to contribute equally to any losses. Medley Close counterclaimed for an order that the plaintiff pay half of any losses incurred in the development.

Further, the defendants denied making the alleged representations. Alternatively, if the representations were made the defendants pleaded that they had reasonable grounds for making them. Alternatively, they pleaded that the plaintiff did his own calculations in respect of the development and/or did not rely upon the defendants.

Finally, the first defendant counterclaimed for the losses it alleged it had suffered as a result of the plaintiff lodging his caveat over the QPR property without reasonable cause.

Having obtained an early hearing date for the dispute involving the QPR property, the plaintiff was granted leave to amend his statement of claim to include a claim in respect of the LTB property. The parties were able to cope with this amendment without losing the hearing date.

The plaintiff pleaded that by an agreement made in November 2001 the plaintiff, Mr Scott, and the second defendant, Mr Maxwell, agreed jointly to purchase the LTB property for $605,000 with the plaintiff paying the deposit of $60,500. It was alleged that the terms of the agreement included that the second defendant would secure a rezoning of the land to permit high density residential development before completion of the purchase and that the balance of the purchase price would be borrowed by the plaintiff and the second defendant secured by a mortgage of the land. It was also pleaded that it was a term of the agreement that the plaintiff and the second defendant would own the land equally and share equally any profits made on the sale of the land.

According to the plaintiff’s amended statement of claim, settlement of the purchase of the LTB property occurred on 28 June 2002, but in breach of the agreement with the plaintiff, the second defendant did not secure a rezoning prior to settlement.

The plaintiff pleaded that the parties were compellable to make partition of the LTB property pursuant to the provisions of Part IV of the Property Law Act 1958 ("the PLA") but in lieu of partition sought an order pursuant to s.222 or s.223 of the PLA that the LTB property be sold altogether out of court. The plaintiff further pleaded that he and the second defendant held the LTB property on trust for each other and themselves in accordance with the relative contributions made by each to the purchase price and that he had made and continued to make payments of interest and other expenses in relation to the LTB property.

Further, the plaintiff sought damages for breach of the representations that:

(a)the LTB property would be rezoned before completion of the purchase; and
(b)the balance of the purchase price for the LTB property could be borrowed against the increase in the value of the land as a result of the rezoning.

Whilst admitting the agreement to purchase the LTB property in their joint names with the plaintiff paying the deposit, the second defendant denied the other terms pleaded by the plaintiff. He alleged that it was:

"a fundamental condition of their agreement that the plaintiff would provide all funding and personally pay all funding costs before calculating net profit, which was to be divided in the proportions one third to the plaintiff and two thirds to the second defendant."

The second defendant counterclaimed for orders to this effect.

The second defendant denied that the LTB property was held on trust as alleged by the plaintiff. He asserted that he had made substantial financial and non-financial contributions to the value of the LTB property by his work in attempting to obtain planning amendments for residential development. The second defendant alleged that it was always the obligation of the plaintiff to pay all interest and other costs of finance in relation to the LTB property.

Mr Maxwell's counsel announced at the commencement of the hearing that he was prepared to buy out Mr Scott's interest in the LTB property. During cross-examination Mr Scott said that whether he was a buyer or a seller depended on the price. Up to a certain price, he said, he would be more than happy to buy Mr Maxwell out, but above that figure he would be "happy to not be an owner in the property". Mr Maxwell said that he did not want to sell his interest in the LTB property because it was his project. It meant more to him that just an investment.

It was agreed that the hearing was in some respects on liability only, in the sense that depending on my findings further inquiries or accounts would have to be made or taken in respect of both properties and orders made in respect of the disposition of the proceeds of sale of the QPR townhouses and for the sale of the LTB property. The parties also agreed that the evidence in the Allenby Road proceeding would be evidence in this proceeding insofar as it was relevant.

The Factual Background

Because the disputes concerning the two properties are interrelated, it is necessary to switch back and forth between them when setting out the factual background in roughly chronological order. The story begins with the fact Mr Scott and Mr Maxwell knew each other through playing veterans Super Rules for a football club in Geelong. Mr Maxwell was a real estate agent and property developer. Mr Scott was a chartered accountant.

The LaTrobe Boulevard Property – To October 2001

In about November 1999, Plumpton Place Pty Ltd ("Plumpton Place"), the owner of the LTB property, issued tender documents for the purchase of that property. On 9 December 1999 Mr Maxwell paid to the vendor's agent, Mr Guyon Wilson, the 1% preliminary deposit in respect of a tender of $550,000 which he had submitted for the purchase of the LTB property. The terms of the tender documents required that the successful tenderer pay the 9% balance of the 10% deposit on acceptance of the tender. Although Mr Maxwell claimed that he was the successful tenderer, he had never paid the 9% balance of the deposit. The contract of sale in the tender documents contained a number of special conditions including the following:

"11.1This contract is subject to and conditional upon the purchaser obtaining a town planning permit for its desired use of the property on or before 15 April 2000.
11.2In order to obtain the protection of this special condition, the purchaser must lodge his application for the town planning permit on or before 31 January 2000."

The planning certificate in the s.32 statement in the tender documents stated that the property was contained in a Service Business Zone. Mr Maxwell said that this permitted discretionary residential developments and that council members were supportive of the concept of residential development. However, the certificate also said that a new planning scheme had been prepared, but was not yet in operation, which changed the status to Business 4 Zone. Residential development was prohibited in such a zone. Rather surprisingly, Mr Maxwell said that he was unaware at this time of the proposed new planning scheme with its change in zoning.

The LTB property comprised two large vacant lots located on the north side of the Barwon River just east of the LaTrobe Boulevard bridge. A walking and bicycle path separated the lots from the river. One lot sloped up from the river and the other was elevated with an embankment up from the river. One of the difficulties facing any residential development of the LTB property was that access to the site was limited to one narrow one-way lane, between two buildings, running off LaTrobe Boulevard.

In January 2000 Mr Maxwell commenced negotiations with the National Trust of Australia (Victoria) ("the National Trust") which owned one of the neighbouring sites, in an attempt to gain further access through that property. This was not a simple matter as the heritage listed house "Barwon Grange", was located on the neighbouring property. Mr Maxwell's letter to the National Trust dated 25 January 2000 shows that by then he knew about the "imminent change in the planning guidelines" and its possible effect on the hoped for approval of residential development. A sketch plan prepared for Mr Maxwell at this time contemplated that 23 single or double storey residences would be constructed on the LTB property.

By a letter dated 3 April 2000 Mr Maxwell made representations to the local council to have the LTB property zoned Mixed Use Zone. He said that later in the same month he engaged the services of a town planner, Chakir Deans and Associates Pty Ltd ("Chakir Deans") However, it appeared in cross-examination of Mr Maxwell that part if not all of Chakir Deans' accounts were paid by Plumpton Place. Mr Maxwell said that the vendor felt some obligation to help sort out the zoning issue. (This explained why in 2001, bills received by Mr Maxwell were sent by him to Mr Wilson, the vendor's agent, for payment.) Objections to the rezoning were received by the council. Mr Maxwell said that he met with and corresponded with all of these parties.

It would appear that the new planning scheme then came into operation because in March 2001 a one person Panel was appointed to consider and hear submissions with respect to Amendment C5 to the Greater Geelong Planning Scheme. That amendment sought the rezoning of the LTB property from a part Business 4 and part Public Conservation and Resource Zone to a Mixed Use Zone. In April 2001 submissions were made to the Panel by Mr Chakir on behalf of Mr Maxwell. In its report dated May 2001, the Panel recommended that Amendment C5 be abandoned and that a strategy be developed for the area surrounding the LTB property. Mr Scott said in evidence that he had only recently become aware of this report.

Mr Scott gave evidence that Mr Maxwell first mentioned the LTB property to him around June 2000. He said that Mr Maxwell told him that he had a property on the Barwon River over which "he had some sort of option" and that there were "a few issues with it but if it came though he may be looking at someone to invest in that property". Mr Scott said that he went and looked at the property at that time. He subsequently told Mr Maxwell that he liked the look of the property and was "interested to do something" if the occasion arose. In June 2001 Mr Scott went back to Mr Maxwell's house after football training for a social drink. According to Mr Scott, the main topic discussed was the LTB property. Mr Scott said that Mr Maxwell advised him that "there were still issues on it" and that he still was not sure whether anything could happen or not. They talked generally "about the possibility of doing something together in that property if the opportunity came up". Mr Scott said that it was mentioned that the purchase price was around $600,000 and that there should be a good profit in it. He said that Mr Maxwell told him that the property required rezoning, but that the rezoning had the council's support and that it was well on the way and would be coming through soon.

In the Allenby Road proceeding, Mr Scott said in cross-examination that at this meeting in June 2001 Mr Maxwell had talked to him about the issues with the permits on the LTB property. Mr Maxwell had said that he believed that it was worthwhile to consider purchasing the LTB property because although the planning permit might take some time, it would be less than 12 months.

Mr Maxwell said that he first mentioned the LTB property to Mr Scott in June 2001 when he was talking to him about the Allenby Road development. Mr Scott denied that this was the first time Mr Maxwell had mentioned the LTB property to him.

Whatever the case, although Mr Scott said that in the middle of 2001 he was interested in the LTB property, he did not have the money to invest.

The Queen's Park Road Property – To November 2001

Medley Close was the trustee of Mr Maxwell's family trust. It purchased the QPR property for $142,000 pursuant to a contract of sale made in July 2000. There was a planning permit in respect of the property dated 9 April 1999. Mr Maxwell said that he and Mr Simon O'Keefe, one of the directors of Medley Close, agreed to develop this property in partnership through Medley Close. Mr O'Keefe paid the deposit of $14,200 and the balance of the purchase costs of $40,578.44, after the net sum of $95,325.92 had been advanced by LaTrobe Capital & Mortgage Corporation Limited ("LCMC"). Thereafter, Mr O’Keefe advanced a further $11,850 to Medley Close to enable it to meet certain expenses and the monthly repayments on the loan from LCMC. Thus, his contribution to the development project totalled $66,628.44.

On 25 October 2001 a planning permit for the construction of three double storey detached townhouses on the QPR property was extended for a further 18 month period from its original expiry date of 9 April 2001. The permit would expire if work had not commenced prior to 9 October 2002.

Mr Scott said that in October or early November 2001 Mr Maxwell had come to him with a proposition on the QPR property. He said that Mr Maxwell told him that his partner, Mr O'Keefe, was under pressure from his wife to pull out of the project and that Mr Maxwell offered him the opportunity of taking over Mr O'Keefe's share in the project. Mr Scott said that initially he told Mr Maxwell that he was not interested because he did not have any available funds. He was already committed to the Allenby Road project. Mr Scott said that he and Mr Maxwell had three or four conversations concerning this proposal during which Mr Maxwell said that if he put in $60,000 he could replace Mr O'Keefe and gain a 50% share in the project. He gave evidence that Mr Maxwell said that with Mr Scott's $60,000, Mr Maxwell could pay Mr O'Keefe out and "have some funds left over to pay some expenses".

In evidence in chief, Mr O'Keefe said that he was not married, although at the end of his evidence, in answer to a question from me, Mr O’Keefe said that in November 2001 he was in a de facto relationship. However, he denied that at that time his partner was wanting him to get out of the QPR project, although she "obviously asked what was going on with the project."

Mr Scott said that Mr Maxwell indicated that the construction of the three dwellings was going to start straight away and that if all went well the building should be finished by the end of March. The townhouses were going to be marketed whilst they were being constructed. During cross-examination, Mr Scott appeared to shift from saying that the buildings would be completed by March 2002 to saying that Mr Maxwell said that they would get their "capital back at the latest at the end of March". Mr Scott said that it appeared that this would be done "out of the progress payments on the property".

When asked about liability for losses, Mr Scott said that he was not in partnership with Mr Maxwell. He said that he invested money in a property not in his name based on an agreement and the agreement only referred to profits. The issue of losses was never raised. When pressed about this issue, Mr Scott said:

"I didn't approach anyone about this. I was approached. I rejected it more than once, and eventually I put the money in. It wasn't my deal. I didn't change the deal. I didn't alter the deal that was offered to me in any way, shape or form, and you know with losses – possibly if there is a loss there it would be that I would share the losses, but all I'm saying is losses had never ever been discussed. It was a minimum $200,000 profit. The idea of a loss being there just wasn't something that was ever considered."

In re-examination, Mr Scott said that if it had been suggested to him at the time that he would have to share any losses on a 50/50 basis he "probably would have agreed" still to contribute his money to the project.

Mr Scott said that Mr Maxwell handed him an original building contract dated 7 November 2001 which Medley Close had entered into for the construction of the three dwellings for the sum of $599,027. Mr Scott said that he only looked at one page of the building contract, which showed the price for construction. He said that he did not look at any other pages, including the previous page which referred to a construction period of 300 days including delays and 184 days not including delays. Mr Scott still had that document. Mr Scott said that Mr Maxwell showed him some rough calculations of costs totalling $850,000, consisting of purchase of land and associated costs of $200,000, building costs of $600,000 and interest and other expenses of $50,000, and sales proceeds of $1,050,000 or $350,000 per townhouse, which resulted in a profit of $200,000. Thus, he would get his $60,000 back plus a profit share of $100,000.

Mr Scott gave evidence that Mr Maxwell said that he wanted $50,000 paid as soon as possible so that he could pay Mr O'Keefe out, and the remaining $10,000 when building commenced. Mr Scott said that after a few discussions with Mr Maxwell he approached his accounting partner Mr John Cleary to see whether he had funds available. He suggested to Mr Cleary that if he did, they could share Mr Scott's proposed interest on an equal basis. Mr Cleary agreed to go into the project and he and Mr Scott borrowed the $50,000 from Mr Cleary's mother. Mr Scott told Mr Maxwell that Mr Cleary was a partner in Mr Scott's share in the project. Mr Scott said that he also told Mr Maxwell that as the land was in Medley Close's name, he wanted something in writing. Subsequently, Mr Maxwell came to Mr Scott's office with a one page written agreement. The parties to that agreement were Medley Close, Mr O'Keefe and Mr Scott. It was signed by Mr Scott and Mr Maxwell who then took it away to be signed by Mr O'Keefe. Mr Scott said that he had not seen that document since. It was not produced at the trial.

Mr Maxwell denied that this was the agreement reached with Mr Scott. He said that he indicated to Mr Scott that he and Mr O'Keefe might need some buffer funds and that he bounced off Mr Scott the idea of him lending $100,000 for a term or, if he stayed in for its full duration, a share of the project. Mr Maxwell said that Mr Scott was very keen to put in $100,000 in order to increase his share on the LTB property from one third to one half, but that Mr Maxwell said not to combine the two. He said that he suggested to Mr Scott that he invest $100,000 into the QPR project and, in return, he offered him a 50% interest in the development, subject to Mr O'Keefe agreeing. In evidence, Mr Maxwell said that this meant that the interest of Mr O'Keefe and Mr Maxwell would be reduced to 25% each and that Mr Scott agreed with this proposal. Mr Maxwell said that he was keen to get Mr Scott involved in the QPR property as well as the other two developments.

On 15 November 2001 the sum of $50,000 was paid by two amounts of $25,000 each into the Bank of Melbourne account of Scott & Co. This was the money lent by Mr Cleary's mother. On the same day Mr Scott drew a cheque on that account for $50,000 payable to Medley Close and deposited it into Medley Close's account with the Bank of Melbourne. Mr Scott said that this was the amount which Mr Maxwell had asked for at this time. According to Medley Close's bank statement, immediately prior to that deposit the credit balance of its account was only $33.66. Mr Maxwell maintained that he was so busy at that time with a variety of issues that he did not realise for a couple of months at least that Mr Scott had invested the $50,000 and not $100,000. Mr Maxwell said that he was not looking at the bank statements at that time and that he only found out later when Mr Scott mentioned it.

Mr O'Keefe said that he found out through the Internet that the $50,000 had been paid into the account. As a result, he knew that he did not have to pay money into Medley Close's account to meet the next monthly payment to LCMC due on 20 November. His payment of $900 on 19 October 2001 was therefore his last contribution to the project.

The LaTrobe Boulevard Property – To April 2002

Despite his lack of available money, Mr Scott did decide to go ahead with the proposal that he become a joint owner of the LTB property. Mr Scott gave evidence that a few days after he paid the $50,000 in respect of the QPR project, Mr Maxwell rang him to talk about the LTB property. That night or the next day Mr Maxwell came to Mr Scott's office. Mr Scott said that Mr Maxwell told him that he needed a deposit very quickly and that otherwise he would lose the property. Mr Scott said that he went and had a look at the property again and that he then approached his father to see if he would lend him the $60,500 for the deposit. Mr Scott said that he and Mr Maxwell agreed that if he paid the deposit, the property would be:

"purchased in joint names on a 50/50 basis. The expenses would be shared equally. The profits would be shared equally. That no further funds would be required to be put into the property because when the rezoning came through, which he [Mr Maxwell] had been working on for quite a while, the increased value in the property would allow us to borrow the full amount to settle on the property."

However, Mr Scott also gave evidence that Mr Maxwell said that he had a very good relationship with the principals of the vendor and had been dealing with them for quite a while and that he believed that settlement would be extended if the rezoning had not come through by settlement. Mr Scott also said that Mr Maxwell indicated that there might be some payments required for some permits and fees prior to the rezoning and as he did not have any money he wanted Mr Scott to pay those, but he would be reimbursed once the property was revalued. Mr Maxwell told Mr Scott that with the change in rezoning he believed the LTB property would be valued at somewhere between one and two million dollars. Mr Maxwell showed Mr Scott the sketch plan of a development with 23 townhouses on the LTB property.

Mr Maxwell denied that he asked Mr Scott for the deposit. He said Mr Scott approached him. Mr Maxwell said he could have paid the deposit if he had to. He had "various means as well as myself". He had the money but he did not want to use it for that purpose. He said that he had funds coming from Tasmania. No evidence was adduced to support that assertion. Mr Maxwell said that if Mr Scott had not agreed to his terms, he could have got others to go into a similar joint venture.

Mr Maxwell said that Mr Scott indicated that he was keen to be involved in the LTB property and that he would be happy to fund it. Mr Maxwell said that it did not matter to him whether Mr Scott put in his own money or borrowed it all. That was his responsibility. He had to absorb those costs, just as Mr Maxwell would absorb his costs in respect of advancing the planning scheme. Funding, but not the cost of funding, would be reimbursed before any profit share was calculated. Mr Maxwell said that the agreement was that it was Mr Scott's responsibility to fund the purchase at his cost and that in return he would receive a one-third interest in the property, with Mr Maxwell receiving two-thirds for all of his work in progressing the rezoning. Mr Maxwell said that he told Mr Scott that as he was so far down the track with the rezoning he did not think halves was fair.

Mr Maxwell said that he had obtained an extension of his first contract to purchase the LTB property. Nevertheless, because he was told by the agent that the directors of the vendor were becoming concerned about the delay in settling the purchase at the tender price of $550,000 and he did not want them to withdraw, he offered a further 10% on an unconditional basis. Although Mr Maxwell said that he conveyed to Mr Scott that the council had indicated that it supported the rezoning to residential, he denied telling Mr Scott that the residential rezoning would be through before settlement of the joint purchase was required.

Mr Scott and Mr Maxwell jointly signed an unconditional contract of sale dated 19 November 2001 to purchase the LTB property for the sum of $605,000 payable by a deposit of 10% and the balance on 29 March 2002. On 12 November 2001, the vendor's solicitors, Harwood Andrews, had been instructed to prepare, and did prepare, the contract of sale for the LTB property. In accordance with their instructions, the contract of sale named Mr Maxwell and/or nominee as the purchaser. Subsequently, Mr Scott's name was added as a joint purchaser in handwriting by Mr Maxwell. The planning certificate in the s.32 statement stated that the land was included in "Business 4 Zone" and "Public Conservation and Resource Zone".

Not only did Mr Maxwell deny that he asked Mr Scott for the deposit, he also insisted that he and Mr Scott had agreed that Mr Scott would fund the project prior to the contract of sale being prepared. Thus, there was no question of him urgently seeking the $60,500 deposit from Mr Scott. When it was pointed out to Mr Maxwell that Mr Scott’s name was not typed in the contract of sale and that he had added it as a joint purchaser, he initially denied in the strongest terms that it was his handwriting. It was only when he was shown the original contract of sale that he agreed it was his handwriting.

On 19 November 2001 Mr Scott drew a cheque for the $60,500 deposit on the account of Delaware Nominees Pty Ltd ("Delaware") with Macquarie Bank. Delaware was the trustee of the Scott family trust, of which his father was the main beneficiary, and the trustee of Mr Scott's superannuation fund.

Mr Maxwell's efforts to achieve a rezoning continued and in January 2002 he was asked by the council to participate in the preparation of the West Fyans Strategic Land Use Plan through membership on a small consultative group.

Mr Scott gave evidence that he often asked Mr Maxwell about the progress of the LTB property. He said that Mr Maxwell always said that there was something that "we were waiting on", but that he implied that a result was not far away. Mr Scott said that he and Mr Maxwell attended a meeting with representatives of the National Trust in February 2002 to discuss access via Barwon Grange.

In March 2002 Mr Scott said, he spoke to his partnership's bankers, the National Australia Bank ("the NAB"), about the possibility of the bank financing the purchase of the LTB property "on a stand alone basis". The manager's response was that because the NAB had financed part of the Allenby Road project, its exposure was too great for it to look at another property development. Mr Scott said that both he and Mr Maxwell were making inquiries about funding. He made an inquiry about borrowing against his former wife's house for either this project or the Allenby Road project.

Funding for the purchase of the LTB property had not been found by the due date for settlement. Because there had been no rezoning it was not possible to borrow the whole of the purchase price. On 15 March 2002 a facsimile under the letterhead of Platinum Properties Australia (Mr Maxwell's trading name) was sent to the vendor's agent requesting an extension of settlement to 30 June 2002. Although the letter purported to be from both Mr Maxwell and Mr Scott, the wording bears Mr Maxwell's unmistakable and unique manner of expression. On 28 March 2002, the purchasers were granted an extension to the end of April on the basis that default interest was paid in advance. Mr Scott said that he was in Queensland at the time and that Mr Maxwell telephoned him to say that he had secured an extension. On 2 April 2002 Mr Maxwell drew a cheque for $5,012.40 on Medley Close's Bank of Melbourne account for the first month's interest. When this cheque was debited to Medley Close's account, a credit of $19,085.59 was left. By a letter dated 3 April 2002 Senia & Associates, the solicitors acting for Mr Maxwell and Mr Scott, forwarded the cheque to Harwood Andrews "pursuant to our clients' instructions." It is worth nothing that the plural was used although Mr Maxwell appears to have been the only client involved in giving instructions on this occasion.

Mr O'Keefe gave evidence that on many occasions he signed Medley Close cheques in blank at Mr Maxwell's request. He would find out from Mr Maxwell or from the cheque butt what the cheque was for and note that in the financial records of Medley Close relating to the QPR development. The cheque dated 2 April 2002, which named as the payee "Plumpton Place Pty Ltd", in Mr Maxwell's handwriting, must have been signed in blank by Mr O'Keefe because he recorded in his accounts for the QPR property that the payee was "Leprechaun Landscapes" for "Gardens". Mr O'Keefe said that he did not know who Plumpton Place was. He could give no explanation for this discrepancy.

At the end of April 2002 Mr Scott paid a further month's default interest in the amount of $5,549.42 to gain a further extension of the settlement date of the contract of sale. A cheque was drawn on Delaware's account on 30 April and forwarded to the vendor's solicitors, Harwood Andrews, by Senia & Associates, on 1 May 2002.

The Queen's Park Road Property – To May 2002

Mr Scott said that Mr Maxwell told him he would want the remaining $10,000 investment in the QPR project paid when construction started. Mr Scott said that he expected that this would be very soon because Mr Maxwell had said the buildings would be completed by March 2002. However, it was not until 29 April 2002 that Mr Scott paid the remaining $10,000 to Medley Close, at the request of Mr Maxwell. When that cheque, drawn on Scott & Co.'s Bank of Melbourne account, was deposited into Medley Close's account on 29 April 2002, the credit balance was increased to $20,322.43. With the debit of $10,000, Scott & Co.'s overdraft increased to $110,709.63.

Mr Maxwell denied that he had said the construction would be finished by March 2002. He was already having difficulties with the site cut and eventually he terminated the building contract. Medley Close proceeded with the construction as owner/builder. Mr Scott said that after sacking the builder Mr Maxwell told him that he had employed "some other sort of supervisor". Mr Tony Gibbs of Muircraft seems to have been the person employed in that capacity.

Mr Maxwell said that it was not until well into 2002 that he realised Mr Scott had paid only $50,000 and he asked him for the balance of the agreed $100,000. He said that Mr Scott said he could not pay more than another $10,000. Although he was not happy, Mr Maxwell said that he was more concerned that Mr Scott find the funding for the other developments and therefore that he agreed to accept only $60,000 for a half share in the QPR development, subject to Mr O'Keefe's approval. However, Mr Maxwell said that Mr O'Keefe did not agree to Mr Scott only paying $60,000. Mr Maxwell said that he never told Mr Scott that Mr O'Keefe had not agreed. Mr Maxwell said that Mr O'Keefe knew his situation with Mr Scott with respect to the other ventures and he emphasised to Mr O'Keefe that the association with Mr Scott "was important" to him. He believed that he could have talked Mr O'Keefe round. Nevertheless, Mr Maxwell maintained that the profit-sharing agreement did not come into existence, although he acknowledged that Mr Scott had paid $60,000 into the project.

Mr O'Keefe said that when Mr Maxwell first mentioned the idea that Mr Scott would contribute $100,000 in return for a 50% share of the project, he was not overly happy because he thought it was not equitable given the amount of risk Mr Scott was going to undertake. He recognised, however, that they did need an influx of capital. He said that he continued to discuss Mr Scott's remaining contribution with Mr Maxwell, who said that he was trying to get Mr Scott to put in some more funds but that Mr Scott was struggling for funds.

In cross-examination, Mr O'Keefe said that he "reluctantly agreed" to Mr Scott contributing $60,000 in return for a half share in the QPR project.

Mr O'Keefe also said that around about the time Mr Scott made his first contribution, he was saying to Mr Maxwell that the project was "crazy" and that they would be "better off to sell the land and move on." He was sick of all the problems associated with obtaining funding for the development.

On 31 December 2001 LCMC offered to lend Medley Close the sum of $737,600, or 70% of valuation whichever was the lesser, on the security of a first mortgage over the QPR property, for a term of one year at a variable interest rate of 8.07% per annum. The funds were to be advanced by progress payments as the construction proceeded to completion This offer was accepted by Medley Close on 20 January 2002. A building permit was issued to Medley Close as owner/builder on 22 January 2002.

According to Mr Scott, the site cut took place in late January, early February 2002. He then found out that Mr Maxwell had sacked the builder, and that he was having problems with the building surveyor. After the site cut, nothing seemed to happen for at least two months. Apparently, there were difficulties with the use of scaffolding on the sloping site and with the planning requirements.

These problems caused LCMC to reduce the amount offered on first mortgage to $693,000, with the balance to be provided by second mortgage. On 7 March 2002, LCMC offered to lend Medley Close by way of second mortgage the sum of $44,600.00, which was not to exceed 75% of sworn independent valuation, for a term of one year at a fixed interest rate of 18.5% per annum. This offer was accepted by Medley Close on 18 April 2002. The advances under the two mortgages were fully drawn down on 15 May 2002 by payment of the net balance to LCMC's solicitors. Both loans were guaranteed by the directors of Medley Close, Mr O'Keefe and Senior Constable Christopher Carr, who was a friend of Mr Maxwell.

The LaTrobe Boulevard Property – To June 2003

By a letter dated 31 May 2002, Senia & Associates wrote to Harwood Andrews enclosing a cheque drawn by Delaware on that day for a further month's interest of $5,370.41 in respect of the purchase of the LTB property. The letter stated that the purchasers would be in a position to settle on 1 July 2002, with an indirect suggestion that the NAB would be funding the purchase. This cheque was returned by the vendor’s solicitors.

On 4 June 2002 a notice of rescission was served by the vendor. Mr Scott said that after receipt of this notice Mr Maxwell arranged for a broker, Mr Justin Taylor, to come to Geelong to see if he could assist with finance. They applied to one financier to borrow 80% of the purchase price. Mr Scott said that Mr Maxwell asked him if he could raise the remaining 10%. Mr Taylor very quickly informed them that the application was unsuccessful because of the zoning of the LTB property. On about 12 June 2002, through Mr Taylor's efforts, Mr Maxwell and Mr Scott applied to another financier seeking to borrow 50% of the purchase price. Mr Scott said that the second application for finance failed because the valuation obtained by the financier was less than the purchase price.

In response to the rescission notice, Senia & Associates, the purchasers' solicitors, offered by a letter dated 12 June 2002 that the sum of $100,000 would be paid by 18 June 2002 and the balance by 28 June 2002. Both Mr Scott and Mr Maxwell denied being the source of instructions that $100,000 could be paid by 18 June 2002. Senia & Associates did write to Mr Scott enclosing a copy of their letter to the vendor's solicitors which referred to "our discussions with you". Mr Scott said it was his understanding that on all occasions on which correspondence was sent by Senia & Associates that letters were written to both him and Mr Maxwell enclosing copies of the correspondence, including on this occasion. Mr Maxwell said that he did not recall receiving any such letter. No evidence was called from the solicitors about this matter.

On 18 June 2002 the sum of $100,005.40 was withdrawn from Medley Close's Bank of Melbourne account to purchase a bank cheque for $100,000. Mr Maxwell said that he knew that the $100,000 was being paid to Harwood Andrews to stop action on the notice of rescission. On that or the following day, the purchasers' solicitors sent a bank cheque for $100,000 and a Delaware cheque for $5,370.41 for a further month's default interest to Harwood Andrews, the solicitors for the vendor.

Mr Scott said that by this time it looked like 50% of the purchase price was the best they could do for funding. He said that he told Mr Maxwell that he did not have sufficient funds to cover the other 50% and that Mr Maxwell asked him whether, if he could raise $100,000, Mr Scott could put in the balance. Mr Scott said that he told Mr Maxwell that he did not know if he could but that he would try. Otherwise, he would have lost his deposit of $60,500. Mr Scott said that before Mr Maxwell paid the $100,000, Mr Scott gave his commitment to raise the balance as otherwise they would have lost both the deposit and the $100,000. Mr Scott said that he did not know that the $100,000 had come from the QPR development. He said that Mr Maxwell later told him that the money had come from Medley Close but he thought the company was involved in a lot more than just the QPR project.

Mr Maxwell said that in May or June 2002, probably "early June", Mr Scott asked Mr Maxwell to lend him $100,000 as he was "squeezed" and that he "needed $100,000 for a week or two" to go into his account to show his bank he had funds, which would be helpful with the Allenby Road funding. Mr Maxwell told Mr Scott that he needed the loan repaid quickly because he needed the funds to meet payments on the QPR development. That was why he had needed Mr Scott's contribution as "buffer funds", in the first place. Yet Mr Maxwell said that he agreed to lend Mr Scott that money because Medley Close temporarily had an excess of funds from the loan from LCMC. It is true that on 21 May 2002 LCMC had advanced $140,675 to Medley Close, but one would have thought that those funds were well and truly committed to paying for the work which had allowed the advance by LCMC to be made. Prior to the deposit of the $140,675, the credit balance in the Medley Close account was only $7,697.21. Mr O'Keefe said that he was very concerned about the payment of the $100,000 because it was needed to pay outstanding bills for sub-contractors and materials. He understood that it was a short term loan to Mr Scott to assist him with his funding of other projects.

On 18 June 2002 AMP deposited $40,012.80 into Medley Close's Bank of Melbourne account. This was raised against the security of a mortgage over the house owned by Ms Melissa Connoley, the partner of Mr Maxwell.

Mr Maxwell said that he could not recall whether he knew at the time about the letter of 12 June 2002 from Senia & Associates. But he did say that he knew "that this money was going to go for the sake of Scott's situation to where it was going", that is, to the vendor of the LTB property. He said that he did not really care whether the $100,000 went to Mr Scott "personally, to Allenby Road or to LaTrobe Boulevard so long as it happened". He was, however, "getting desperate" about the purchase of the LTB property.

On 25 June 2002 Mr Maxwell and Mr Scott made a third application for finance to purchase the LTB property, and this time it was successful. Questco Pty Ltd ("Questco") agreed to lend $300,000 for a term of 12 months at 16.6% per annum. The balance of the purchase price was therefore able to be paid on 28 June 2002. Mr Scott raised $181,813.50 from a mortgage over his former wife's home and with some other funds from Delaware paid $194,795.39 towards the purchase price. Mr Scott gave evidence that initially he drew a cheque from the Delaware account for only $192,164.40, as he had calculated that the purchasers had been overcharged $2,630.99 by way of default interest. However, their solicitor insisted that the full amount be paid so he obtained another cheque for the remaining $2,630.99. The Questco money was jointly borrowed by Mr Maxwell and Mr Scott and although each was required to provide collateral security over another property, Mr Maxwell did not do so. Mr Scott said that Mr Maxwell said he was sorting it out but nothing was ever provided by him. Nevertheless, the loan went ahead secured by a first mortgage over the LTB property and a mortgage over Mr Scott's home.

On 28 June 2002 Mr Maxwell telephoned Mr Stuart Monotti, the solicitor handling the conveyancing file at Harwood Andrews, to dispute the rate of penalty interest charged by the vendor. On 11 July 2002 Mr Monotti was again contacted by Mr Maxwell about the interest rate. By letter dated 14 July 2002 Mr Maxwell wrote to Mr Monotti enclosing the reconciliation, prepared by Mr Scott, which showed that, if the interest rate was 10% and not 12%, the purchasers had overpaid the total amount of $2,630.99 over their three monthly payments. Mr Maxwell sent a copy of this letter to Mr Scott. Subsequently, that amount was refunded to Mr Maxwell.

Mr Scott maintained that, the rezoning not having been obtained, the $100,000 was simply part of Mr Maxwell's obligation to contribute equally towards the joint purchase of the LTB property. Once sales were made, or sufficient funding obtained, the amounts contributed by Mr Scott and Mr Maxwell were to be repaid before any profit was calculated. Mr Maxwell, on the other hand, asserted that it was Mr Scott's responsibility to fully fund that purchase.

In July 2002 a Draft West Fyans Strategic Land Use Plan was finalised and Mr Maxwell was asked for his comments. The Draft Plan's preferred option for Precinct D, the area containing the LTB property, was for "continued evolution as an area with a variety of uses, including residential". Between September and November 2002 the Draft Plan was publicly exhibited. This was extended until February 2003. Mr Scott said that he was unaware of all this. Throughout this period Mr Maxwell continued to negotiate with the National Trust. For example, in September 2002 he attended a meeting with the National Trust at which meeting the price for granting access was again discussed.

By a letter dated 11 March 2003 Mr David Curtain of David Curtain Consulting Pty Ltd wrote to the council lodging on behalf of Mr Maxwell an application for a Planning Scheme Amendment for the LTB property from the current zoning of Business 4 to Residential 2. Negotiations with the council and the National Trust continued in May and June 2003.

The Queen's Park Road Property – To June 2003

Mr Maxwell said that in late June or early July he asked Mr Scott to repay the $100,000 loan as he "desperately needed the money back." In August 2002 Mr Maxwell again raised with Mr Scott repayment of the $100,000 which had been lent only for a couple of weeks. He said that Mr Scott said he could not repay that amount so Mr Maxwell said to him what about repaying $40,000 and withdrawing from the QPR project, to which he had advanced $60,000. Mr Maxwell said that Mr Scott agreed to this suggestion thereby terminating his involvement with the QPR property. However, Mr Scott did not repay the $40,000. Mr Scott denied that any of these conversations occurred. Mr O'Keefe said that towards the end of 2002, Mr Maxwell "basically indicated" that Mr Scott was no longer a partner or had any share in the QPR project, but that Mr Scott owed $40,000.

Occupancy permits for each of the three units in the QPR development were obtained on 15 March 2003. The plan of subdivision concerning the QPR property was registered on 20 May 2003.

Negotiations Between the Parties

Mr Maxwell and Mr Scott met on 18 February 2003 to discuss the three developments in which they were involved, following a severe breakdown in their relationship the previous December. Mr Maxwell said that at the meeting Mr Scott wanted to increase his share of the LTB development from one third to one half. He was prepared to go along with that suggestion because he was keen to "appease" Mr Scott.

By a letter dated 28 February 2003 Mr Maxwell wrote to Mr Scott "to clarify matters" following the 18 February meeting. With respect to the LTB property, Mr Maxwell stated that "the review for the river precinct funded and undertaken by council is complete and now sees us most favourably placed for planning amendment". He referred to a possible timetable for this process going through to the end of August at the earliest. The letter continued:

"David, as I indicated, whilst funding assistance was your venture contribution intended for a lessor [sic] share of this development, due to your difficulties in apportionment between properties etc I am content to settle for an equal split share of the project.
I believe the development will eventually exceed $6 million profit over three years and I am able to attain development funds.
There may be a need for interim funds contribution between expiration of current loan and any delay in attaining rezoning, after which the residential status will draw greater equity lending.
As other revenue would have been received, the temporary requirement should be accessible.
Alternatively, at any time you should advise me of your intentions, as I would find another shareholder at full reimbursement to you if preference was to withdraw your funding.
Nonetheless, I believe the development will have outstanding results."

Mr Maxwell then turned his attention to the QPR property. He wrote as follows:

"The arrangement, hence process of funding this has been complicated and compromised by the requirement on the Barwon River/Latrobe Boulevard project.
Thus, I was confused by your comment at our meeting that I had contributed $100,000 to same, when it was not intended and I had not advanced actual equity.
At the point of deadline on settlement of Barwon River, you were unable to come up with funds suffice at that point as you had forwarded 60,000 to Queens Park, but were in the process of accessing further funds.
In conversing with this, and given the urgency, I wrote out a cheque from Medley Close returning the $60,000 plus $40,000 with understanding this could be reimbursed to enable the townhouses to be completed.
The townhouse project expenditure escalated and I was desperate for the funds, but in appreciating your situation, I had to borrow from elsewhere while awaiting the $100,000 reimbursement.
These borrowings $40,000 from Melissa without any profit share, and eventually $200,000 from a Melbourne hotelier friend (with profit share) and the $100,000 payout, shortfall, are the consequence of the restructuring which you can imagine, have given me some grief.
I have not pursued the $60,000 initial funds, returned to you or the balance of $40,000 for difficulties and reasons we already mutually understand.
The $22,000 later drawn down from Nova West as demonstrated earlier in this summary are best appropriated as servicing management and selling costs to fund the duration of the Hillside subdivision given
a) This is subtracted from my eventual share
b)it is allocation common to previous similar arrangements (developments)

c) it is my only income over that course of time to live on
d) it is a very real cost to the development.

Thus, this must be clarified, as does our arrangement re Queens Park which I assumed was unable to proceed, with good reason, but leaving me short of $40,000.
I believe this development will profit slightly in excess of $200,000 after GST, and in any case, with management share to go to myself, Simon O'Keefe and Frank Welsh the Melbourne funds contributor, and equity repayment only to Melissa."

Mr Scott gave evidence that it was not until he received the letter dated 28 February 2003 that he became aware that Mr Maxwell was claiming that the $100,000 paid on 18 June 2002 was to be reimbursed to him by Mr Scott. He said that, although Mr Maxwell referred in the letter to Mr Scott saying at the meeting that the $100,000 was an equity contribution to the LTB property and that Mr Maxwell had been confused by this statement, Mr Maxwell had not said any such thing at the meeting. Mr Scott said that this statement in the letter was "an afterthought to try to get out of a situation that he [Mr Maxwell] did not want to be in."

Following a further meeting between them on 11 March, Mr Maxwell again wrote to Mr Scott and Mr Cleary about the three developments by a letter dated 15 March 2003. The relevant part of the letter read as follows:

"1. Barwon River Development
David was in for share on Barwon River property (a premium development of significant returns) based on short term equity funding requirement.
I have not only increased that to half shareholding and (unlike my non security shareholdings) have registered David on Title.
I have also further agreed that costs/interest on that funding are paid for when I achieve refinance upon planning approval/revaluation.

2. Queens Park Development
An amount of $60,000 was forwarded from you to this project pursuant our arrangement and soon after $100,000 was required by David from Latrobe Home Loans to assist complications of (1). These complications and the funds needed were not David's fault and openly recognised by me, as are any financial difficulties from ventures compounding your cash flow since.
The $100,000 funds however were to be subsequently repaid and the project has been short of this amount to this day, and beyond completion, notwithstanding blow-out in costs of another $150,000 plus.
This $250,000 plus has been made up by borrowings from my partner Melissa, a business friend and myself, in recognition of the complications, and with what I felt was my non pursuance of $100,000 in show of good faith and fairness to you.
Enquiry by John [Cleary] re progress of development was always answered by me pursuant
a)Respect for David's discretions re the above and your business understandings and confidentiality on the matter;
b)in complete open mindedness to the repayment of the $100,000 at some time and thus therefore reciprocating (proportionally) to the loan arrangement with you. However this was obviously not possible.

3.The total fairness of understanding the effect the funding of one development has had on another for David.
Nonetheless I have been $100,000 short in lieu of $150,000 blow-out and my thus personal contributions of funds have left me severely restricted and unable to provide on several other counts.
I have also had to sacrifice one year of maximum hours on site to survive the development, which has not yet achieved any return (sales).
There have been many times in its final months that I was relieved that your non involvement (based on the above) had become the case, given uncertainty of the final outcome.
However, while respecting your own difficulties, the undefinable position I have inherited has been most difficult for me in surviving the project."

On 7 April 2003, Mr Scott and Mr Maxwell met with Mr David White at the Sheraton Hotel in an attempt to settle their differences. On the next day, Mr Scott wrote to Mr White with the following settlement proposal. The relevant part of his "Without Prejudice" letter reads as follows:

"Further to discussions yesterday with Tim, and in an effort to find a mutually acceptable resolution, I would agree to the following arrangements as part of a total settlement of all matters:-
…
Queens Park Road
·I would be prepared to walk away from this venture, on the basis that the $60,000 capital contribution will be shifted across to a contribution made by me toward Latrobe Terrace.
·I would make no claims toward the profit share we had agreed on ie. approximately $100,000 and I would pay John his ½ share of this profit share from my own funds.
Latrobe Terrace
·That the legal agreement be drawn up on this property venture setting out all terms and conditions.
·I note that at present my 50% equity in this venture is held in my personal name. On refinancing of the loan, I would be changing my ownership into a corporate entity.
·That all costs paid by me in respect of borrowing costs, legal fees on initial acquisition, interest, rates etc. will be reimbursed to me from the venture prior to profit share.
·That it is agreed that the present loan on this property will be refinanced by 30^th June 2003 and all paperwork required to be signed to achieve this will be executed.
·That I would reimburse Tim for the amount of $40,000 (ie. $100,000 less $60,000) he has contributed toward the venture.

The agreement on any one of the above items is mutually dependent on all items being accepted in total. If no agreement, then none of these items are in any way agreeing to the fact that any monies are payable, or that these are my intentions in any one matter."

On 5 May 2003, a document called Heads of Agreement was apparently signed by all of the relevant parties. The relevant parts of the document read as follows:

"BACKGROUND
…
B2.Medley Close is the owner and developer of a property known between the parties as Queens Park Road ('the Queens Park Road development'). There was an agreement between Medley Close and Scott that Scott would contribute certain monies to this development the Queens Park Road development.
B3.Scott and Maxwell own a property known between the parties as Lot 2 LaTrobe Boulevard which is registered in their joint names ('the LaTrobe Boulevard development'). There was an agreement between Scott and Maxwell that the net profit of the LaTrobe Boulevard development was to be split equally between Scott and Maxwell.

…
B5.The partners have agreed to reorganise their respective arrangements and agreements in relation to the Allenby Road development, Queens Park Road development and LaTrobe Boulevard development in the terms and conditions set out in this Heads of Agreement.

OPERATIVE PART
…
2. Queens Park Road
Scott agrees to release Maxwell from any claim whatsoever in relation to the Queens Park development on the basis that Scott's [sic] agrees to pay $40,000.00 to Maxwell on settlement of Allenby Road which the parties by their execution hereof agree to.

3. LaTrobe Boulevard
That Scott and Maxwell agree as follows:-
3.1To enter into a detailed agreement setting out all the terms and conditions relating to the LaTrobe Boulevard development and including a term that by 31 December 2003 it be agreed that the property either be developed or sold and failing agreement that either party may opt to sell half share to the other, or another party, at market value;
3.2That Maxwell acknowledges that Scott has obtained a loan in relation to this property and that it be agreed that this loan be refinanced as soon as possible;
3.3That Maxwell agrees that upon the property being sold and/or developed that he is responsible for 50% of all interest costs and other costs associated with the loan and purchase price and acquisition of the property."

As discussed in my judgment in the Allenby Road proceeding[2], the Heads of Agreement very quickly fell into abeyance, perhaps because of the incomplete nature of that document in respect of the Allenby Road development. Neither side sought to enforce the Heads of Agreement in this proceeding.
[2]Maxwell v Moorabool Developments Pty Ltd [2004] VSC 392

In an angry and abusive letter to Mr Scott dated 10 May 2003, Mr Maxwell complained about his conduct and his alleged constant changing of position with respect to the three property developments. For example, he wrote:

"LIE: your convenient recent statements and agenda on Latrobe Boulevard property. The unequivcoble [sic] option was given to you originally by me of a third share based on funding as I pour all mine into supporting admin and planning etc on all projects. A third share was selflessly changed to one half by me when you had difficulty achieving funding, notwithstanding (beyond our agreement) I went further in contributing funds. During our difficult discussions on the land subdivisions in your office I again conceded in saying I would contribute to funding, and you translated this to half of all funding and costs, remarkably in another recent re arrangement of agreement on the land subdivision (now voided again by you). I cannot believe your greed (let alone my concessions re same) and then your further re inventions. And to hell with your denials and unacceptable misrepresentations, contrary to what is real. And then you come out with funding costs of over $100,000. Conversely, if you wish to charge me so severely for your third/half share, then the costs of mine, as usual to provide means to your greedy bonanza, will be excessive.
LIE: your statements on Barwon River townhouse project, contrary in every way to the real. The real is that this was offered to you as contribution for a share and upon availing money you wanted $100,000 for Latrobe Boulevard (of which you are now wanting huge returns for funding from me). You indicated the $100,000 would be returned within days and still has not, costing me heavily on this development, then belying all by your invented implication of me in the remarkable facade of you to a share. To those of reason you are simply playing games. But based on your accounting you owe me hugely on this development, and not having these monies has cost me severely.
FACT. Who is paying me this, you or Cleary?"

Mr Scott said that he had renewed the Questco loan. He estimated that he had paid between $100,000 and $110,000 in interest on that loan, and about $38,000 in interest on the loan obtained over his former wife's house. He had to pay these amounts to avoid the loans being in default. The Questco loan was partly secured by his home.

Mr Maxwell said that he could not say how much he had spent in progressing the rezoning of the LTB property. It was only because of Mr O'Keefe's work that he knew that he had advanced about $250,000 to the QPR property.

The caveat over the three townhouses comprising the QPR development was not lodged by Mr Scott until 8 October 2003. He agreed that he knew that the properties were being advertised for sale in 2002. It was put to him that he only lodged the caveat just before the hearing in the other proceeding in order to put pressure on Mr Maxwell.

Findings

Most of the issues in this proceeding depend on factual findings arising out of the different version of events given by Mr Scott and Mr Maxwell. The agreement by the parties that the evidence in the Allenby Road proceeding would also be evidence in this proceeding insofar as it was relevant meant, of course, that Mr Maxwell's admission in the Allenby Road proceeding that he had given false evidence about receiving back the front page of each of the 17 contracts and the particulars of sale from Mr Scott and that he had relied upon false copies of the 17 contracts also damaged his credit in this proceeding. But even apart from that issue, I have to say that in this proceeding I found Mr Maxwell to be a most unsatisfactory witness. He was evasive, or at best, non-responsive. He often contradicted his own evidence. And most damaging of all, in several cases his evidence was shown to be false.

The LaTrobe Boulevard Property

The first issue to consider is what were the terms of the agreement between Mr Scott and Mr Maxwell in respect of the LTB project. I reject Mr Maxwell's claim that originally the parties agreed that their shares in the project would be two thirds to Mr Maxwell and one third to Mr Scott. If this had been the case then it is surprising, in my opinion, that the two titles to the LTB property were not transferred into the names of Mr Maxwell and Mr Scott in their agreed proportions, instead of each of them being registered as a tenant in common "as to 1 of a total of 2 equal undivided shares."

Nothing in any of the contemporaneous documents suggests that Mr Maxwell had a two thirds interest in the project. It did not appear as an issue until the meeting between Mr Maxwell and Mr Scott on 18 February 2003 when, according to Mr Maxwell, Mr Scott wanted to increase his share of the LTB development from one third to one half. By this stage, as far as Mr Maxwell was concerned, Mr Scott had failed to provide all of the funding for the LTB property, in breach of his obligation under the terms of their joint venture agreement, and was months overdue in repaying the short term loan of $100,000 which Mr Maxwell had been forced to make, at great cost to himself, to help Mr Scott out of his financial difficulties. In addition, from Mr Maxwell's viewpoint, Mr Scott was wrongfully asserting that the Allenby Road development was his project and that Mr Maxwell was only the project manager and salesman and not half owner of that development, and was wrongfully denying the existence of 17 contracts which Medley Close had entered into. It seems to me to be a most unusual response for a person in those circumstances to go along with the suggestion that Mr Scott's share of the LTB project be increased. Why Mr Maxwell would want to "appease" Mr Scott in respect of the LTB project was not explained. Moreover, as the evidence in this and the other proceeding demonstrates, Mr Maxwell is not an "appeaser."

It also does not make sense, in my opinion, for the allegedly "innocent" party to reward the "defaulting" party for not performing his obligations under their agreement by agreeing to increase his share of the profits. Yet this is how it was put in Mr Maxwell’s letter of 28 February 2003.

The attempt by Mr Maxwell to suggest that he was entitled not just to a half-share but a two-thirds share of the LTB project, has some similarity with his attempts to increase his entitlement in respect of the Allenby Road development from 10% of net profits to 17.5% of gross profits and then to a 50% share, which I have discussed and rejected in my judgment in the Allenby Road proceeding.[3]
[3]Maxwell v Moorabool Developments Pty Ltd [2004] VSC 392

In my opinion, the agreement between Mr Maxwell and Mr Scott in respect of the LTB property was that they would have equal shares in that development.

I reject the claim by Mr Maxwell that it was "a fundamental condition" of the agreement that Mr Scott would provide all funding and personally pay all funding costs. It is true that Mr Scott was doing little compared with Mr Maxwell to earn his half share, but Mr Maxwell needed Mr Scott's assistance, first to pay the deposit and then to assist in obtaining finance and to meet any other expenses in the interim.

I do not accept Mr Maxwell's evidence that he could have paid the deposit if he had to. If that were the case, and if Mr Maxwell had all of this money available, then one wonders why Mr Maxwell bothered to involve Mr Scott in the LTB property. Nor do I accept Mr Maxwell's evidence that he could have got others to go into a similar joint venture with him. What seems clear is that he urgently needed the funds to pay the deposit or run the risk of losing the property and Mr Scott obliged. Further, Mr Scott's evidence that Mr Maxwell was short of funds fits with the evidence concerning Medley Close's urgent need of "an influx of capital" in respect of the QPR property.

I consider that without Mr Scott's involvement, Mr Maxwell would have struggled to obtain funding for the LTB property. It is all very well to say that a rezoning would increase the value of the property, but lenders nowadays require more than an acceptable loan to valuation ratio. They also look at the ability to service the loan repayments and on his own Mr Maxwell would not have been an attractive borrower. This, in my opinion, was part of the reason why Mr Maxwell offered Mr Scott a half share in the LTB development.

I am strengthened in my conclusion, that it was not a term of the joint venture agreement between Mr Maxwell and Mr Scott that Mr Scott provide all of the funding, by the role played by Mr Maxwell in the events surrounding the obtaining of the loan from Questco. First, in order to secure the extension of settlement of the purchase of the LTB property to the end of April 2002, without complaint Mr Maxwell paid the first instalment of default interest in advance by means of the Medley Close cheque dated 2 April 2002. There was no suggestion that he subsequently sought to be reimbursed this amount by Mr Scott.

Secondly, I consider that the $100,000 paid by Medley Close to Harwood Andrews was, in the circumstances which had arisen, Mr Maxwell's promised contribution to the purchase price, as per Mr Scott's evidence, and not a two week loan to Mr Scott to allow him to impress his bank. Although much of Mr Maxwell's recent correspondence is, as one would expect, arguably supportive of Mr Maxwell's claims, it is significant that there was no suggestion in his letter dated 10 May 2003 that Mr Scott had said he wanted the $100,000 to impress his bank in an effort to help with funding of the Allenby Road development. I reject Mr Maxwell's evidence that Medley Close temporarily had an excess of funds from the LCMC loan. As Mr O'Keefe said, the $140,675 advanced about a month earlier by LCMC was required to pay debts incurred in respect of the QPR development. Further, if Medley Close had excess funds why was it necessary for it to borrow over $40,000 from Ms Connoley on the very same day that the $100,000 was withdrawn? This amount was therefore not borrowed, as Mr Maxwell tried to suggest, only when Mr Scott failed to repay the alleged loan. Clearly, in my opinion, this borrowing from Ms Connoley was Mr Maxwell doing everything he could to raise his promised contribution of $100,000.

Thirdly, Mr Maxwell admitted that he knew his $100,000 was being paid, not into Mr Scott's account, but to Harwood Andrews, the solicitors for the vendors of the LTB property. How this payment was going to help Mr Scott obtain funding from the NAB for the Allenby Road development was not explained. Nor did Mr Maxwell explain how he thought that Mr Scott would be able to repay the $100,000 in a couple of weeks when it had been paid as part of the purchase price. It should also be remembered that Mr Maxwell knew at this time that funding for the Allenby Road development had still not been obtained and that settlement of the contract with TA Maria Pty Ltd was due for settlement on 22 June 2002. This again raises the question of how Mr Maxwell could think that Mr Scott would be able to repay the $100,000 in a couple of weeks.

Fourthly, the Questco loan was jointly borrowed by Mr Maxwell and Mr Scott. This is hardly surprising given that they were joint purchasers. In these circumstances, it is difficult to accept that Mr Maxwell could have believed that Mr Scott was to be solely responsible for the funding. As a co-owner, Mr Maxwell would have to be involved in providing a mortgage over his interest in the property as security for the loan.

Fifthly, Mr Maxwell was closely involved in the post-settlement dispute over the rate of penalty interest charged by the vendors. On his version of the agreement, one would have expected that it was not his concern and that it would have been left to Mr Scott to follow up. One explanation might have been that Mr Maxwell was only assisting Mr Scott, but then there would have been no reason for Mr Maxwell to retain the refunded amount of $2,630.99. By rights that should have gone to Mr Scott, or at least been set off against the $100,000 loan.

Mr Heaton QC, who appeared with Mr Nunns of counsel on behalf of the defendants, submitted that Mr Scott's evidence, that he said to Mr Maxwell that he did not have sufficient funds to cover the 50% of the required funds not being borrowed on the security of the LTB property, was consistent with Mr Maxwell's evidence that it was Mr Scott's obligation to fund the whole of the purchase price. He argued that it was only after Mr Scott's statement that Mr Maxwell offered to try to raise $100,000 to help Mr Scott out. But this all has to be seen in the context that what had originally been agreed was that the rezoning would have occurred before settlement was due to take place and that this would allow the whole of the purchase price to be borrowed. Instead, it appeared that perhaps only 50% of the required amount could be borrowed. It seems to me that, in these circumstances, there was nothing surprising in Mr Scott saying to Mr Maxwell in their discussions about what was to be done that he did not have the funds to cover the remaining 50%. He was looking to his joint purchaser, Mr Maxwell, to contribute something even if it was not half and eventually Mr Maxwell offered to raise $100,000 if Mr Scott contributed the balance.

I conclude, therefore, that the funding of the development was not the sole responsibility of Mr Scott. Certainly he was to pay the deposit of $60,500. That was to be his contribution to match Mr Maxwell's work. It would entitle him to an equal share in the venture.

Further, I am satisfied that there were terms of the agreement that Mr Maxwell would secure a rezoning of the property to permit residential development (not high density residential development as pleaded by the plaintiff) before the date for completion of the purchase contract and that any borrowings would be made jointly by Mr Scott and Mr Maxwell and secured by a mortgage of the land.

Mr Scott's evidence to this effect is supported, I believe, by Mr Maxwell's statement in his letter dated 15 March 2003 that the "complications and the funds needed" in respect of the LTB property "were not David's fault …"

Mr Heaton submitted that Mr Scott's own evidence, that Mr Maxwell had said that if the rezoning had not occurred by the time settlement was due he believed that he could arrange for the date to be extended because of his very good relationship with the vendor's principals, was inconsistent with the alleged term that the land would be rezoned before settlement. On the other hand, as Mr Northrop of counsel, who appeared on behalf of the plaintiff, submitted, Mr Maxwell could well have been simply reassuring Mr Scott that things would fall into place because, if needed, he would be able to gain an extension of the date for settlement. In the end, it seems to me that this evidence by Mr Scott was not inconsistent with the alleged term.

It seems to me that, without some reassurance from Mr Maxwell that the rezoning would be completed before the balance of the purchase price had to be found, Mr Scott would not have agreed to become a joint purchaser of the LTB property. He had already declined once to become involved because of his lack of available funds and he was, therefore, in no position to becoming jointly responsible for raising $544,500 on a 100% loan to valuation ratio. It was the increase in the value of the property following the rezoning which made the purchase feasible. I accept Mr Scott's evidence that Mr Maxwell told him that the rezoning would be "through" before the purchase of the property had to be settled. I also accept that although Mr Scott knew that Mr Maxwell had been working on this question of the rezoning for a considerable period of time, he had not been told by Mr Maxwell, and did not know, the full extent of the obstacles to be overcome, before the rezoning could be achieved. On Mr Maxwell's own evidence he told Mr Scott that he was well down the track with the rezoning, which was hardly a correct statement of the position prevailing at that time.

The breach of this term of the agreement meant that the balance of the purchase price for the LTB property had to be found before there had been any rezoning and this, in turn, meant that not all of the required funds were able to be borrowed against the LTB property itself. As events have turned out, the funding and the costs of funding have not been borne equally by Mr Scott and Mr Maxwell. Instead, Mr Scott contributed roughly twice as much funding to the purchase of the LTB property as Mr Maxwell and because he has paid the interest on the loan from Questco, his costs of funding have been significantly higher than Mr Maxwell's costs, which would appear to have been incurred indirectly through Medley Close having to pay interest on the $100,000. The difference between what it has actually cost Mr Scott to fund the purchase of the LTB property and what it would have cost him if he and Mr Maxwell had been able to borrow the whole amount as a result of the rezoning increasing the value of the security would be a loss suffered by Mr Scott. Any losses suffered by Mr Scott are recoverable from Mr Maxwell, in my opinion, as damages for breach of the agreement.

In the light of this finding it is not necessary to consider the claim for damages for breach of the representations concerning rezoning. In any event, no breach of the second representation pleaded by the plaintiff has occurred, given that the LTB property has yet to be rezoned.

The next issue is what, if any, orders should be made with respect to the LTB property. It was common ground between the plaintiff and the second defendant that as co-owners of the LTB property they were compellable to make partition between them pursuant to s.221 of the PLA. Various alternative situations are dealt with in ss.222 to 224 of the PLA, each of which is an independent provision.[4] I have already found that Mr Scott and Mr Maxwell own the LTB property in equal shares, and it is therefore not necessary to consider the content of s.222 of the PLA. Rather, as a half owner of the property Mr Scott is entitled under s.223 to an order for sale unless the Court "sees good reason to the contrary." No argument for partition and not sale was advanced by Mr Maxwell. This was because it was also common ground that, even apart from the desirability of terminating the relationship between these two bitter protagonists, the nature of the LTB property did not lend itself to partition.
[4]Pitt v Jones (1880) 5 App Cas 651 at 659 per Lord Blackburn; Perman v Maloney [1939] VR 376 at 380 per O'Bryan J; Schnytzer v Wielunski [1978] VR 418 at 421 per Menhennitt J

Instead, Mr Heaton on behalf of Mr Maxwell, stated that his client gave an undertaking to buy Mr Scott's interest at valuation pursuant to s.224 of the PLA and submitted that, his client having undertaken to purchase Mr Scott's interest, the Court should order a valuation of that share. Mr Heaton recognised, however, that Mr Scott could not be forced to accept a sale at valuation.[5] On behalf of Mr Scott, Mr Northrop stated that his client gave an undertaking to buy Mr Maxwell's interest at valuation, if that valuation were based on the property being zoned Business 4, but not if it were based on any potential residential zoning. This statement highlighted the difficulty, in my opinion, of trying to establish the appropriate price at which one party's half share of the LTB property could be acquired by the other party by means of a valuation rather than an actual testing of the market. In any event, if I understood him correctly, Mr Northrop's principal submission was that the Court should order a sale.
[5]Pitt v Jones (1880) 5 App Cas 651 at 659 per Lord Blackburn

In an action under s.223 of the PLA an undertaking by a defendant to purchase the share of the plaintiff who requested a sale is not a defence to the action.[6] Whether such an undertaking should be taken into account in determining whether "good reason to the contrary" has been shown by the defendant in opposition to an order for sale is doubtful[7], but even assuming that it could I do not consider that the undertaking constituted "good reason" not to order a sale. In my opinion, given the history of this matter, the problem already referred to of deciding on what basis the LTB property is to be valued, and the financial position of Mr Maxwell following the outcome of this proceeding and the Allenby Road proceeding, there is too great a risk that the ordering of a valuation will be rendered futile and that the parties will thereby have been forced to incur further unnecessary costs. Any interest by Mr Maxwell or Mr Scott in retaining ownership of the LTB property can be catered for by the making of appropriate orders, pursuant to s.225 of the PLA, allowing either of them to bid at the sale.
[6]Pitt v Jones (1880) 5 App Cas 651 at 659 per Lord Blackburn; Perman v Maloney [1939] VR 376 at 380 per O'Bryan J; Anderson v Anderson [1957] VR 317 at 318 per Lowe J; Schnytzer v Wielunski [1978] VR 418 at 421 per Menhennitt J
[7]Schnytzer v Wielunski [1978] VR 418 at 422 per Menhennitt J

It therefore seems to me that in the absence of any "good reason to the contrary" this is an appropriate case for an order for a sale of the LTB property and distribution of the net proceeds, if any, equally between Mr Maxwell and Mr Scott after repayment of the relative contributions made by each of them to the balance of the purchase price (not including the deposit). If the proceeds of the sale, after repayment of the Questco loan, are not sufficient to repay the rest of the funding and the costs of funding, then Mr Scott may be entitled to be paid in priority to Mr Maxwell to the extent of his claim for damages against Mr Maxwell.

The final issue relating to the LTB property was the claim by Mr Scott for misrepresentation. Given my findings with respect to the terms of the agreement it is not necessary to consider this issue further.

The Queen’s Park Road Property

Again, the first issue to consider is what were the terms of the agreement between Mr Scott and Medley Close in respect of the QPR project. It was submitted by the defendants that Mr Scott's evidence about Mr Maxwell suggesting that he replace Mr O'Keefe as a partner in the project and contribute $60,000 to pay out Mr O'Keefe's financial contribution because the latter was under pressure from his wife to pull out was demonstrably false. This was because Mr O'Keefe did not have a wife and because $60,000 would not have paid out Mr O'Keefe's contributions.

However, in my opinion, the question is not that simple. Mr Maxwell was clearly under pressure in October and November 2001 with respect to the QPR project. Medley Close had owned the property for over a year without making any progress on the development. There were difficulties in obtaining funding. Mr O'Keefe had been putting Medley Close in funds to enable it to meet the monthly repayments to LCMC, but he was now raising questions about selling the land and moving on and putting this "crazy" project behind them. Without Mr O'Keefe's continued financial support, Medley Close would have had difficulty meeting the monthly mortgage payments. Despite the repeated assertions by Mr Maxwell that he had other sources of funding, no evidence was produced to establish this. It seems to me that one thing is clear through all of these complicated deals and that is that Mr Maxwell was always short of money and that it was this shortage which led him to seek to involve Mr Scott in his proposed developments.

Thus, there was a very real incentive for Mr Maxwell to get Mr Scott interested in the QPR project. Indeed, he said as much. In those circumstances, it is hardly surprising, in my opinion, that Mr Maxwell did not tell Mr Scott that he was desperately short of funds or that he wanted Mr Scott to replace Mr O'Keefe because the latter had lost faith in the development and was fed up with all of the difficulties. This statement would hardly have encouraged Mr Scott to invest in the project. Instead he was told, I believe, a false story by Mr Maxwell.

Mr O’Keefe was also told a false story by Mr Maxwell. I accept Mr O’Keefe’s evidence that he was told by Mr Maxwell that Mr Scott was going to contribute $100,000 in return for a 50% interest in the QPR project. This step significantly reduced Mr O’Keefe’s interest despite the fact that he had put up all the funds to date and not surprisingly Mr O’Keefe was not enthusiastic about the reduction. To have been told that his interest was being reduced from 50% to 25% in return for only a $60,000 capital contribution may have brought forth stouter resistance from Mr O’Keefe. I consider that Mr Maxwell believed he could sort things out with Mr O’Keefe in due course. This was not the only occasion on which it would appear that Mr Maxwell misled Mr O’Keefe. The false description of the payee of the cheque for $5,012.40 appears to have been an attempt by Mr Maxwell to hide from Mr O’Keefe that he was using funds drawn from the QPR project to prop up the LTB project. A similar thing occurred with respect to the $100,000 payment, although at least on this occasion Mr O’Keefe knew that the money was being used for a non QPR project purpose, even if he did not know, as I have found, that it was funding Mr Maxwell’s, and not Mr Scott’s, contribution to the other project.

There is a further reason for rejecting the allegation that Mr Scott originally agreed to contribute $100,000. One could well ask why, when Mr Maxwell eventually found out that Mr Scott could only contribute $60,000, he did not return that money to Mr Scott and approach one of these other people which Mr Maxwell said could have contributed the required funds. Instead, in his letter dated 15 March 2003 Mr Maxwell referred to Mr Scott forwarding $60,000 "pursuant our arrangement" [sic]. There is no mention that it should have been $100,000 and that the $60,000 contribution was never a concluded agreement.

I therefore accept Mr Scott's evidence concerning the circumstances which led to him contributing $60,000 in return for a 50% share in the QPR project. This means that the pleading by the defendants that there was an agreement to pay $100,000, which Mr Scott breached and repudiated, must fail.

I also find that Mr Maxwell's evidence about his knowledge of the $50,000 payment by Mr Scott was false. Presumably, this knowledge was denied because it was thought that it made the claim that Mr Scott originally agreed to contribute $100,000 less believable. Whatever the case, I cannot accept Mr Maxwell's evidence that he did not know that Mr Scott had paid $50,000 into Medley Close's account on 15 November 2001. The bank statements were sent every two months or so to Mr Maxwell at his home address and then passed on to Mr O'Keefe. The latter was also able to access the account details via the Internet. Mr O'Keefe gave evidence that when he found out about the $50,000 deposit, he asked Mr Maxwell where it had come from and that Mr Maxwell said that it was "Scott's contribution or part of Scott's contribution." I consider that Mr Maxwell and Mr O’Keefe must have known, and discussed, at the time that Mr Scott had contributed $50,000 to Medley Close because shortly afterwards, on 29 November 2001, a cheque for $10,000 was drawn on the account which would have bounced had the $50,000 not been paid. Mr Maxwell said that this would have been signed by him and Mr O'Keefe, but by the latter in blank well in advance of its date. He could not recall what the payment was for, even though it was the first cheque debited to the account since 16 February 2001. When Mr O'Keefe gave evidence it was revealed that the cheque for $10,000 was payable to Mr Maxwell himself. How Mr Maxwell could have thought he could withdraw $10,000 from Medley Close's account were it not for the payment of $50,000 by Mr Scott was not explained. Furthermore, monthly payments had to be made to LCMC and these payments were being met only because Mr O’Keefe was contributing sufficient funds each month. Another payment to LCMC of $882.00 was due on 20 November 2001. It was met from Mr Scott’s contribution of $50,000 and Mr O’Keefe made no further monthly contributions.

Mr Heaton submitted that the explanation for Mr Maxwell's conduct in drawing the cheque for $10,000, without knowing about the $50,000, may have been that Mr Maxwell thought the Medley Close account had plenty of money in it. There was no evidence from Mr Maxwell to this effect. On the contrary, his evidence was that Medley Close was in need of buffer funds and that that was why he approached Mr Scott. I reject this explanation as quite implausible, even if it had the necessary factual foundation.

Other matters indicate to me that the original agreement between Mr Scott and Medley Close was that the former would contribute $60,000 and not $100,000. If Mr Scott was already $40,000 behind in what he had agreed to contribute to the QPR project because he was short of funds, why would Mr Maxwell consider approaching Mr Scott a few days later to see if he could come up with the $60,500 deposit for the LTB property? I have already rejected Mr Maxwell’s evidence that he and Mr Scott had previously agreed to the joint purchase of the LTB property.

Further, I find that Mr Maxwell's claim that Mr O'Keefe did not accept the proposal that Mr Scott was entitled to a 50% share in the QPR project in return for his contribution of $60,000 was false, as was demonstrated by Mr O'Keefe's own evidence. This means that the pleading by the defendants that there was no agreement reached to pay $60,000 must fail. Once again, Mr Maxwell's instructions to his lawyers and his evidence have been shown to be false.

I return to my consideration of the terms of the agreement between Mr Scott and Medley Close concerning the QPR property. I accept that it was agreed that Mr Scott would be repaid his $60,000 capital contribution before profits were calculated. This was not really disputed by the defendants. Moreover, Mr O’Keefe’s statement of profits and losses proceeds on the basis that both Mr Maxwell and Mr O’Keefe are entitled to be repaid their capital contributions before profits are calculated. I see no reason to treat Mr Scott any differently. If the proceeds of the sale of the three townhouses are not sufficient to enable all of the correctly calculated capital contributions to be repaid in full then each will have to be reduced proportionately. Medley Close's capital contribution would be the total of Mr O'Keefe's and Mr Maxwell's contributions.

The next question is whether Mr Scott is liable for a half share of any losses on the QPR project or simply entitled to a half-share of the profits. Counsel for the plaintiff submitted that there could be no implied term to the effect that Mr Scott must contribute equally to any losses. Mr Northrop submitted, correctly in my view, that there was no evidence that the issue of losses was discussed at all. However, one has to look at the context in which these discussions were taking place. According to Mr Scott, he was replacing Mr O'Keefe by taking over his 50% share in the project. I therefore do not accept that Mr Scott was not agreeing to enter into a partnership with Medley Close in place of Mr O'Keefe. If that be correct, then unless the parties expressly or impliedly agreed to the contrary the partners "must contribute equally towards the losses" sustained by the partnership.[8] Clearly it was agreed that Mr Scott would be entitled to 50% of the profits. I consider that he is therefore liable for 50% of any losses.
[8]See s.28 of the Partnership Act 1958

I reject the submission that the agreement entered into by Mr Scott was concerned only with profits. He must have known that there was a risk, however slight, that the development could result in a loss. Property development is by its very nature speculative. Even with a fixed price building contract there can be pitfalls. As Mr Northrop acknowledged, the sale price of the townhouses was an unknown factor. Further, any delay in selling could cause problems with the cost of financing the project.

I therefore find that Mr Scott is liable for 50% of any losses incurred in the QPR development.

I turn then to the allegation by the defendants that in August 2002, Mr Scott's interest in the QPR project was terminated by the agreement to relinquish his claim to $60,000 and to pay $40,000 to Medley Close in satisfaction of the $100,000 loan from Medley Close to Mr Scott. Even if I had accepted that Mr Scott had borrowed the $100,000 from Mr Maxwell, I would be reluctant to conclude that the QPR agreement had been terminated given the very weak and vague evidence from Mr Maxwell about this alleged conversation.

In any event, I have found that Mr Scott did not borrow the $100,000 from Medley Close. Rather, it was Mr Maxwell's contribution to the purchase price of the LTB property when it became impossible to borrow the whole of it. In the circumstances, I cannot find that there was any termination agreement as alleged by Mr Maxwell. Medley Close's counterclaim for $40,000 must therefore be dismissed.

Mr Maxwell relied heavily on the fact that in the negotiations between the parties, Mr Scott had offered to walk away from the QPR development and reimburse Mr Maxwell $40,000 out of the $100,000 Mr Maxwell had contributed to the LTB project on the basis that his $60,000 capital contribution to the QPR project was shifted to the LTB project. This was evidence, Mr Maxwell said, supporting what he said had in fact been agreed. In my opinion, this position fundamentally misunderstands the nature of negotiations and compromises. Counsel for the defendants fell into the same error, in my opinion, when they submitted that clause 2 of the Heads of Agreement was only comprehensible on the basis that Mr Scott was no longer involved in the QPR project and that it was the best confirmation of what had been relevantly intended and agreed between Mr Maxwell and Mr Scott. The fact that Mr Scott agreed to settle this wide-ranging, costly and disruptive dispute with Mr Maxwell involving three separate developments in part on the basis of accepting what Mr Maxwell said was the position in respect of one of the developments does not mean, in my opinion, that this actually had been the position. Negotiating and reaching a settlement often requires parties to compromise by shifting their stance. It would be a mistake, in my opinion, to read too much into the terms of the Heads of Agreement. Further, if one is going to look at what was contained in the Heads of Agreement, then it is important to take into account what was said by Mr Scott in his letter of 8 April 2003 as this obviously was the source for the compromise contained in the Heads of Agreement.

Counsel for the defendants submitted that the defendants' allegation that the agreement in respect of the QPR project had been terminated, so that Mr Scott no longer had any interest in that project, was the more credible because it was against the defendants’ own interest in that the effect was to exclude Mr Scott as a contributor to the losses which were likely to be incurred on the development. Even accepting that Mr Scott is liable for a share of the losses if the agreement in respect of the QPR project remains on foot, it does not necessarily follow, in my opinion, that this submission is correct. Whilst Mr O’Keefe’s figures would suggest that a loss may occur, this is by no means certain given that some of the costs and expenses may well be challenged when a proper account is taken. Because these issues are yet to be debated, it is not appropriate to say anything further at this stage. However, one small example is a matter already referred to in this judgment. If the cheque for $5,012.40 used by Mr Maxwell to pay a month’s default interest to the vendor of the LTB property has been deducted as a landscaping expense on the QPR project, then that would appear not to be correct. It should probably be treated as a drawing by Mr Maxwell.

In the result, I am not persuaded by these submissions to change my view that the agreement in respect of the QPR project remains on foot.

One of the matters relevant to the claim that the agreement in respect of the QPR project had been terminated and that Mr Scott owed Medley Close $40,000 was that this was not clearly stated in either of Mr Maxwell’s letters dated 28 February and 15 March 2003. One might have expected this allegation to have been forcefully spelt out in these letters, rather than vaguely hinted at. Nevertheless, Mr Heaton made the valid submission that Mr Maxwell’s letters should not be too closely analysed and criticized for what they included or did not include when, on the other hand, Mr Scott had virtually never committed his views to writing, even in circumstances when one might have thought that he would have wanted to quickly set the record straight. Mr Scott's explanation of why he did not respond in writing to Mr Maxwell's letters was that they were so far from the truth that he felt that he did not need to respond to them and that by doing so he might give them some sort of legitimacy. Counsel for the defendants submitted that this was an unreasonable response. It was also pointed out that this behaviour contrasted sharply with his reaction to the vendor overcharging interest at settlement of the LTB property. Mr Scott calculated the amount of the overpayment which was then sought from the vendor. The matter was not left where it stood. Notwithstanding that I do not think that the comparison is a particularly apt one, I do consider that the general thrust of the submission has some merit. Mr Scott’s written silence in face of some of Mr Maxwell’s written claims was rather surprising although Mr Northrop submitted that it was clear that Mr Scott consistently chose to express his disagreement personally in the meetings with Mr Maxwell rather than in writing. Nevertheless, my views on the credibility of the witnesses has been influenced far more by what was said and done contemporaneously rather than by what was said or not said after the event.

The plaintiff also alleged that Mr Maxwell and Medley Close were liable for misleading and deceptive conduct in respect of the QPR property. The first representation alleged by Mr Scott was that the sum of $60,000 would be repaid to him. I have found that it was a term of the agreement in respect of the QPR project that Mr Scott would be repaid his $60,000 capital contribution. But that was, I consider, understood to meant that the $60,000 would be repaid subject to the development being sufficiently profitable. I reject the submission that Mr Scott was being guaranteed repayment of his $60,000 contribution by Mr Maxwell and/or Medley Close regardless of the success of the property development. I consider that Mr Scott understood that he was putting his money at risk in return for the chance to make a very large profit.

The second representation relied on by the plaintiff was that there would be a profit of $200,000 from the development. I have no doubt that Mr Maxwell said something along these lines, but I do not accept that it was anything other than a rough indication of the hoped for outcome. In any event, I reject the submission that Mr Scott relied on any figures produced by Mr Maxwell. Generally, Mr Scott was scathing about the rough and ready calculations constantly produced by Mr Maxwell in their discussions about property developments. Mr Scott was his own man, who decided for himself whether or not the project was worth participating in. He was, after all, an accountant and business man. I consider that he assessed the viability of the project for himself, rather than relying on vague statements by Mr Maxwell. Mr Scott gave me the impression of being very hard-headed and calculating in respect of business transactions. He would have been very sceptical, in my opinion, of anything said by Mr Maxwell concerning likely profits.

The third alleged representation was that the development would be completed by March 2002. I have already referred to Mr Scott’s change of position on this issue from saying that the buildings would be completed by March 2002 to saying that he was told by Mr Maxwell that they would get their "capital back at the latest at the end of March." This would be achieved not through completion of the project but from progress payments by the financier. I am therefore not prepared to find that there was any such representation made. In any event, it was obviously contrary to the terms of the building contract which provided for a construction period of between 184 days not including delays and 300 days including delays. Even the minimum period took the completion date well beyond the end of March 2002.

The fourth representation alleged by the plaintiff was added by amendment. It was said that it was to be implied from the three express representations that the development would not make a loss. As I have found that these representations were not made out, the allegation must fail.

Finally, there is the question of the counterclaim by Medley Close for the losses it suffered as a result of Mr Scott lodging his caveat over the QPR property without reasonable cause. That is a claim made under s.118 of the Transfer of Land Act 1958 ("the TLA").

Mr Northrop submitted that the decision of Hayne J in Commonwealth Bank of Australia v Baranyay[9] made it clear that to defeat a claim under s.118 the caveator does not need to establish that there was a caveatable interest. The claimant was required to show more than that there was no caveatable interest. Hayne J held that, without seeking to give "an exhaustive definition of the circumstances covered by the very general expression 'without reasonable cause'",[10] the foundation for reasonable cause would often be in the words of Wootten J in Bedford Properties Pty Ltd v Surgo Pty Ltd[11]:

"not the actual possession of a caveatable interest but an honest belief based on reasonable grounds that the caveator has such an interest."

Hayne J also held that the authorities made it clear that the onus was on the claimant to show that the caveator acted without reasonable cause.[12]

[9][1993] 1 VR 589

[10][1993] 1 VR 589 at 600

[11][1981] 1 NSWLR 106 at 108

[12][1993] 1 VR 589 at 600 citing Kaihu Valley Reailway Co Ltd v Kauri Timber Co Ltd (1889) NZLR 403 and Young v Rydalmere Credits Pty Ltd (1963) 80 WN(NSW) 1463 at 1472.

Counsel for Medley Close submitted that Mr Scott had no caveatable interest in the QPR property and that he only lodged the caveat to put pressure on Mr Maxwell at the start of the Allenby Road proceeding and at a time when Mr Maxwell was attempting to sell the three townhouses. It was submitted that if Mr Scott had genuinely believed he had a caveatable interest in the QPR property, he would have lodged the caveat months earlier, particularly when the townhouses had been advertised for sale for many months.

Nevertheless, as I understand it, Mr Heaton conceded that if I found that Mr Scott had entered into a partnership with Medley Close and that that partnership was still on foot, then he would have had a caveatable interest in the QPR property because it would be an asset of the partnership.

As has been seen, counsel for Mr Scott did not submit that there was a partnership between Mr Scott and Medley Close. Rather, Mr Northrop submitted that Medley Close acknowledged that Mr Scott would have had reasonable grounds to lodge a caveat but for the termination agreement allegedly made in August 2002, because the pleading linked the two matters together. Therefore, if the termination agreement was found not to have been made, there was no basis put forward by Medley Close for a finding that Mr Scott did not have reasonable grounds to lodge the caveat.

I have found that there was a partnership agreement between Medley Close and Mr Scott which was not terminated. This means that Mr Scott did have a caveatable interest in the QPR property. In any event, even if this is not correct, I do not consider that Medley Close discharged the onus on it of showing that Mr Scott acted without reasonable cause. Despite some suspicions, I am not satisfied that Mr Scott lodged the caveat purely as a tactical measure to put pressure on Mr Maxwell or for some other improper purpose without an honest belief based on reasonable grounds that he was entitled to protect his interest in the QPR property, whatever that might be.

Medley Close's claim for damages under s.118 of the TLA must therefore fail.

Orders

Once the parties have had the opportunity to consider these reasons, I will hear submissions on the form of the orders or directions which should now be made.

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[2004] VSC 395

14 October 2004