Sharjade Pty Ltd v RAAF (Landings) Ex-Servicemen Charitable Fund Pty Ltd

CITATION: Sharjade Pty Ltd v RAAF (Landings) Ex-Servicemen Charitable Fund Pty Ltd [2008] NSWSC 1003

HEARING DATE(S): 7, 8, 9, 10, 11, 14, 15, 16, 17, 21, 23 and 24 July 2008

JUDGMENT DATE :
8 October 2008

JURISDICTION: Equity Division - Commercial List

JUDGMENT OF: Bergin J

DECISION: Plaintiff's case against first defendant for wrongful termination is made out.
Other claims to be dismissed.

CATCHWORDS: [CONTRACT] - Contract to develop land into retirement village - lengthy process of preparation - land to be purchased from the Commonwealth - whether Commonwealth entitled to make demands on first defendant - whether first defendant entitled to terminate Heads of Agreement with plaintiff when Commonwealth purported to terminate agreement with the first defendant - whether Commonwealth and first defendant conspired to terminate plaintiff's agreement with first defendant - whether Commonwealth interfered with a contractual relationship between first defendant and the Commonwealth.

LEGISLATION CITED: Limitation Act 1969

CASES CITED: Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549
Coshott v Lenin [2007] NSWCA 153
Handley v Gunner [2008] NSWCA 113
Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26
Independent Oil Industries Ltd v Shell Co of Australia Ltd (1937) 37 SR (NSW) 394
Foran v Wight (1989) 168 CLR 385
Lumbers v W Cook Builders Pty Ltd (2008) 232 CLR 635; [2008] HCA 27
Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221
Reid v Moreland Timber Company Pty Ltd (1946) 73 CLR 1
Shevill v The Builders Licensing Board (1982) 149 CLR 620
Short v The City Bank of Sydney (1912) 12 SR (NSW) 186
Short v The City Bank of Sydney (1912) 15 CLR 148
Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245
Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632

PARTIES: Sharjade Pty Ltd (Plaintiff)
RAAF (Landings) Ex-Servicemen Charitable Fund Pty Ltd (First Defendant)
The Commonwealth of Australia (Second Defendant)

FILE NUMBER(S): SC 50024 of 2006

COUNSEL: Plaintiff - Mr M Akbarian (director of plaintiff)
First defendant - Mr J Simpkins SC with Mr N Owens
Second defendant - Mr M Speakman SC with Mr D Moujalli

SOLICITORS: Plaintiff - not applicable
First defendant - Gadens Lawyers
Second defendant - Blake Dawson

- 1 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

BERGIN J

8 OCTOBER 2008

50024 OF 2006 SHARJADE PTY LIMITED v RAAF (LANDINGS) EX-SERVICEMEN CHARITABLE FUND PTY LIMITED & ANOR

JUDGMENT

1 The parties to this litigation fell into dispute after trying to take advantage of the burgeoning market in the development of retirement villages. Theirs was a special plan to provide a retirement environment for ex-service personnel including members of the Royal Australian Air Force Association (RAAFA) in affordable but stylish accommodation. The parcel of land to be developed was 11.87 hectares at 440 Bobbin Head Road Turramurra, a northern suburb of Sydney (the Land). It was owned by the Repatriation Commission and purchased by the Commonwealth in 1996. It was adjacent to the western boundary of the Lady Davidson Hospital (then operated by the Commonwealth Department of Veterans Affairs) which provided rehabilitation services to war veterans. The Land was also adjacent to the Ku-ring-gai National Park, in which there were some endangered species of both fauna and flora. One of the species in the latter category was a plant known as Darwinia Biflora.

2 The planning of the development commenced in 1992. The sole director and shareholder of the plaintiff, Sharjade Pty Ltd, is Mohsen Akbarian, who at that time utilised Kezarne Pty Ltd (Kezarne) as the vehicle for the development. Another of Mr Akbarian’s companies also involved in the early planning stages was Nubra Constructions Pty Limited (Nubra). The then President of RAAFA was Air Commodore GG Michael AO OBE AFC. RAAFA incorporated a wholly owned subsidiary, Darwinia Estate Pty Limited (Darwinia) (later to become the first defendant, RAAF (Landings) Ex-Servicemen Charitable Fund Pty Limited), to act as the vehicle for the development.

3 In March 1993, Australian Construction Services (ACS) a business unit in the Commonwealth Department of Administrative Services wrote on behalf of RAAFA to Kezarne advising that it was the preferred developer and invited it to further expand its proposal for the development. Kezarne was at this time working with Turnbull & Partners Ltd and the two were described as the “Development Consortium”. Between 1993 and October 1995 Kezarne expanded its proposal to the construction of 200 x 2 bedroom units, 100 x 3 bedroom units, a 60-bed hostel, a clubhouse and bowling green. Kezarne was asked to submit proposals on the assumption that RAAFA would have title to the Land at the commencement of the development. At this time Australian Estate Manager (AEM) managed the Land for the Commonwealth. The proposal in relation to the purchase of the Land changed from time to time partially as a result of changes of Ministers and government policies. It was not until 29 August 1995 that AEM made an offer to RAAFA which involved the grant by the Commonwealth to RAAFA of a 99 year lease of the Land “subject to it undertaking to purchase the land and making full payment to the Commonwealth within seven years from the date of exchange of contracts for the land” at a “sale price” of $5.8 million.

Heads of Agreement – 18 October 1995

4 On 18 October 1995 Kezarne entered into “Heads of Agreement” (the Agreement) with Darwinia to develop the land into a retirement village. That Agreement was in the following terms:

This Heads of Agreement dated this 18th day of October 1995 has been entered into between the Darwinia Estate Pty Limited a duly incorporated company having its registered office at Suite 1101, 11th floor, 222 Pitt Street Sydney (hereafter called “Darwinia”) and a developer consortium comprising of Kezarne Pty Limited (ACN No 003 417 089) and its financial advisers Turnbull & Partners Limited (ACN No 003 267 427) hereafter referred to as (“the Developer Consortium”).

1. Pursuant to a tender process undertaken by Royal Australian Air Force Association (hereafter called “RAAFA”) in 1993, the Developer Consortium was selected as the successful tenderer on 2 March 1993. Since that date RAAFA together with the Developer Consortium and the Department of Veterans’ Affairs, Sydney have been negotiating with the Australian Estate Management (“AEM”), part of the Department of Administrative Services of the Commonwealth of Australia (“Commonwealth), to acquire the land known as the Lady Davidson Hospital site in Bobbin Head Road, North Turramurra for the erection of a Retirement Village to be occupied by members of RAAFA and other ex-service persons.

2. RAAFA has caused to be incorporated a wholly owned subsidiary Company Darwinia Estate Pty Limited to enter into this agreement.

3. Under the terms of a Contract for Sale to be entered into between Darwinia and the Commonwealth, Darwinia has been granted an option for a period of up to 12 months from exchange of contracts, to purchase the site which comprises part of Lot 1 in Deposited Plan 441749, totalling approximately 12 hectares and situated at the rear of the Lady Davidson Hospital in Bobbin Head Road, North Turramurra. In the event that Darwinia elects not to proceed with the development, then the option will expire without any penalty to Darwinia, subject to both sides bearing their own costs up to that date.

4. The terms of the Contract are detailed in the attached letters from the Minister for Administrative Services dated 19 September 1994, the Deputy Secretary, Department of Administrative Services dated 16 June 1995 and the General Manager, Department of Administrative Services dated 29 August 1995. These letters inter-alia provide for RAAFA to occupy the site under a 99 year lease with an irrevocable obligation to purchase the land at any time but in any event within 7 years from the date of the commencement of the Option period. The purchase consideration of $5,800,000 (Five million eight hundred thousand dollars) is to be guaranteed by a Bank acceptable to AEM.

5. The terms of the purchase provide for interest to be paid on the purchase consideration outstanding on an annual basis, but for the calculation and payment of interest to be deferred for a period of 12 months from the date of the Contract. The interest payable thereafter to be calculated at a rate equivalent to approximately 9.5% pa, being equivalent to a margin of one percent above the 5 year Commonwealth Bond rate applicable at the date of the Contract.

6. Subject to Clause 3 hereof Darwinia Estate Pty Limited or its nominee will exercise the option and exchange contracts with the Commonwealth for the purchase of the land and will proceed with the development of the Retirement Village project with the Developer Consortium in accordance with this Heads of Agreement.

7. Pursuant to the selection process completed in 1993, the Developer Consortium was appointed to undertake the development, financing, and on-going management of the Retirement Village on the understanding that Darwinia will own the Village at all times and prevail upon members of the RAAF Association to purchase the residential Self Care and Hostel units to be developed on the site. Darwinia also accepts that it will have no financial recourse to the Developer Consortium if at the expiry of the 12 month option period that the Developer Consortium decides that it cannot proceed with the development of the Retirement Village for the reasons that it will disclose to Darwinia, but primarily expected to be on account of refusal of or inability to obtain Development Application approval from the Local Council on reasonable terms or its inability to obtain finance for the development on acceptable terms.

(1) That the Developer Consortium will be responsible for:

a). undertaking the overall development of the Village in accordance with the requirements of the Local Council and other approving authorities requirements, that of the parties hereto and of the financier(s) of the development.

b). obtaining the necessary planning and regulatory authorities approvals to the development of a Retirement Village and associated facilities.

c). arranging the financing for the development of the Village including the provision of the purchase guarantee to the Commonwealth.

d). the overall and detailed planning process for the development including the project and construction management in accordance with the costs and assumptions detailed in pages 1 to 5 inclusive of the Financing Plan annexed hereto.

e). the overall and detailed marketing arrangements for the Village in accordance with the sales prices detailed in the annexed Financing Plan.

f). the long term management rights to the Village subject only to satisfactory performance and the management fees being acceptable and within industry norms. It is understood however that the manager of the Village will liaise closely with Darwinia from the outset to ensure that Darwinia’s role and obligations to its members is clearly preserved at all times.

(2) That a Project Management Group (“PMG”) be established comprising of representatives from Darwinia, the Developer Consortium and the financier(s) of the development with a representative from the Department of Veterans’ Affairs invited to attend.

(3) That the PMG will meet at least monthly, and more frequently if so desired by the parties, at which it will review the progress of the development and assign responsibilities as appropriate. Kezarne Pty Ltd will provide the PMG with a monthly progress report which will form the basis of the monthly meeting of the PMG. The Chairman of the PMG will be selected by Darwinia and the Developer Consortium.

(4) That Darwinia and RAAFA will actively promote and assist the Developer Consortium in effecting the sale of the Self Care and Hostel units to its members as a key priority and will commit to achieving pre-sales of up to 40 per cent of the Self Care Units (80 Self Care Units) in the proposed development by the end of the 12 month option period and prior to execution of the lease for the land. RAAFA also undertakes to encourage its members to attend sales presentations relating to the development and in distributing promotional and other material to its members.

(5) In accordance with the Contract of Sale entered into with the Commonwealth, Darwinia will have the exclusive right to effect the sale of Self Care and Hostel units to its members of RAAFA and members of other ex-service organisations within the first 3 years from date of exchange of contracts. Darwinia will also have the right within the first 2 years from date of exchange of contracts to limit the sale of Self Care and Hostel units to members of the RAAFA only if it so chooses.

(6) That at the end of 3 years from commencement of the exchange of contract that the Developer Consortium may sell the remaining Self Care and Hostel units to members of the general public, provided that all efforts to sell the units to members of RAAFA and the other ex service organisations has been carried out.

(7) The Developer Consortium will retain an on-going involvement in the further development of the Retirement Village on identical terms to that detailed herein including the on-going management of the Retirement Village.

(8) The Developer Consortium undertakes that in the event that it effects a sale of any Self Care or Hostel units to members of the general public at a price exceeding $335,000 (Three hundred and thirty five thousand dollars), indexed from date of exchange of the option and contract arrangements, that it will reimburse to the Commonwealth such surplus.

(9) That Darwinia will provide either directly or through others up to $175,000 (One hundred and seventy five thousand dollars) towards the initial costs that the Developer Consortium will incur in completing the detailed planning of the Retirement Village. The monies to be incurred, which will be subject to approval by the PMG, will include the costs incurred in obtaining Development Application approval and in developing promotional material to assist Darwinia in marketing the development to members of the RAAFA and that of other ex-service organisations, if it so chooses, to obtain the required pre-construction sales commitments.

(10) That Darwinia, as the owner of the Village, will do all things to assist the Developer Consortium in its efforts to develop the Village and accepts that it will have no claim to any of the finances in the development, until such time as the initial sale of all the Self Care and Hostel Units in the Retirement Village have been completed and the financing obligations incurred by the Developer Consortium have been met in full. Darwinia will then be entitled to receive a share of the profits of the development as detailed in Clause 11 hereunder.

(11) That RAAFA has established a special purpose wholly owned subsidiary company known as Darwinia Estate Pty Limited to undertake the development on its behalf.

(12) The Developer Consortium agrees that any residual profits from the initial sale of the Self Care and Hostel units, after meeting all costs involved with development and sale of the units, will be shared in the proportions of 85:15 to the Developer Consortium and Darwinia respectively, subject to achievement of a development profit of at least $8,000,000 (Eight million dollars) or greater sum. In the event that a lower than $8,000,000 (Eight million dollars) development profit is realised, the profits will be then be shared as follows:

Amount of Profit	Developer Consortium	RAAFA
(% share)	(% share)
<$1m	99.0	1.0
>1m but less than $4m	98.0	2.0
>$4m but less than $5m	97.0	3.0
>$5m but less than $6m	95.0	5.0
>$6m but less than $7m	90.0	10.0
>$7m but less than $8m	87.5	12.5
>$8m	85.0	15.0

(13) It is further agreed between the parties that security arrangements to be entered into by the Developer Consortium with the selected Bank will encompass the following:

a).A Loan Agreement covering the advance and repayment of monies to finance the construction of the Village as agreed including the payment of interest to the Commonwealth when due.

b).First Registered Mortgage over the land by Darwinia to the selected financier

c).A Bank Guarantee from an Australian Bank, in a form acceptable to the Commonwealth for the purchase consideration of $5,700,000 (Five million seven hundred thousand dollars) or such other sum as may be agreed .

d).A Village Management Agreement which will detail the scope of the services to be provided, the amount of the payment for such services and the arrangements for payment thereof.

(14) It is also agreed between the parties that subject to the project proceeding, as determined in the 12 month option period, that Darwinia will enter into a Form of Loan and Licence Agreement with the incoming residents. The licence will grant security of tenure to the incoming residents and will detail the conditions of lifetime occupancy of their unit in the Village. The detailed agreement will incorporate the following:

a).That the full purchase consideration payable by the incoming resident is to be denominated as a loan.

b).That the residents’ entitlement to occupation under the terms of the Licence to be granted will incorporate lifetime occupancy or earlier exit if desired.

c).That a Deferred Management Fee arrangement (ie the amount to be retained from re-sales of units) will apply, which will entitle Darwinia to retain up to 25% of the resale value of an individual unit, or lesser amount as may be agreed from time to time, for on-going capital and maintenance works in the Village.

d).That the Agreement will detail the services to be provided by the Manager of the Village which are to be covered by the management fee and those which are to be charged to the residents on an user pay basis.

(15) This Agreement is conclusive and supersedes all other Agreements that may have been entered into by the parties prior to this date.

5 Air Commodore Michael signed the Agreement for and on behalf of Darwinia and Mr Akbarian signed for and on behalf of Kezarne. The novation of the benefit and burden of the Heads of Agreement from Kezarne to Sharjade occurred on 24 April 1998 from which time Turnbull & Partners ceased to be involved in the Consortium and the development.

Option Agreement – 24 October 1995

6 On 24 October 1995 the Commonwealth and Darwinia entered into an Option Agreement in the following terms:

This Option Agreement dated this 24th day of November 1995 has been entered into between the Commonwealth of Australia (“Commonwealth”) and Darwinia Estate Pty. Ltd. (“Darwinia”) a duly incorporated company having its head office at Suite 1101, 11th floor, 222 Pitt Street, Sydney.

The parties acknowledge that at the date of execution of this option agreement Darwinia is a wholly owned subsidiary of the Australian Flying Corps and Royal Australian Air Force Association, New South Wales Division Incorporated (“RAAFA”) within the meaning of the Corporations Law. Darwinia warrants that during the period of this option agreement, and in the event of the exercise of this option, during the period up to completion of the purchase of the land (described below) Darwinia will remain a wholly owned subsidiary of RAAFA. In the event that Darwinia ceases to be a wholly owned subsidiary of RAAFA the Commonwealth may terminate this option agreement or the Contract of Sale as the case may be without compensation.

The Commonwealth has agreed to sell to Darwinia an area of vacant land comprising approximately 11.87 hectares, being part of the land described in a proposed plan of subdivision of Lot 1, in DP 441749, which is situated at the rear of the existing Lady Davidson Hospital, in Bobbin Head Road, North Turramurra in the State of New South Wales, (“the land”).

The purchase price of the land is $5,800,000 (five million eight hundred thousand dollars) with Darwinia, in the event it exercises the option, being required to purchase the land any time up to but in any event not later than 7 years from the date hereof.

To enable Darwinia to complete a feasibility study into the viability of its proposed retirement village on the vacant land, the Commonwealth hereby agrees to grant Darwinia an option for a period of up to 12 months from the date of execution of this option agreement (“the option period”), to determine whether it wishes to proceed with the purchase of the land. It is understood that the option period will be used by Darwinia to complete and seek approval to a detailed Development Application with the Kuringai Council which has the overall planning responsibility for the proposed development and to satisfy itself that the development will generally accord with the needs of RAAFA members.

In the event that Darwinia decides to proceed with the purchase of the land either during the course or at the end of the option period, the Commonwealth and Darwinia will then enter into a Contract of Sale for the sale of the land to Darwinia. The Contract of Sale will provide that Darwinia will have a period of up to but not exceeding six years from the date of execution of the Contract of Sale, within which Darwinia will be required to pay the full purchase price of $5,800,000. To ensure that Darwinia will have the capacity to make such payment it will provide to the Commonwealth an irrevocable and unconditional bank guarantee from a bank approved by the Commonwealth, undertaking to make payment, if Darwinia fails to do so, of the full purchase price or that part that is outstanding 6 years after the date of execution of the Contract of Sale.

Concurrent with the execution of the Contract of Sale, the Commonwealth agrees to enter into a lease of the Site to Darwinia for a period of up to 99 years. The lease is intended to give Darwinia security of tenure pending payment of all monies due to the Commonwealth pursuant to the Contract of Sale.

In consideration for the Commonwealth entering into this option agreement, the Contract of Sale and the Lease, Darwinia undertakes to pay to the Commonwealth, an amount by way of interest on the purchase price of $5,800,000 or such lesser amount that is outstanding from time to time until payment in full of the purchase price of $5,800,000 has been made to the Commonwealth.

The interest rate will be the rate established at the date of execution of this option agreement and will be a rate equivalent to 1% above the 5 year Commonwealth Bond Rate advised by the Reserve Bank of Australia the day prior to the execution of this option agreement. The interest payments will be made annually in advance with the first such payment due to the Commonwealth on the first anniversary of this option agreement.

In consideration for the Commonwealth entering into the Lease Darwinia undertakes to pay to the Commonwealth an annual rental of $1 (one dollar) for such period as the lease is in existence.

If prior to the expiry of this option agreement, Darwinia advises the Commonwealth that it does not wish to proceed with the execution of the Contract of Sale and Lease, then each party acknowledges that any costs incurred by it in that period will be for its own account and without any recourse to the other.

In further consideration for the Commonwealth agreeing to enter into this option agreement, the Contract of Sale and the Lease, Darwinia undertakes to observe and carry out the following:

1. To pay all rates and outgoings including stamp duty relating to the purchase and lease of the land from the date of execution of the Contract of Sale and the Lease.

2. To meet all the costs incurred in undertaking the feasibility study and in obtaining the necessary development approvals in accordance with relevant State building and planning legislation. Darwinia may not rely upon or require the Commonwealth to give Darwinia the benefit of an immunity the Commonwealth has from State law. Nevertheless, the Commonwealth undertakes to provide any documents or records to Darwinia and its advisers which may assist in obtaining any approvals and consents from any Commonwealth, State or Local Government Departments or Authorities.

3. Not to sell any self care villas or hostel units in the development to any purchasers who do not qualify as members of the ex-service community as broadly defined by the Department of Veteran Affairs during the first 3 year period from the date of commencement of this option agreement. In the event that completion of the purchase of the land occurs less than three years from the date of execution of this option agreement this condition shall continue to bind the parties until the expiration of the three year period. In the event that Darwinia disposes of the land it must ensure that any purchaser comply with this restriction until the expiration of the three year period.

4. In the event that any self care or hostel units are, subsequent to the expiry of the period of 3 years from the date of this option agreement, sold to the general public then Darwinia will reimburse to the Commonwealth the amount in excess of the market value of the units. The market value is deemed to be $335,000 per unit and indexed, from the date of the option agreement, by that part of the Consumer Price Index, as published by the Australian Bureau of Statistics, that is applicable to housing costs in New South Wales.

Development Application – 15 March 1996

7 It is clear that Mr Akbarian moved very promptly to retain the appropriate consultants to take the necessary steps towards the preparation and submission of the relevant documentation to the Council for Development Consent. The Development Application was lodged on 15 March 1996. A Project Management Group was established in October 1995 and met on a regular monthly basis. It dealt with a number of enquiries raised by the Council and various other authorities including the New South Wales National Parks and Wildlife Service regarding the environmental impact of the development on threatened species such as the Red Crowned Toadlet and the Giant Burrowing Frog. There were also concerns raised in respect of the proximity of the development to the National Park and the threat of bushfires. All of these matters caused resistance from the local residents and it was necessary to deal with various objections raised by them in the Council.

8 It is obvious that during the period up to the granting of development consent the plaintiff/Mr Akbarian worked tirelessly in dealing with all the matters raised by the Council, coordinating various consultants and responding to issues both environmental and otherwise to meet the requirements of the Council.

Development Consent- 18 March 1998

9 Two years later, on 18 March 1998, the Council consented to Darwinia’s Development Application on various conditions including a condition that the Project be commenced by 18 March 2000.

Extensions of the option period

10 The delay that was caused by the Council’s various requirements and residents’ resistance to the development meant that Darwinia had to seek an extension of the option period from the Commonwealth. Those extensions were granted, the final one of which was to expire on 24 December 1998.

Option exercised – 23 December 1998

11 On 23 December 1998, by letter wrongly dated 23 December 1999, Darwinia exercised its option to purchase the Land. On 14 January 1999, the Department of Finance and Administration wrote to Air Commodore Michael advising that the Domestic Property Operations Group acknowledged the exercise of the option to purchase the Land. It also advised that all files had been sent to its solicitors, Black Dawson Waldron (BDW), "for the preparation of the contract for sale".

Finance Proposal - 13 January 1999

12 On 13 January 1999 ING Bank provided Darwinia with a draft of the proposed terms and conditions for a loan facility of $28.5 million for the development. Although the letter was addressed to Darwinia, this proposal had been “arranged” by the plaintiff pursuant to its obligations under clause 8(1)(c) of the Heads of Agreement. The letter advised that the proposal carried the support of the National Manager Commercial Property Finance and, if ratified by the local credit committee, it was to be sent to ING's Regional Office in Singapore for a decision. Air Commodore Michael reviewed the draft, made some minor changes and signed it on 1 February 1999.

Proposed Contract terms

13 On 16 February 1999 the then solicitors for Darwinia, Solomon Garland Partners, wrote to BDW (Ms Anne Banks) enclosing proposed terms of the Contract for the Sale of the Land. That document noted that the date for exchange of Contracts would “depend on purchaser's finance” and the Completion Date would also “depend on the terms of the purchaser's finance (approval pending)”. Ms Banks, by letter dated 8 March 1999, requested advice from Solomon Garland Partners as to whether Darwinia had received a response from its financier and if not, the likely estimate of the timing of a response. On 9 March 1999 Solomon Garland Partners by letter signed by Rita Ibrahim, wrote to Ms Banks at BDW as follows:

I am instructed that the financier has verbally approved finance the purchase of the site however the letter of approval setting out the terms and conditions of the finance has not been issued yet. Mr Moss Akbarian, my client's joint venturer, has informed me that he hopes to receive the approval letter today.

14 The solicitors with the carriage of the matter for Darwinia at Solomon Garland Partners were Rita Ibrahim and Stephen Healy.

ING offer of finance – 11 March 1999

15 On 11 March 1999 ING and its associated company Mercantile Mutual Life Insurance Company Limited (MML) made an offer to the plaintiff for a total facility of $30 million, with ING providing a facility for $22.5 million and MML providing a facility for $7.5 million. Settlement of the facility was conditional upon the provision of certain security and the satisfaction of certain conditions precedent. The security included a first registered third-party mortgage from Darwinia over the Land; a registered first fixed and floating charge from Darwinia and the plaintiff over their assets and undertakings; unlimited joint and several guarantees by Darwinia and Mr Akbarian and his associated companies; and a registered first charge over the shares in the plaintiff. That offer also provided that upon acceptance of the terms and conditions a "non-refundable fee of $70,000" ($15,000 of which the plaintiff had already paid) was payable. There was also a fee of $415,000 (which included the $70,000) payable on the initial drawdown of the facility.

16 On 29 March 1999, Ms Banks requested details of the Finance proposal from Mr Healy but by this stage Mr Healy had decided that there were a number of issues that needed to be resolved before responding to ING or the Commonwealth's request.

Discussion of issues – April 1999

17 Mr Healy wrote to Air Commodore Michael on 12 April 1999 in relation to issues that he regarded as necessary for resolution, a number of which arose as a consequence of the conditions in the ING offer as they related to the proposed contract with the Commonwealth. Mr Healy was concerned about the stamp duty payable by Darwinia if the duty were to be imposed on a more recent valuation of the land at $14 million rather than the purchase price of $5.8 million. Other questions raised for consideration were how Solomon Garland Partners’ fees were to be paid and by whom and who was acting for the plaintiff. Mr Healy was also concerned about the nature of the title of the Land and whether the loan term, which was 18 months, was sufficient.

18 On 15 April 1999 a meeting took place between Mr Healy and Ms Ibrahim and Air Commodore Michael and two other representatives of RAAFA. Mr Akbarian was not present at this meeting. The minutes of that meeting noted that RAAFA wanted to allow 18 months to obtain 100 sales with the right to settle early with the Commonwealth. It was noted that GST on the Land purchased and on pre-sale contracts would need to be covered with Mr Akbarian. It was also noted that the plaintiff was to be responsible for Solomon Garland Partners’ fees and that Mr Akbarian was to advise who was acting for the plaintiff.

Alternative finance

19 On 14 April 1999 Mr Akbarian met with Neil Wilson, a director of Sakkara Pty Limited (Sakkara) in relation to its possible involvement in the development, in particular, in relation to the funding of the development. Mr Wilson advised that he had discussed the development in broad terms with Balmoral Corporation Ltd (Balmoral) and that there was "keen interest".

20 On 15 April 1999 Sakkara wrote to the plaintiff advising that it had met the previous evening with the Chairman of Balmoral and confirming "in the strongest possible terms our interest in working with you on this exciting project". Sakkara then put a proposal to the plaintiff for Balmoral to provide $400,000 for marketing in April 1999; $5.8 million for the Land in June 1999; and a further $1.3 million for acquisition and other costs in July 1999. A condition of the proposal was that the funds were to be secured by first registered mortgage and part assignment of the development agreement. Other conditions included joint review of the "product" and establishment of a marketing and sales strategy; the negotiation of a building contract with completion guarantee with Bovis or a similar company; that proceeds from the sale of the development would be used to repay the debt and share 50/50 between the plaintiff and Balmoral; and that the plaintiff would pay a monthly management and RAAFA liaison fee.

21 This offer was pursued further between the plaintiff, Sakkara and Balmoral until Balmoral made a final offer on 20 April 1999 for funding of $8 million with a profit share of two thirds to the plaintiff and one third to Balmoral. Mr Akbarian advised Balmoral the terms were generally acceptable subject to a Deed being entered into between the parties. Negotiations between the plaintiff and Balmoral continued with a number of draft deeds and proposals for various amendments.

Meeting - 11 May 1999

22 On 11 May 1999 Mr Healy met with Mr Akbarian. The notes of this meeting record that the Heads of Agreement were to be turned into a Joint Venture Agreement. It was also noted that Mr Akbarian was to be responsible for Solomon Garland Partners’ fees and that Mr Akbarian thought that Solomon Garland Partners could act for both parties (except in relation to the joint-venture). It was decided that Mr Healy was not to write to ING yet and that "[a]ll of the finance requirements will be dealt with in the Joint Venture Agreement which is to be prepared immediately". It was also noted that Mr Akbarian's entities’ profit share through the joint venture was to be secured by a second mortgage.

Joint Venture Agreement

23 On 18 May 1999 Mr Healy forwarded a draft Joint Venture Agreement to Mr Akbarian. This was a proposal in which a new company, controlled by Mr Akbarian, would enter into a joint venture with Darwinia to develop that Land on the basis that the Commonwealth would sell the freehold title of the Land to Darwinia, a matter that Mr Healy intended to pursue with Ms Banks. There were subsequent discussions and meetings in relation to the draft Joint Venture Agreement and Mr Akbarian responded in writing suggesting some amendments to the agreement. The last letter Mr Akbarian wrote to Mr Healy suggesting amendments was dated 12 November 1999. There was no response to this letter.

Response to ING – 19 May 1999

24 On 19 May 1999 the plaintiff wrote to ING confirming that it was happy to provide the balance of the commitment fee of $55,000 immediately upon the receipt of confirmation that ING agreed to the amendments proposed in the executed letter of offer. The plaintiff advised that it needed four months from the date of payment of the balance of the commitment fee in order to comply with the requirements regarding pre-sales. Later events overtook this offer and it ultimately lapsed.

BDW request response

25 On 23 May 1999 Ms Banks wrote to Mr Healy requesting: a report on the progress of obtaining finance; comments on the revised Terms Sheet for the contract of Sale of the Land; and an indication on the timing of the sale for the Commonwealth to consider. Ms Banks noted that from the Commonwealth's perspective, the matter was "becoming protracted” and that it would like to see that Darwinia would be in a position to make “real progress with the sale” as from 21 June 1999.

BDW advice - 30 June 1999

26 On 30 June 1999 Ms Banks wrote by e-mail to her client summarising a telephone conversation with Mr Healy on that day. Ms Banks advised that RAAFA had been negotiating "the Joint Venture arrangements with the developer" and it was hoped that this would be finalised that week. The e-mail noted that there was tension between RAAFA and the developer with the developer wanting the right to sell the units to the general public and RAAFA wanting the Commonwealth to hold firm and require units to be sold to ex-servicemen. The e-mail also referred to RAAFA wanting confirmation that the Commonwealth agreed to proceed on the basis of freehold title. Ms Banks noted her understanding that this was acceptable provided there was an earlier settlement date. Ms Banks then referred to RAAFA's request for the transaction to proceed by an Option Agreement conditional on 100 sales being achieved, and if achieved with a relatively short settlement date; and if not achieved with the Commonwealth retaining the Land. It was suggested that this option period would give elderly people a comfortable time to sell their homes. Ms Banks noted a number of issues arising out of this proposal including the length of time the Commonwealth was willing to hold the price at $5.8 million, and whether interest was payable on the purchase price.

Freehold Proposal – 7 July 1999

27 On 7 July 1999 a meeting took place at BDW's office attended by Mr Healy and Ms Banks. Subsequent to that meeting a document entitled "RAAFA's Freehold Proposal" was prepared by Ms Banks and settled by Mr Healy. That document noted RAAFA’s aim to simplify the transaction by dispensing with the Lease so that freehold title was to be transferred immediately. It was proposed that the option agreement would be conditional upon Darwinia achieving 80 unconditional pre-sales to ex-servicemen by a particular date. The Commonwealth indicated that it would like certainty by the end of 1999 with an "absolute drop dead date" by 30 June 2000. The document also referred to a Deed being entered into between Darwinia, Mr Akbarian, the builder, the bank and the Commonwealth in relation to the development. The document noted Mr Akbarian's proposal that the two periods of three years in the ex-servicemen's covenant be reduced to 18 months.

Marketing presentation

28 In mid-July 1999 the plaintiff, Darwinia and the architects Cox Richardson, were making plans for a presentation in August to prospective purchasers in the development. On 19 July 1999 Cox Richardson advised the plaintiff that presentation materials including: current schematic staging plans; typical cluster plans; typical unit plans; and schedules of finishes/appliances needed to be prepared. Cox Richardson advised that such materials could be available within a two-week period on the condition that $10,000 was paid before they commenced work. On 21 July 1999 the plaintiff wrote to Cox Richardson advising that it had already delivered the $10,000 the previous day and that a program had been agreed with one of the architects in order to ensure presentation to people on the waiting list by 23 August 1999.

29 On 9 August 1999 the plaintiff sent a copy of the marketing documents to Air Commodore Michael for his approval prior to it being sent to RAAFA members on the waiting list. The plaintiff advised that the architects were ready to make 120 copies of the packages as soon as they received the letter from Air Commodore Michael that was attached to the plaintiff's letter. The plaintiff also advised that upon receipt of Air Commodore Michael's letter, the marketing package would be bound with the coloured perspective on the cover followed by the Air Commodore's letter and the rest of the package. That letter include the following:

Following our telephone discussions last week, I thought that we could perhaps ask your members to put a deposit equivalent to one percent of the price of the unit they intend to purchase. The deposit will obviously be put in a trust account and is refundable should any of the members decide not to proceed with the purchase of the units. This will of course provide your members with an opportunity to secure their units with minimum deposit at no risk to themselves.

We will also need to reserve the location of the meeting which as you suggested could be in The Lady Davidson Hospital. You have kindly undertaken to discuss this matter with the manager of the hospital. I am aware of your busy schedule and would be very happy to pursue the booking of a place for the meeting myself should you wish me to do so. In our meeting with [the architect], you indicated that you could be available for this meeting on Saturday, 21st August 1999, and it was agreed that the meeting should take place at around 3.00 pm to avoid any clash with people's busy schedule for Saturday mornings. Depending on your availability, we could have the meeting either on Saturday 21st of August 1999 or Saturday 28th August 1999. This will mean that we will have to send these packages to the members on the waiting list by Wednesday or Thursday this week in order to give them time to program for it.

Further Sakkara negotiations

30 It is clear that in the meantime Mr Akbarian continued to negotiate with Sakkara, which was becoming rather impatient with the lack of progress on achieving agreement. On 15 July 1999 Mr Wilson wrote to Mr Akbarian noting they had been negotiating for some months and observing that it was difficult to see how there could be any remaining issues that would prevent the signing of the proposed agreement. Mr Wilson also noted that any further delay would mean that the impact of the GST, to take effect from July 2000, would add to the cost of housing with the possible adverse impact on the number and rate of pre-sales. Mr Wilson asked Mr Akbarian to "act quickly".

31 Air Commodore Michael’s affidavit evidence was that Mr Akbarian sent him a copy of this letter from Mr Wilson on that date. In the meantime Mr Wilson had been making direct approaches to RAAFA/Darwinia. Mr Wilson, with two other representatives of Sakkara, met with Air Commodore Michael on about 4 August 1999. Air Commodore Michael’s affidavit evidence was that he could not recall what was said at this meeting, however on 10 August 1999 he received a letter from Sakkara/Mr Wilson with a proposal for its involvement in the development on the basis of “one-third RAAFA, Sharjade and Sakkara/Glenwish”. This appears to be the first time that any suggestion was made to Darwinia that it could increase its share of the profit from the development from its 15% (maximum) that it had agreed with the plaintiff in the Heads of Agreement.

32 Although it is not detailed in the evidence, it is clear that on 12 August 1999, Air Commmodore Michael and Mr Akbarian had a conversation arising out of Mr Wilson’s approach to Air Commodore Michael. On 18 August 1999 Mr Akbarian wrote to Air Commodore Michael advocating the plaintiff’s commitment to the development and setting out some of the history and difficulties that had been experienced in obtaining development approval and referring to the specific features of the development that made if difficult to obtain finance. That letter urged Air Commodore Michael to proceed with the planned presentation to members as soon as possible because of the approaching peak season for marketing residential developments.

Freehold Proposal rejected – 3 August 1999

33 On 3 August 1999 Ms Banks advised Mr Healy that the Freehold proposal was "clearly outside the terms of the Option Agreement of 24 November 1995" and that the "Commonwealth was not in a position to proceed otherwise than in accordance with the terms of the Option Agreement".

34 On 13 August 1999 Ms Banks asked Mr Healy for confirmation that RAAFA was able to proceed on the terms set out in the Option Agreement of 24 November 1995. On 18 August 1999 Mr Healy responded to Ms Banks advising that RAAFA was able to proceed by way of Lease and Contract but asked whether it was possible for there to be an Option to purchase for the purpose of deferring the payment of stamp duty.

Commonwealth review

35 The officer in charge of the divestment section in the Commonwealth Department of Finance and Administration (DOFA) during the period January 1999 to 25 June 2001 was Mark Anthony Mannion. He reported to the branch manager of the property group of DOFA, Kathryn Campbell. He gave evidence that it was in about August 1999 that he reviewed the file relating to the Land. He was not able to identify the trigger that caused him to review the file, however I think it is probable that Mr Wilson’s approach to RAAFA was a cause of this review process.

36 In any event, Mr Mannion noted that the option had been exercised in December 1998 and the documentation for the Contract of Sale had not yet been finalised. In his statement of evidence made on 13 June 2008, he said that his view at the time was that RAAFA and Darwinia showed no signs of obtaining the finance with which to purchase the Land and to provide the bank guarantee which he understood was required by the Option Agreement to secure payment of the purchase price. He considered a number of options to move the matter along but decided that it would be best to apply pressure to Darwinia to comply with the existing agreement.

First draft of Contract for Sale

37 On 10 September 1999 Ms Banks forwarded three copies of the draft of the Contract for Sale to Mr Healy, requesting that he treat it as “very much a first draft” and subject to any amendments proposed by the Department. That Contract incorporated a 99-year lease to be entered into on exchange of the Contracts. Ms Banks asked for Mr Healy’s comments within two weeks and also requested a draft timetable for the period to exchange of the contracts.

38 That draft contract included the following Special Conditions:

CHAPTER 3 – PRICE AND SECURITY

1. PAYMENT OF PRICE

Price payable on Date for Completion

The balance of the Price is payable on the Date for Completion. In consideration of the extended completion date Purchaser must:

(a) pay to the Vendor interest under special condition 2 of this Chapter 3; and

(b) give to the Vendor on the Contract Date the Unconditional Undertaking referred to in special condition 3 of this Chapter 3.

Reductions in unpaid balance of Price

The Purchaser may at any time prior to the Date for Completion reduce the unpaid balance of the Price by making payments to the Vendor. Any payment must be $100,000 or a multiple of $100,000.

2. INTEREST ON BALANCE OF PRICE

Interest payable

The Purchaser must pay the Vendor interest on the unpaid balance of the Price from the Contract Date until payment in full to the Vendor.

How interest is calculated

Interest is calculated at the rate of 8.92% per annum on the unpaid balance of the Price as at:

(a) the Contract Date; and

(b) each following anniversary of the Contract Date.

Time when interest payable

any particular place

Failure to pay interest

If the Purchaser fails to make an interest payment within 14 days of the due date, then the Purchaser will be deemed to be in default of an essential provision of this contract and the Vendor can terminate this contract.

3. SECURITY FOR VENDOR

Provision of Unconditional Undertaking

It is an essential term of this contract that the Purchaser gives the Vendor an Unconditional Undertaking securing the Obligations.

Terms of Unconditional Undertaking

The Unconditional Undertaking must:

(a) be issued by a bank:

(i) licensed to carry on business as a bank in Australia;

(ii) previously approved by the Vendor;

(b) contain an unconditional undertaking to pay the Vendor, on demand, and any other terms previously required by the Vendor; and

Unconditional Undertaking not provided

If the Purchaser does not comply with special condition 3.2 the Vendor may in its absolute discretion terminate this contract and the Lease immediately by written notice.

Claim on Unconditional Undertaking

The Vendor may present the Unconditional Undertaking for payment:

(a) if the Purchaser does not pay the balance of the Price on the Date for Completion; or

(b) if the Purchaser does not remedy a default under this contract within 14 days of the Vendor giving notice to the Purchaser of such default.

Vendor’s expense

Any expense incurred by the Vendor if it presents the Unconditional Undertaking will be considered to be a debt payable to the Vendor by the Purchaser.

Right to claim not affected

The Purchaser acknowledges and agrees that:

(a) the Vendor can present, and the issuing bank will be entitled to make payment under, the Unconditional Undertaking without reference to the Purchaser and despite any objection, claim or direction by the Purchaser to the contrary; and

(b) the Vendor’s rights under this contract in respect of the Unconditional Undertaking are cumulative and do not exclude any rights or remedies provided by Law.

Release of Unconditional Undertaking

The Vendor must return the Unconditional Undertaking to the Purchaser upon Completion and after the payment of the whole of the Price by the Purchaser to the Vendor.

Payment of Price

Any reference in this contract to the payment of the balance of the Price will be deemed to be a reference to the payment of the whole of the Price.

4. SECURITY FOR PURCHASER

Grant of Lease

It is an essential term of this contract that on the Contract Date the Vendor grants a lease of the Land in the form of the Lease and the Lessee accepts the lease on the terms contained in the Lease.

Preparation of the Lease

Prior to the Contract Date:

(a) the Vendor’s solicitor must:

(i) prepare the Lease in the form of the Lease; and

(ii) submit the Lease to the Purchaser for signing and stamping;

(b) the Purchaser must:

(i) sign the Lease and have it stamped by the Office of State Revenue; and

(ii) deliver the stamped Lease to the Vendor for signing; and

Completion of the Lease

On the Contract Date:

(a) the Vendor must produce the signed Lease; and

(b) the Vendor’s solicitor and/or the Purchaser’s solicitor are authorised to complete the Lease by inserting:

(i) the Commencing Date in Item (G)2, being the Contract Date;

(ii) the Terminating Date in Item (G)3, being 99 years after the Contract Date;

(iii) the date of the Lease, being the Contract Date.

The Vendor’s solicitor is authorised to make such additions or alterations to the Lease as may be necessary to comply with any requisition of the Land Titles Office.

(i) lodge the Lease and any mortgage of the Lease in the Land Titles Office for registration;

(ii) notify the Purchaser and any mortgagee of the Lease of any requisitions made by the Land Titles Office in relation to the Lease or the mortgage of the Lease;

(iii) deliver the Purchaser’s copy of the Lease to the Purchaser (or if the Lease has been mortgaged, to deliver the Lease and the mortgage of the Lease to the mortgagee of the Lease) following its return to the Vendor’s solicitor after registration.

Registration of the Lease

Promptly after the Contract Date the Vendor’s solicitor must lodge the Lease for registration in the Land Titles Office together with any mortgage of the Lease that the Purchaser may have granted subject to the Purchaser paying all registration fees.

Purchaser’s acceptance of Lease

Inspection by Purchaser

The Purchaser acknowledges that it has read and is aware of the terms of the Lease before it entered into this contract and satisfied itself in respect of all matters in the Lease and related to the Lease.

(b) Purchaser cannot Object

The Purchaser cannot Object because of any matter disclosed in the Lease.

Default under Lease

If the Purchaser is in default under the Lease in an essential respect, then the Purchaser will be deemed to be in default of an essential provision of this contract and the Vendor can terminate this contract.

39 The “Unconditional Undertaking” was defined in the definition section of the draft contract as “an unconditional bank guarantee given under special condition 3.2”.

Marketing Presentation Delayed

40 There were a number of factors that appear to have delayed the marketing presentation. A wife of one of the RAAFA members was asked for her comments in relation to the finishings of the various units. That took a little time and was not provided until early September 1999. Another factor that delayed the presentation was the apparent illness of Air Commodore Michael. Mr Akbarian had been advised that Air Commodore Michael was recuperating at home and that Darwinia/RAAFA could not proceed in his absence.

41 However on 15 September 1999 Mr Healy sent the draft contract for the Sale of Land forwarded to him by Ms Banks to Air Commodore Michael and sought his instructions.

42 Mr Healy and Ms Banks had a telephone discussion prior to 3 October 1999 in which Ms Banks advised Mr Healy that the Commonwealth was “looking for an exchange of contracts by 31 December 1999”. Ms Banks asked for the draft timetable for progression to exchange of contracts on that basis.

43 Mr Healy and Mr Akbarian gave evidence that they met on 3 October 1999 with Air Commodore Michael at which there was discussion in relation to a range of issues relating to the development. By this time Mr Healy was a partner of Gadens Lawyers. The agenda for the meeting included reference to finance with questions such as: the identity of the financier; what the financier required as to pre-sales; the bank guarantee; and interest on the purchase price. There was also an item entitled Joint Venture Agreement with the question, “are the terms of this agreed”. The agenda also noted that it was necessary to provide a timetable to the Commonwealth. It is apparent that the date of this meeting was a little later than 3 October 1999 because of a conversation between Ms Banks and Mr Healy referred to below. It is also apparent that Mr Healy drafted a letter to Air Commodore Michael on 6 October 1999 advising that he had been trying to contact him for some time but understood that he was unwell. It is probable that the meeting took place after 3 October 1999, (probably on 19 October 1999) but obviously before 21 October 1999 when Mr Healy wrote to Ms Banks, as referred to below, enclosing the proposed draft timetable.

Telephone Discussion – 6 October 1999

44 On 6 October 1999 Mr Healy and Ms Banks had a telephone discussion. Although the detail of that conversation was not the subject of separate evidence, Ms Banks wrote to Mr Healy on 14 October 1999 in the following terms:

I refer to our telephone conversation on 6 October 1999.

I note that the earliest that you are able to meet with Geoff Michael is on 19 October 1999. Following your meeting, please let us have a draft timetable showing progress to an exchange of contracts by 31 December 1999.

I refer to our discussion about the structure of the transaction.

The 1995 option agreement provides that concurrent with the exchange of the contract for sale the Commonwealth and Darwinia are to enter into the 99 year lease to secure the unpaid purchase price of $5.8 million.

On payment of the $5.8 million Darwinia is entitled to the freehold of the property on the giving of which the lease will merge.

A New Timetable – 21 October 1999

45 On 21 October 1999 Mr Healy wrote to Ms Banks enclosing a timetable and advising that whilst he appreciated that the date for exchange of contracts did not achieve the Commonwealth’s desired result of an exchange by 31 December 1999, but rather was 30 April 2000, such date was necessary to enable time to complete the steps that had to be completed before exchange of contracts was possible. Mr Healy requested the Commonwealth’s indulgence for a further extension to 30 April 2000 for exchange of contracts.

46 By this time the marketing presentation meeting was planned for 16 November 1999 and Mr Healy advised Ms Banks that at such time interested purchasers would put down a holding deposit and reserve a unit. He requested whether the Commonwealth would be willing for completion of a contract to occur on practical completion of stage 1, approximately 100 units, and registration of the strata plan.

47 The timetable, a copy of which was sent to Air Commodore Michael and to Mr Akbarian, was in the following terms:

TIMETABLE

1. 22 October 1999 – Moss Akbarian to provide Steve Healy with an architect’s brochure and to prepare a price list for stage 1.

2. 22 October 1999 – Geoff Michael to call a meeting of interested RAAFA members for 7 pm, Tuesday, 16 November 1999. The letters advising of the time, date and venue of the meeting will also advise interested purchasers that there will be a right on the night to reserve a selected unit at the price on the price list.

(a) an information memorandum advising parties on what is being sold and about the development generally;

(b) a non-binding document to be signed by interested parties reserving a particular unit and paying a refundable holding deposit.

Assuming there is sufficient interest, Moss Akbarian of Sharjade will then finalise plans and specifications for lodgment of a building application and various other matters.

5. 31 January 2000 – Building application to be lodged with Ku-Ring-gai Council, finance approvals to be finalised and tenders called for building price.

6. 31 January 2000 – Preparation of formal binding contracts for sale of units to be completed for forwarding to parties who have reserved units.

7. 29 February 2000 – Interested members who earlier reserved units to exchange. If formal contracts have not been entered into by that date RAAFA may offer the units to other interested parties on the waiting list.

8. 31 March 2000 – BA consent to be obtained from Ku-Ring-gai Council.

9. 30 April 2000 – Building contract to be entered into by Sharjade and finance approval to be unconditional.

48 On 26 October 1999 the plaintiff made application to the Council for an extension of the development consent for a further 12 months.

49 On 2 November 1999 Mr Healy forwarded to Mr Akbarian and Air Commodore Michael a question and answer sheet for their approval and inclusion in the package of materials for the marketing presentation.

“Getting out” of the Option Agreement

50 On 4 November 1999 an officer of DOFA, Damien Hall, sent an email to Mr Mannion with a copy to Ms Banks in the following terms:

§ The RAAFA are meeting on 16 November 1999 with the ex-servicemen/women to explain the proposed development and ask those who are interested to put a holding deposit on their place in the retirement village.

§ If the response is favourable the developer will spend the $300,000 required to obtain the BA.

§ The RAAFA’s lawyers have advised that the earliest that exchange can occur is the end of April 2000, thereby putting in real jeopardy completion before 30 June 2000. Even if we exchange before the end of April the RAAFA may not settle immediately – the option agreement allows for them to pay the balance of the purchase price over 6 years.

§ In the meantime Ann is seeking advice from Geoff Goldberg (Contract lawyer) as to DOFA’s possible alternatives in relation to the option agreement and whether we can get out of it.

§ Until we meet the RAAFA (following their meeting with members) we will not know RAAFA’s formal position.

51 On 8 November 1999 Mr Mannion responded to Mr Hall’s email in the following terms:

52 On 9 November 1999 Ms Banks reported by email that she had met with Mr Goldberger the previous day to review the transaction. She advised that there were a couple of alternatives for a strategy that could be implemented to extricate DOFA from the transaction by 31 December 1999. Ms Banks advised however that given the past history of the matter RAAFA would use its contacts to try and “save” the transaction. That email continued:

Presentation Meeting cancelled

53 The marketing presentation meeting planned for 16 November 1999 was cancelled, apparently by reason of Air Commodore Michael’s inability to attend, and was rescheduled for 17 December 1999.

Project Control Group – 18 November 1999

54 On 18 November 1999 a Project Control Group meeting was held at RAAFA’s offices in Sydney. Apart from Mr Akbarian there were a number of members of RAAFA present including Air Commodore Michael and Wing Commander R Craigie. There were also representatives from the Department of Veterans Affairs and the architects present at the meeting. The Minutes of that Meeting included the following:

3. REPORT ON FINANCIAL NEGOTIATIONS

Mr Akbarian reported that the offer from ING Bank which was approved has lapsed, and suggested getting pre-sales confirmed before re-opening the finance. An expression of interest would be most beneficial to get the loan underway.

Mrs Falicity Barr recommended using alternative sources of Finance eg. Macquarie Bank to get the project moving along. Mrs Barr reported that Neil Wilson of Sakkara Pty Ltd, John Walker of Macquarie Bank and another gentleman had a meeting with her. They had claimed that this meeting was arranged with Mr G Michael who would also be there. Mr G Michael denies this. She will recommend any contacts if appropriate.

Mr G Stonehouse suggested a list of monies outstanding used on the project to date. MA to provide list of outstanding fees.

Mr G Michael mentioned wanting to have a detailed discussion with M Akbarian regarding finance. This will be arranged in the near future.

LEASE OPTION

Mr G Michael mentioned that the project has reached a stage to write to the Commonwealth Solicitors to release the land and set a timetable for the commencement of the work.

UNIT DESIGN PLANS

Mr P Grause had prepared individual unit plans with summarised room dimensions. Mr G Michael has instructed Mr P. Grause to organise 150 design plan copies for the glossy brochures. This should also include bus services to Lady Davidson Hospital, club facilities, garbage disposal, registered club facilities level access etc...

GENERAL BUSINESS

Mr G Michael to confirm stamp duty and legal expenses with Gadens Lawyers, and how this will affect the selling price of the units.

Mr P Grause stressed the urgency of renewing the DA with Council which will be lapsing beginning of next year.

55 As a result of the information provided to Mr Akbarian at this Project Control Group Meeting in relation to Mr Wilson’s direct approach to the Commonwealth Departments there was subsequent heated discussion between Mr Wilson and Mr Akbarian in which Mr Akbarian alleged that Sakkara was seeking to undermine the plaintiff. On 25 November 1999 Mr Wilson wrote to Mr Akbarian denying these allegations and suggesting that he would be happy to meet with Mr Akbarian to constructively discuss the development.

Legal Advice – 16 December 1999

56 Mr Mannion requested advice from Mr Goldberger in relation to the “current status of the legal relationship between the Commonwealth and Darwinia and, whether, in light of all relevant facts and circumstances that relationship is contractual”. Further advice was sought from Mr Goldberger that “if a contract does exist in relation to the subject property, what are its terms and in what circumstances would the Commonwealth be entitled to terminate such contract”. Mr Goldberger provided that advice by letter dated 16 December 1999 addressed to Mr Mannion which included the following:

57 Mr Goldberger also advised that he was of the view that when the option was exercised on 23 December 1998 an immediate contract came into existence for the sale of the Land. He advised that Darwinia then became the subject of obligations: (a) to act in good faith and cooperatively to settle the terms of the formal contract and proceed to an exchange without delay; (b) to immediately provide the Commonwealth with an irrevocable unconditional bank guarantee for the purchase price; and (c) to immediately commence payment of interest to the Commonwealth on the outstanding amount of the purchase price.

58 One of the matters of concern raised by Mr Goldberger was that the Option Agreement did not have any specific time requirement for the exchange of the Contract for the Sale of the Land. Mr Goldberger was not provided with a copy of the draft contract that had been forwarded to Mr Healy by Ms Banks on 10 September 1999.

Marketing Presentation – 17 December 1999

59 The presentation meeting finally occurred on 17 December 1999 at Gadens’ offices. It appears that about fifty people attended the meeting at which Air Commodore Michael gave an introduction followed by a presentation from the architects. It would appear that the presentation was greeted with a “standing ovation”. Air Commodore Michael sent a list of interested members to Mr Akbarian with their phone details. That list included approximately 32 names. On 12 January 2000 Mr Akbarian sent to Mr Healy seven names of people who had made “bookings” for the units in the development.

Meeting with GDK – 21 December 1999

60 Neither Air Commodore Michael nor Mr Healy gave evidence in their statements or affidavits in relation to a meeting with GDK on 21 December 1999. However a memorandum from Wing Commander Craigie to Air Commodore Michael dated 23 January 2000 (referred to later) made reference to it in the following terms:

It is known that at the meeting at GDK HQ on 21/12/2000 when McLeod was using the white board, talking about a total scheme of $100M, and suggesting that the stage 1 profit could be in the vicinity of $16M, he suggested that RAAFA and GDK would each get $8M and there was no variation from this position.

61 The reference to “McLeod” is a reference to an officer of GDK. It is clear that the date “21/12/2000” was an error and should have been “21/12/1999”. Air Commodore Michael claimed in his statement that the meetings with GDK were between 13 January 2000 and 24 January 2000 and that Mr Akbarian knew about these meetings (par 246). However it is clear that Mr Akbarian did not know about GDK’s involvement until he was asked by a representative of GDK introduced to him by Mr Healy and Air Commodore Michael at a meeting on 28 January 2000 (referred to later), to accept $300,000 to exit from the development.

GDK’s Proposal – 14 January 2000

62 On 14 January 2000 Hayden Lewis from GDK wrote to Air Commodore Michael in relation to the development. That letter included the following:

Over the course of the last two months we have, as you are aware, been in close consultation to understand properly the aims and aspirations of the RAAF Association in the development of this project and the proposed provision of services to its members.

…

GDK Financial Solutions proposes to undertake to raise equity from investors to commence construction and completion of the Village. We suggest timing is of the essence given the need to submit both the BA and the need to immediately request the extension of the development approval beyond the deadline of March 30.

It is proposed that GDK Financial Solutions Pty Ltd and RAAFA will enter into a Joint Venture with regards to the ongoing development and management of the village on a 60/40 basis.

We propose that we raise $11M-$20M dollars, approx 20% of completed value of the village excluding costs of the transaction. The village will be built on behalf of the Investors and managed for 50 years with an additional option to extend the management by the Joint Venture between the RAAFA and GDK Financial Solutions Pty Limited.

…

63 Mr Akbarian cross-examined Air Commodore Michael about a note that he had made on the side of the letter, “Moss A”. Air Commodore Michael said that he made that note because he wanted to know whether Mr Akbarian knew about the GDK proposal because he, Air Commodore Michael, was not aware of it until he read the letter of 14 January 2000 (tr 525). Mr Akbarian also cross-examined Mr Healy about this letter. He asked him whether he was aware that GDK had, as it claimed in its letter, been involved in discussions with RAAFA/Darwinia for the previous two months. Mr Healy gave evidence that he did not know that GDK had been involved for that period of time and he also claimed he was unaware of the letter of 14 January 2000 (tr 381-383).

A Better Profit Share – Meeting 17 January 2000

64 A number of members of the RAAFA/Darwinia including Air Commodore Michael and Mr Craigie met with Mr Healy on 17 January 2000 and discussed the possible profit share that RAAFA may be able to achieve with GDK accepting the financing risk. Needless to say Mr Akbarian was not present at this meeting. A further meeting with GDK was planned for 24 January 2000.

Meeting – 19 January 2000

65 On 19 January 2000 Mr Akbarian attended a meeting with Mr Healy and Air Commodore Michael at the offices of Gadens. During that meeting Mr Healy advised Mr Akbarian that he would try to arrange a meeting with some of his clients who may be interested in investing in the development. It was during this meeting that Mr Healy advised Mr Akbarian that he had looked at the documentation and could only find finance approval from ING for $22.5 million. Mr Akbarian advised Mr Healy of the additional facility from MML for $7.5 million.

Draft Notice – 21 January 2000

66 On 21 January 2000 Mr Goldberger wrote to Mr Hall enclosing a draft “Notice to Perform Contractual Obligations”. That Notice alleged that the exercise of the option brought an immediately binding contract of sale into existence between the Commonwealth, as vendor, and Darwinia, as purchaser, and that the “Sale Contract” contained an express fundamental term that Darwinia would provide the unconditional bank guarantee and pay the interest. The draft Notice also included a requirement that Darwinia provide the unconditional bank guarantee and the amount of interest within 28 days of service of the notice. Mr Goldberger advised that the notice should be sent to both Darwinia and to its solicitors.

Wing Commander Craigie’s Memo – 23 January 2000

67 On 23 January 2000 Mr Craigie wrote to Air Commodore Michael in terms that included the following:

You will notice that there is some suggestion of movement from the position proposed by GDK about the profit on the development. One view is that the 55 GDK/45 RAAFA split is probably the best you could negotiate with them, having regard to the various circumstances. SH [Mr Healy] has said you could possibly achieve 50/50 from someone else in the same situation as GDK as you have a real potential source of customers. It is not known if SH has someone else clearly in mind and more importantly can they match GDK in every way but on 50/50. It may well be that if RAAFA were to dig its heels in and insist on 50% if GDK would let the deal go away. On the other hand they do have an air of deep interest in the project with the 60/40 being posed as a negotiating point.

68 Mr Craigie then referred to a document enclosed with his memo in which there was a suggestion that GDK give RAAFA an indemnity in respect to the ‘existing’ developer consortium. The memo continued:

69 The attached document was a draft Joint Venture – Heads of Agreement between GDK and RAAFA/Darwinia providing for a 50/50 profit sharing agreement with an appropriate nominee of GDK. It also included the following:

Meeting – 28 January 2000

70 A further meeting took place on 28 January 2000 between Mr Akbarian, Mr Healy and Air Commodore Michael. At this meeting Air Commodore Michael asked Mr Akbarian what he had done about the building application. Mr Akbarian advised him that he had instructed the architects to prepare the documentation for the BA three weeks prior to that meeting. Mr Healy then asked Mr Akbarian to provide “proof of that”. He also asked him once again about the finance approval from ING suggesting that it was only for $22.5 million. Air Commodore Michael said he could not remember how much it was for and Mr Akbarian then arranged for the documentation to be sent over from his office to Mr Healy’s office to prove that what he was saying was true. When Mr Akbarian re-joined the meeting after making those arrangements the following conversation took place:

Air Commodore: We have arranged a meeting with this fellow today. Rod Craigie and Steven Healy know him. Apparently his company has a lot of money and is prepared to start building the project without pre-sales. I want you to listen to what he has to say carefully.

Akbarian: Geoff, other major companies have also approached me but I am happy to listen to this guy. My only concern is that a lot of people will approach you with all kind of offers as they think that they can get their hands on a lot of easy money now that all the hard work is done.

Air Commodore: Moss, believe me we have no intention of going behind your back or abandoning your company for others. I have only spoken to this guy because I thought you asked me to help find alternative finance for you.

71 Shortly after this discussion a representative of GDK Financial Solutions (GDK) came into the meeting. Mr Akbarian could not recall this gentleman’s name at the time that he gave his evidence, however he recounted the following conversation (which is not in issue):

Akbarian: I understand your company is involved in retirement villages.

GDK Rep: Yes, we are.

Akbarian: And you are going to invest in building this project without pre-sales?

GDK Rep: We will discuss these matters with RAAFA.

Akbarian: But if you are interested in going into partnership with us, you have to discuss these matters with me.

GDK Rep: We are not interested in partnership with you. I have studied the project documents and my company is prepared to offer you $300,000 to get out.

Akbarian: You can’t be serious. The land alone is worth $9 million more now.

GDK Rep: That is our offer. You can take it or leave it.

72 The GDK representative left shortly after that conversation. After Air Commodore Michael left the meeting Mr Akbarian informed Mr Healy that he was very offended by the meeting and that it appeared to him that a deal had been done in his absence. Mr Akbarian then asked Mr Healy whether he had received the fax from his office. Mr Healy said that he had received it and that Mr Akbarian was right and the finance from ING (including the facility from MML) was for $30 million.

Pressure from within – 31 January 2000

73 On 31 January 2000 Wing Commander Craigie wrote to Air Commodore Michael in relation to the meeting with Mr Akbarian and GDK on 28 January 2000 in terms that included the following:

124 There seems to me to have been a misapprehension of what was happening in relation to the raising of finance. The plaintiff had secured a facility for $30 million from ING (and MML). Both the plaintiff and Darwinia decided that pre-sales would be obtained for the purposes of obtaining or pursuing further finance because the ING loan facility had lapsed. RAAFA and Darwinia agreed to “actively promote and assist” the plaintiff in effecting the sales in the proposed developments by the end of the twelve month option period. I am not satisfied that Darwinia and RAAFA complied with that obligation. Once Mr Wilson, through his company Sakkara, started making approaches to Air Commodore Michael and once Wing Commander Craigie started discussing matters with GDK, very little was done to actively promote and assist the plaintiff in effecting the sale of the units.

125 It was not suggested to Air Commodore Michael that he had been dealing with GDK prior to 14 January 2000. It appears that Wing Commander Craigie was the person who was dealing with GDK in the two months prior to 14 January 2000 and that he brought GDK into the meetings with Air Commodore Michael and Mr Healy in January 2000. GDK had been dealing with RAAFA since early November 1999 without the knowledge of the plaintiff or Mr Akbarian. If it were the case that RAAFA/Darwinia were truly motivated to “assist” Mr Akbarian with obtaining finance, then there was absolutely no need to keep from him the fact that meetings were obviously taking place from November 1999 to 28 January 2000. GDK’s representative’s offer of $300,000 to Mr Akbarian to get the plaintiff out of the development was hardly assisting the plaintiff to obtain finance for the development.

126 In his statement of evidence Mr Healy denied that he knew the GDK representative prior to the meeting on 28 January 2000 at which the $300,000 offer was made by GDK to the plaintiff. Mr Healy’s statement also included the following (par 28):

127 Mr Craigie’s approach was hardly to “assist” Mr Akbarian. Mr Healy knew that GDK was a prospective joint venturer with RAAFA/Darwinia. He knew that Mr Craigie was promoting GDK as a prospective joint venturer. The memorandum from Mr Craigie indicated that Mr Healy had suggested that RAAFA/Darwinia might be able to do better than the 60/40 profit share that GDK had proposed.

128 It is true that the plaintiff agreed to the timetable that planned an exchange of contracts with the Commonwealth at the end of April 2000. However I am satisfied that the tactics adopted by Darwinia caused delay and distraction such as to cause the timetable to be quite unworkable. The added difficulty of the Commonwealth’s flawed approach of demanding a bank guarantee and interest without providing any security, that is, the Lease for the Land and exchange of Contracts, meant that any demand by Darwinia on the plaintiff to provide a guarantee and interest without any security was quite unjustified.

129 I am not satisfied that the plaintiff was in breach of a fundamental term and I am satisfied that Darwinia was not entitled to make the demand that it did on the plaintiff to produce a bank guarantee for $5.8 million within 14 days of 4 February 2000 or within eight days of 15 March 2000 or to terminate the Heads of Agreement for non-compliance with these demands.

Repudiation by the Plaintiff

130 It is true that a contract may be repudiated by a party demonstrating inability, as opposed to unwillingness, to perform: Foran v Wight (1989) 168 CLR 385; Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245 at 263-4; Shevill v Builders Licensing Board (1982) 149 CLR 620 at 626.

131 Darwinia relied on exactly the same submissions in relation to the failure by the plaintiff to provide the bank guarantee and the payment of interest to submit that the plaintiff was unable to obtain the necessary finance for the development, amounting to a repudiation which Darwinia was entitled to accept. It was submitted that consequent upon that acceptance Darwinia was entitled to terminate the Heads of Agreement for such repudiation.

132 The plaintiff had proposed to the Project Control Group Meeting on 18 November 1999 that it would be better to approach a lending facility with a number of pre-sales. The marketing presentation had been delayed by Darwinia. The August marketing presentation meeting could have gone ahead and did not. The November meeting could have gone ahead and did not. The final proposal, put forward by Darwinia, for the marketing meeting to take place on 17 December 1999, a week before Christmas involving prospective retirees, seems to me to have been commercially naïve. Notwithstanding Mr Akbarian’s concerns and requests in July 1999 that the marketing meeting be held at the peak time for such meetings, Darwinia chose to put this meeting at probably the worst time of the year. That adversely affected the plaintiff’s capacity to obtain the pre-sales for the development. I am also satisfied that the distractions of January 2000 and February 2000, including springing an offer on the plaintiff to get out of the development without prior notice, had the inevitable consequence of delaying the pre-sales and the process of obtaining finance.

133 There were then the quite unreasonable demands in Mr Healy’s letter of 4 February 2000. I have absolutely no doubt that the reasons Mr Healy wrote the letter of 4 February 2000 included that: (a) Mr Akbarian did not accept GDK’s offer of $300,000 to get out of the project; and (b) Mr Craigie was pressuring Mr Healy to write the letter. Indeed Mr Healy said in his oral evidence that he felt pressured by Mr Craigie (tr 434). The other factor driving this conduct, at least from the point of view of RAAFA/Darwinia, was that it had the opportunity to get a better profit arrangement than the 85/15 split to which it was bound with the plaintiff. If it went forward with GDK it could achieve a 60/40 split with a prospect (apparently realistic) of a 50/50 split.

134 I am satisfied that this change in attitude towards the plaintiff and Mr Akbarian was probably caused by the search for a better profit arrangement. At no stage prior to January 2000, when the negotiations with GDK became more intense, had there been any suggestion that Mr Akbarian was other than open and honest with RAAFA/Darwinia. There is no doubt that during the meetings in late January 2000 it was suggested that Mr Akbarian was not telling the truth in relation to the obtaining of finance and in relation to the application for extension of the development consent. To suggest to him that he had to prove to RAAFA/Darwinia that such had been done came from the hostile attitude engendered by Mr Craigie’s memoranda to Air Commodore Michael, copies of which were sent to Mr Healy. Mr Akbarian told the truth about the finance and also about the application for development consent. It was not the plaintiff or Mr Akbarian who caused the delay in the marketing presentation meeting. The plaintiff had done everything necessary to have the materials ready for the presentation in August 1999. There was no reason to delay it further. However it was decided that a wife of one of the RAAFA members would look at the finishings. That was done by early September and the meeting could have taken place immediately thereafter. The architects had prepared the package and Mr Akbarian had prepared an appropriate covering letter for Air Commodore Michael. Still the meeting did not take place. Late suggestions by RAAFA/Darwinia for models and other things caused the delay until December, on the eve of the Christmas holiday season. This was disastrous timing for marketing of residential property and within three days of that presentation RAAFA/Darwinia was conducting further meetings with GDK.

135 The steps taken by RAAFA/Darwinia from January 2000 through to 13 March 2000 deflected the plaintiff away from the actions it could have taken to have the development move forward. In the meantime Mr Akbarian was pressing on with surveys and the like and asking Darwinia for proper instructions in relation to preparing the site for the development.

136 The plaintiff secured finance for $30 million in March 1999. Notwithstanding that this offer of finance had expired by the time of the purported termination, it was not correct to claim that the plaintiff had been unable to secure finance for the development. As late as 18 November 1999 the Project Control Group Committee, on which the plaintiff and both defendants were represented, endorsed delaying application for finance until pre-sales were secured. Darwinia’s conduct in January and February 2000 was antithetical to its contractual obligations to assist the plaintiff to effect the pre-sales.

137 I am not satisfied that Darwinia has demonstrated that the plaintiff was unable to perform its obligations under the Heads of Agreement. I am not satisfied that the plaintiff’s conduct amounted to a repudiation of the Heads of Agreement and I am satisfied that Darwinia was not entitled to terminate the Heads of Agreement on such a basis.

Failure of Contingent Condition/Implied Contractual Right

138 Darwinia submitted that the Heads of Agreement were subject to a contingent condition, namely, the continued existence of a binding Contract for the Sale of the Land. It was submitted that such condition is necessarily implied in order to give the Heads of Agreement business efficacy. It was submitted that it was obvious that the development could not be carried out without the Land and that the development was tied to the particular Land. Darwinia also submitted that an alternate way of putting this aspect of its case was that the Heads of Agreement conferred a right upon both Darwinia and the plaintiff to terminate the Heads of Agreement in the event that a Contract for the Sale of the Land “fell over”. It was submitted that the parties must be taken to have intended that if, for whatever reason, the contemplated purchase of the Land “fell over” the Heads of Agreement would end or could be brought to an end. Accordingly it was submitted that the Heads of Agreement impliedly provided that upon non-fulfilment of that condition, the agreement was at an end or, Darwinia and/or the plaintiff had the right to terminate the Heads of Agreement.

139 I am not satisfied that the circumstances of this case justify the termination of the Heads of Agreement, simply because the Option Agreement was purportedly terminated. The Heads of Agreement anticipated that there would be a Contract for the Sale of Land between the Commonwealth and Darwinia, so that Darwinia could purchase the Land and Darwinia and the plaintiff could develop it. The Commonwealth always intended that Darwinia would have a contract to purchase the Land on the same favourable terms as that which the Option Agreement anticipated, but for the Commonwealth having the capacity to fix the timeframe within which the Land would be purchased so that it had more control over the finalisation of settlement than it did under the Option Agreement. When the Option Agreement was terminated, the side letter made it abundantly clear that the Land was still available for Darwinia to purchase at the same price with interest capitalised. Not only did Darwinia achieve that agreement from the Commonwealth but it also achieved an agreement with the Commonwealth, set out in the side letter, that if the sale did not proceed the Commonwealth would not require any interest payment.

140 Performance of the Heads of Agreement was still possible because the Commonwealth was willing to sell the land to Darwinia, albeit under a different contract. The Land was still available and Darwinia had not decided to abandon the development. There was no failure of a contingent condition and Darwinia was not entitled to terminate the Heads of Agreement on this basis.

Frustration

141 Darwinia also submitted that the termination of the Option Agreement frustrated the Heads of Agreement.

142 I am not satisfied that the inevitable consequence of the termination of the Option Agreement was the frustration of the Heads of Agreement. As I have said above the obligations under Heads of Agreement were able to be performed because the Commonwealth was willing to provide Darwinia with the Land pursuant to the other agreement referred to in the side letter.

143 I am satisfied that Darwinia was not entitled to terminate the Heads of Agreement. The plaintiff has succeeded in establishing that Darwinia wrongfully terminated the Heads of Agreement.

Inducing Breach of Contract

144 The plaintiff claims that the Commonwealth either directly or indirectly interfered with the plaintiff’s contract with Darwinia. The plaintiff claimed that the Commonwealth knowingly or recklessly procured or induced the wrongful termination of the Heads of Agreement by Darwinia. In the particulars provided prior to trial, the plaintiff claimed that by its conduct in resolving with Darwinia to terminate the Option Agreement for the purpose of Darwinia terminating its contractual obligations with the plaintiff, the Commonwealth interfered directly with the contractual relationship between the plaintiff and Darwinia. There are a number of problems with this claim. There is no basis in the evidence that the Commonwealth “with Darwinia” resolved to terminate the Option Agreement for the purpose of Darwinia terminating its contractual obligations with the plaintiff. The Commonwealth took its own course because of its concerns that the process of the sale of the Land had become so protracted. There is nothing in the evidence that establishes that there was any combination or agreement between the Commonwealth and Darwinia to facilitate Darwinia terminating its Heads of Agreement with the plaintiff.

145 The side letter seems to have inspired suspicion in the plaintiff that such combination existed. At no stage during the evidence was it established that the side letter was anything other than the Commonwealth positioning itself so that it could have a better arrangement whereby it could control the date upon which settlement of the sale of the Land would occur. There were political sensitivities at work in respect of the provision of retirement accommodation to ex-service personnel. The evidence discloses that DOFA officers were concerned that if the Commonwealth terminated the Option Agreement there may be some political backlash against it. One of the reasons that the side letter was provided was so that Darwinia understood that the Commonwealth was keen to provide the Land at the then discounted price ($5.8 million compared to the valuation of $14 million) to Darwinia so that it would not complain. This was not a sinister plot to get rid of the plaintiff. It was a way in which the Commonwealth could extract itself from a contract that did not provide the stringent timelines that it wished to have in a contract. It was not an act that had the inevitable consequence of terminating the Heads of Agreement. Accordingly the plaintiff’s claim of direct interference with the contractual relationship fails.

146 The plaintiff made the alternative claim that the interference was indirect. Although the claim outlined by Mr Akbarian was a little unclear, I am assuming that the plaintiff claims that Darwinia terminated its contract by reason of an unlawful act by the Commonwealth, being the termination of the Option Agreement. To succeed in this claim the plaintiff would have to establish that: (a) the Commonwealth did something which procured the breach by Darwinia; (b) the Commonwealth had sufficient knowledge of the Heads of Agreement; and (c) the Commonwealth had the intention to bring about a breach or to interfere with the performance of the Heads of Agreement. The plaintiff needs to establish all of these matters: Independent Oil Industries Ltd v Shell Co of Australia Ltd (1937) 37 SR (NSW) 394 at 414 per Jordan CJ. In Short v The City Bank of Sydney (1912) 12 SR (NSW) 186 (approved in Short v The City Bank of Sydney (1912) 15 CLR 148 at 155, 156, 161) Street J said at 203:

147 There was no suggestion in Mr Rayment QC’s advice that there would be any impact upon the developer. There was no suggestion in Ms Banks’ letter of 24 May 2000 that there would be any impact on the developer. The Commonwealth’s focus was on achieving a situation in which Darwinia would still purchase the Land, and it was a matter for Darwinia as to with whom it contracted for the development. The Commonwealth was seeking to have more stringent timeframes within which to complete the sale of the Land.

148 The termination of the Heads of Agreement was not the inevitable or necessary consequence of the termination of the Option Agreement by the Commonwealth for the reasons I have outlined earlier. The fact that the Commonwealth offered the side letter to Darwinia is indicative of a desire to ensure that the sale of the Land proceeded. Even though I am satisfied that the Commonwealth was not entitled to demand the bank guarantee and the interest from Darwinia at that time and in the circumstances that it did and was therefore not entitled to terminate the Option Agreement on the basis of Darwinia’s non-compliance with those demands, the plaintiff has not established that the Commonwealth had any intention to bring about or interfere with the Heads of Agreement. There is a further problem for the plaintiff. It is true that Ms Banks was aware of the identity of Mr Akbarian and the plaintiff and that there was some sort of arrangement between Darwinia and the plaintiff to develop the Land. However the plaintiff has not established that the Commonwealth knew of the terms of the Heads of Agreement. In all those circumstances the plaintiff’s claim against the Commonwealth of indirect interference must fail.

Conspiracy

149 The plaintiff’s claim against Darwinia in conspiracy must fail because the plaintiff has failed to prove any agreement or understanding between Darwinia and the Commonwealth that the Commonwealth would terminate the Option Agreement to enable Darwinia to terminate the Heads of Agreement. The closest the plaintiff came to establishing any discussion between the Commonwealth and Darwinia in relation to the plaintiff was Mr Mannion’s evidence that during his meetings with Darwinia prior to March 2000, he was led to believe that Darwinia was considering terminating the plaintiff’s contract. The letter from Air Commodore Michael to the Minister for Finance and Administration on 12 April 2000 seeking an extension of time to enable the Contract for the Sale of the Land to be completed, seems to me to weigh heavily against any conclusion that the Commonwealth and Darwinia were in agreement that the Option Agreement should be terminated so that it could rid itself of the plaintiff.

150 I am not satisfied that the plaintiff has discharged the onus of establishing any agreement or arrangement between the Commonwealth and Darwinia amounting to a conspiracy. Accordingly the plaintiff’s claim against Darwinia in conspiracy will fail.

151 The plaintiff made a claim against the Commonwealth in conspiracy. The Commonwealth did not conspire with Darwinia to get rid of the plaintiff. Mr Mannion made an error of judgment in taking his notes that he had made in a journal with him when he left the Commonwealth Department and went to work for the ACT Government. That journal no longer exists. Had that journal been available I have little doubt that it would have been most helpful to determine what happened at those meetings. In those circumstances Mr Mannion was trying to recall some eight years later what had occurred at two meetings, possibly three, with Darwinia prior to the time that the Commonwealth served its Notice to Darwinia. Mr Mannion claimed, and I believe him, that it did not matter to him (or the Commonwealth) whether Darwinia maintained its development contract or arrangement with the plaintiff or with any other developer. He claimed, and I believe him, that the Commonwealth was interested in bringing the sale of the Land to a conclusion irrespective of the identity of the developer. It is true that Mr Mannion was informed by Darwinia that it was having some difficulty with the developer obtaining finance and that he got the “impression” that Darwinia was considering terminating its relationship with the plaintiff. However the Commonwealth did not agree with Darwinia that it would terminate the Option Agreement so that Darwinia could terminate its agreement with the plaintiff. The plaintiff failed to establish that any of the Commonwealth officers were aware of the terms of the Heads of Agreement.

152 The conspiracy claim against the Commonwealth fails.

Application to amend

153 Although the plaintiff was represented by solicitors in the year 2000 and from time to time apparently had access to persons who were legally qualified, Mr Akbarian represented the plaintiff at trial. On the second day of the trial I asked Mr Akbarian whether the plaintiff sought the payment of any money on a quantum meruit basis. It was not until the seventh day of the trial that Mr Akbarian provided a draft pleading that contained a form of quantum meruit claim. That draft pleading claimed reimbursement of all the plaintiff’s costs, including a reasonable margin for overhead and profit, on the basis that as a result of the wrongful termination of the Heads of Agreement the plaintiff lost its right to have the benefit of the Heads of Agreement.

154 Although the application was not decided during the trial the plaintiff proceeded to cross-examine Darwinia’s witnesses on the basis that a quantum meruit claim could be made. Mr Akbarian cross-examined Air Commodore Michael in relation to the work and services that had been provided by the plaintiff and its predecessor Kezarne and Mr Akbarian in preparation for the development. Air Commodore Michael gave evidence that the plaintiff and Mr Akbarian did “a lot of work” with AEM; that the plaintiff was involved with the survey; that it met and effectively lobbied the Department of Veteran Affairs; that they travelled to Canberra to meet with the Department and to negotiate for the purchase of the Land; that they travelled to Perth to visit retirement villages; that they co-ordinated and provided services necessary for the lodgement of the development application; that they met with architects and members of the Environmental Protection Authority and the National Parks and Wildlife Service; they made presentations to the local residents and attended planning control meetings; they negotiated with Mirvac; they obtained finance from ING and met with various other financial institutions; they got in the proposed construction costs; obtained valuations; attended meetings with banks; obtained development approval from the local Council; arranged for the preparation of the marketing material; attended the marketing presentation meetings and other meetings required by Darwinia. Air Commodore Michael gave the following evidence (tr 554):

Q. But was it your understanding that I was going to get paid sometimes for the work that I did?
A. That’s quite right.

Q. And that is why I had an agreement with your organisation?
A. (No verbal answer).

155 On the ninth day of the trial Mr Akbarian provided a further proposed amendment and on the 11th day of the trial a final pleading was provided. It claimed that from 18 October 1995 to 27 June 2000 the plaintiff performed work and services in relation to the development of the Land with the knowledge of and at the request of Darwinia. That claim includes the following:

28. It would be unjust for the First Defendant to retain the benefits conferred on it by the performance of the work and services without paying to the Plaintiff reasonable reimbursement and remuneration for the costs and benefits of such work and services.

(a) a share in the increased value of the Land as a result of the Plaintiff’s performance of works and services;

(b) labour costs for time spent on the development of the Land by the Plaintiff, its servants, employees and agents; and

(c) actual costs of disbursements paid for by the Plaintiff, including, but not limited to, payment of Council fees relating to the development of the Land and payment by the Plaintiff of part of the First Defendant’s legal costs.

156 That proposed amendment also included a claim in estoppel based on a common assumption that the plaintiff would perform work and provide services in relation to the development of the Land and that the plaintiff would be reimbursed and remunerated for the work and services it performed. The claim alleges that the plaintiff performed work in relation to the development of the Land in reliance upon the common assumption including increasing the value of the Land and incurring labour and other costs. It is alleged that Darwinia has resiled from the common assumption by refusing to reimburse or remunerate the plaintiff and that it has suffered loss and damage.

157 The plaintiff has a number of problems with the application to amend. A significant problem in relation to the quantum meruit claim is that there is no claim that the Heads of Agreement were ineffective. The whole of the plaintiff’s case is based upon an effective and binding contract the terms of which are contained in the Heads of Agreement. In those circumstances there is “neither occasion nor legal justification for the law to superimpose or impute an obligation or promise to pay a reasonable remuneration”: Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 per Deane J at 256; Lumbers v W Cook Builders Pty Ltd (2008) 232 CLR 635 at 663 [79]; Coshott v Lenin [2007] NSWCA 153 at [10].

158 The other problem the plaintiff faces in relation to the quantum meruit claim is the limitation period of six years: s 14(a) of the Limitation Act 1969. In a quantum meruit claim time runs from when the defendant received the benefit that gave rise to the obligation to make restitution: Coshott v Lenin per Mason P at [17]. The plaintiff filed its Summons on 3 March 2006. Any work or services conferring a benefit on Darwinia after 3 March 2000 would be the subject of a claim, if it were available. It seems to me that even if the plaintiff could overcome the problem outlined above in relation to the Heads of Agreement, there was no work or services performed by it after 3 March 2000 that conferred a benefit on Darwinia.

159 The plaintiff also has problems in relation to its proposed estoppel claim. The pleading is very deficient in that it makes no proper allegation as to how the common assumption was reached, other than, of course, the reference to the Heads of Agreement. In any event the Heads of Agreement contained a most attractive commercial arrangement for the plaintiff in that it was to have 85% of the profit from the development. Far from evidencing a common assumption that the plaintiff would, along the way, be paid for the services it provided to Darwinia, the parties intended that the plaintiff would have the benefit of the profit share to compensate it for any cost it may have incurred during the development of the Land.

160 It would be very difficult for any defendant to know when the alleged common assumption arose and on what basis the common assumption arose as the matter is presently pleaded.

161 I am satisfied that the plaintiff’s application to amend its pleading should be dismissed.

Conclusion

162 The plaintiff’s case against Darwinia for wrongful termination is made out. The plaintiff’s case against Darwinia in conspiracy fails. The plaintiff’s case against the Commonwealth for inducement of breach of contract fails. The plaintiff’s case against the Commonwealth in conspiracy fails. The plaintiff’s application to amend is dismissed.

163 As this matter has proceeded on liability only, it will be necessary to plan for the trial on quantum. The parties are to prepare Short Minutes of Order reflecting these findings on liability together with any agreed order as to costs. If the parties are unable to agree on an order for costs of the trial on liability, I will hear argument in due course. The parties are to confer for the purpose of preparing a timetable for the preparation of the trial on quantum and/or any arrangements they may wish to make to have the matter referred to mediation. The matter is listed at 9.30 am on 16 October 2008 to finalise the liability aspects and to list the matter for hearing on quantum.

**********

CaseChat Overview and Summary

Orders of the court

Background to the litigation

Evidence Before The Court

Reasons for decision

Legal Principle Established

CITATION:	Sharjade Pty Ltd v RAAF (Landings) Ex-Servicemen Charitable Fund Pty Ltd [2008] NSWSC 1003
HEARING DATE(S):	7, 8, 9, 10, 11, 14, 15, 16, 17, 21, 23 and 24 July 2008
JUDGMENT DATE :	8 October 2008
JURISDICTION:	Equity Division - Commercial List
JUDGMENT OF:	Bergin J
DECISION:	Plaintiff's case against first defendant for wrongful termination is made out. Other claims to be dismissed.
CATCHWORDS:	[CONTRACT] - Contract to develop land into retirement village - lengthy process of preparation - land to be purchased from the Commonwealth - whether Commonwealth entitled to make demands on first defendant - whether first defendant entitled to terminate Heads of Agreement with plaintiff when Commonwealth purported to terminate agreement with the first defendant - whether Commonwealth and first defendant conspired to terminate plaintiff's agreement with first defendant - whether Commonwealth interfered with a contractual relationship between first defendant and the Commonwealth.
LEGISLATION CITED:	Limitation Act 1969
CASES CITED:	Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549 Coshott v Lenin [2007] NSWCA 153 Handley v Gunner [2008] NSWCA 113 Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26 Independent Oil Industries Ltd v Shell Co of Australia Ltd (1937) 37 SR (NSW) 394 Foran v Wight (1989) 168 CLR 385 Lumbers v W Cook Builders Pty Ltd (2008) 232 CLR 635; [2008] HCA 27 Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 Reid v Moreland Timber Company Pty Ltd (1946) 73 CLR 1 Shevill v The Builders Licensing Board (1982) 149 CLR 620 Short v The City Bank of Sydney (1912) 12 SR (NSW) 186 Short v The City Bank of Sydney (1912) 15 CLR 148 Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245 Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632
PARTIES:	Sharjade Pty Ltd (Plaintiff) RAAF (Landings) Ex-Servicemen Charitable Fund Pty Ltd (First Defendant) The Commonwealth of Australia (Second Defendant)
FILE NUMBER(S):	SC 50024 of 2006
COUNSEL:	Plaintiff - Mr M Akbarian (director of plaintiff) First defendant - Mr J Simpkins SC with Mr N Owens Second defendant - Mr M Speakman SC with Mr D Moujalli
SOLICITORS:	Plaintiff - not applicable First defendant - Gadens Lawyers Second defendant - Blake Dawson