Stokes v Toyne

[2019] NSWSC 274

Supreme Court

New South Wales

Medium Neutral Citation:	Nicholas Arthur Stokes v Molly Harris Toyne [2019] NSWSC 274
Hearing dates:	15 & 16 October 2018
Decision date:	18 March 2019
Before:	Rees J
Decision:	Judgment for the Plaintiff. Orders at [167].
Catchwords:	LAND LAW — Conveyancing — Contract for sale — Deposit — Application for relief from forfeiture of deposit pursuant to Conveyancing Act 1919 (NSW) s 55(2A) — Whether unjust or inequitable — Factors relevant to exercise of the Court’s discretion — improvements to land between exchange and termination – lengthy pre-contractual negotiations between parties — Significant funds expended to obtain finance — Vendor’s right to terminate exercised after several extensions — Purchaser conferred benefit and detriment on Vendor by works undertaken on land — Purchaser caused modest increase in value of land — Order for return of deposit.
Legislation Cited:	Conveyancing Act 1919 (NSW), s 55(2A) Law of Property Act 1925 (UK), s 49(2) Property Law Act 1958 (Vic), s 49(2)
Cases Cited:	Butcher v Harkins [2001] NSWSC 15 Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592; [2004] HCA 60 Chambers v Borness (2014) BPR 33,545; [2014] NSWSC 890 Fu Tian Fortune Pty Ltd v Park Cho Pty Ltd [2018] NSWCA 282 Fu Tian Fortune Pty Ltd v Park Cho Pty Ltd [2018] NSWSC 528 Harkins v Butcher; Butcher v Lachlan Elder Realty Pty Ltd (2002) 55 NSWLR 558; [2002] NSWCA 237 Hasanovic v Polistena (1982) NSW Conv R ¶55-078 Havyn Pty Ltd v Webster (2005) 12 BPR 22,837; [2005] NSWCA 182 Kinder Investments Pty Ltd v Sydney City Council (2005) 143 LGERA 237; [2005] NSWLEC 737 Lucas & Tait (Investments) Pty Ltd v Victoria Securities Ltd [1973] 2 NSWLR 268 Mulkearns v Chandos Developments Pty Ltd (2003) 11 BPR 21,277; [2003] NSWSC 1132 Mulkearns v Chandos Developments Pty Ltd (No 4) (2005) 12 BPR 22,993; [2005] NSWSC 511 Nassif v Caminer (2009) 74 NSWLR 276; [2009] NSWCA 45 PC Developments Pty Ltd v Revell (1991) 22 NSWLR 615 Rushcutters Bay Developments Pty Ltd v Dragon Asset Investment Pty Ltd (No 2) (2017) 18 BPR 37,025; [2017] NSWSC 866
Category:	Principal judgment
Parties:	Nicholas Arthur Stokes (Plaintiff) Molly Harriss Toyne (Defendant)
Representation:	Counsel: J. Ronald (Plaintiff) J.K. Raftery (Defendant)   Solicitors: Baker Deane and Nutt Lawyers (Plaintiff) King & Wood Mallesons (Defendant)
File Number(s):	2017/205679
Publication restriction:	Nil

Judgment

1. HER HONOUR: This is an application under section 55(2A) of the Conveyancing Act 1919 (NSW) by Nicholas Stokes, a purchaser under two contracts for sale of land, for the return of the deposits from Molly Toyne, the vendor. The deposits total $110,000.

2. The case is somewhat unusual in that the process of purchasing the properties stretched over more than two years. It began with efforts by Ms Toyne and her husband to develop and subdivide the properties using Mr Stokes’ services as a contractor. Over time, it was proposed that Mr Stokes would develop and subdivide one property and be paid from the sale of the sub-division. Ultimately, Mr Stokes purchased both properties with a view to developing the land between exchange and completion. This did not happen due to inclement weather and difficulties obtaining finance given the characteristics of the deal as ultimately agreed. Neither Mr Stokes nor Ms Toyne were commercially sophisticated, although Mr Stokes appears to have engaged in some local property development. Both were advised by local conveyancers and a local real estate agent who was Ms Toyne’s agent but ultimately acted in the role of intermediary in an attempt to get the deal ‘over the line’. Whilst the protracted process caused both Mr Stokes and Ms Toyne significant frustration, the question for the court is whether Ms Toyne should refund or retain the deposits.

THE LAW

3. Section 55(2A) of the Conveyancing Act 1919 (NSW) provides (emphasis added):

… in any proceeding for the return of a deposit, the court may, if it thinks fit, order the repayment of any deposit with or without interest thereon.

4. The provision was enacted in 1930 and, with comparable legislation in Victoria (Property Law Act 1958 (Vic), section 49(2)) and the United Kingdom (Law of Property Act 1925 (UK), section 49(2)), there is ample case law as to how it should be applied. The authoritative judgment is that of Santow JA in Havyn Pty Ltd v Webster (2005) 12 BPR 22,837; [2005] NSWCA 182, with whom Tobias JA and Brownie AJA agreed. His Honour traversed the history of deposits as an earnest of performance and noted that the vendor’s right to retain the deposit upon default was of ancient origin. At [131]:

The common law would never have doubted the justice of the vendor retaining the deposit, even though it exceeded the measure of the vendor’s true loss.

5. The remedy created by section 55(2A) created a statutory jurisdiction hitherto unknown to courts of equity: at [137]. His Honour approved of Street CJ in Eq’s observations in Lucas & Tait (Investments) Pty Ltd v Victoria Securities Ltd [1973] 2 NSWLR 268 at 272: (emphasis added)

The section was designed to provide relief to a purchaser against an unjust and inequitable consequence of forfeiture of a deposit. It is clear enough that at law a vendor’s right to forfeit a deposit to himself in the event of a purchaser’s default bears no necessary relation to the damages actually suffered by a vendor. At law a forfeited deposit could result in a vendor making a profit which injustice and equity ought not to be permitted to enjoy at the purchaser’s expense… A vendor who forfeits a deposit in strict enforcement of his legal rights is not to be deprived of it under section 55(2A) unless it is unjust and inequitable to permit him to retain it.

6. Whilst it is not necessary to establish special circumstances, nor is the concept of exceptional or special circumstances irrelevant to a proper understanding of the boundaries of the discretion. At [150]:

To the contrary, a proper approach to the exercise of the discretion must appreciate the legal context of the established nature of a deposit as an earnest of performance. It is the relevance of that context to the exercise of statutory discretion which is denoted by the concept of special or exceptional circumstances.

7. His Honour considered at [154]-[155]:

… the court will not lightly be moved to order the return of a deposit which has been forfeited according to the parties’ express agreement. That focusses attention upon the real issue, taking account of the context that “the general policy of the law is that people should honour their contracts. That policy forms part of our idea of what is just: Baltic Shipping Co v Dillon [1991] 29 NSWLR 1 at 9 per Gleeson CJ …

The purchaser must therefore do more than merely show that the deposit that has been forfeited, and that it will thus result in a windfall to the vendor as will usually be the case. The court should not take an approach to ordering the return of deposits under section 55(2A) which weakens the proper functioning of a deposit in providing a sanction so that purchasers treat them making and completing of contracts with due seriousness …

8. His Honour noted that, in considering an application under section 55(2A), it will often be material for the court to consider a number of factors including the nature of a deposit, the terms of the contract providing for its forfeiture and the circumstances in which the deposit was forfeited: at [173]. Santow JA’s summation of the principles has been followed in many cases including Nassif v Caminer (2009) 74 NSWLR 276; [2009] NSWCA 45 at [64]-[66] per Macfarlan JA; at [87] per Sackville AJA, Basten JA agreeing.

9. At least four cases dealt with similar facts to those at hand. In Hasanovic v Polistena (1982) NSW Conv R ¶55-078, Needham J considered a contract for sale of market garden land. The contract permitted the purchasers to take possession of the property and grow crops before completion. The purchasers took possession. They installed new main water pipes and a sprinkler reticulation system. Electricity was connected, an old shed pulled down and three new sheds erected. The purchasers repaired fences and erected new gates. They prepared the land for market gardening and planted three crops. The purchasers were unable to complete due to a lack of finance and the contract was terminated.

10. The Court awarded the vendor an occupation fee for the period of time in which the purchasers were in possession together with the rates referrable to that period. The Court exercised its discretion under section 55(2A) to return the deposit. At 56,564:

In the present case, while the plaintiffs were disentitled to specific performance as they had been unable to raise the necessary finance, they had relied upon their solicitor to arrange that matter and were clearly anxious to complete the purchase. It would seem proper to infer from the evidence that the proposed mortgagee declined to proceed with the transaction at a critical time in the process of completion of the sale…

Further, the plaintiff expended a considerable amount of money and labour on improving the property. There is no evidence of the amount by which that expenditure and labour might have increased the value of the property but it is clear that some of the work was valuable to the defendant; for example, the repair of fences and installation of water pipes and electricity. It would, I think, be unjust in these circumstances to allow the defendant not only to retain the benefits of the plaintiff’s expenditure and labour and to obtain damages in the form of an occupation fee and payment of rates, but also to retain the deposit. In the circumstances I think I should exercise my discretion to order the return of the deposit.

11. Pertinent factors to Needham J were that the purchasers were relatively blameless in the loss of finance. His Honour had already awarded the vendor an occupation fee which, coupled with the benefits of the purchasers’ expenditure and labour, had the result that retaining the deposit would be unjust in the circumstances.

12. In PC Developments Pty Ltd v Revell (1991) 22 NSWLR 615, PC Developments sold six lots of land at Regents Parks to Mr Revell for $1,141,000. PC Developments’ solicitors were Baker & McKenzie. Mr Revell’s solicitors were Blake Dawson Waldron. There was a two-storey factory complex on the land. The contract provided that, pending completion, Mr Revell might enter on the land, demolish existing structures and commence building work for his own purpose. A special condition of the contract provided:

In the event that this agreement is not completed for any reason (other than the default of the vendor) the purchaser:

(i)   shall not be entitled to remove the works or any part thereof nor to claim any compensation or reimbursement from or otherwise make any claim against the vendor in respect thereof, and

(ii)   shall be liable to reinstate the property at the purchaser’s expense if so required by the vendor.

13. Mr Revell entered the land and partially completed the work. Mr Revell’s finance was withdrawn when the financier had a receiver and manager appointed. Mr Revell attempted to obtain alternate finance but his efforts proved unsuccessful. He sought an extension of time for completion but this was rejected. Mr Revell claimed that he had obtained unconditional alternative finance for the completion of the purchase by mid-August 1989 but, by then, PC Developments had exchanged contracts to sell the land to another purchaser. PC Developments re-sold the land, in its then existing state, for $1.29 million. Mr Revell’s deposit was forfeited. Mahoney JA, with whom Meagher JA agreed, held at 639:

… the appellants have derived a benefit from what Mr Revell did on the land, and they have re-sold the land at an increased price. It would, in my opinion, be beyond the legitimate purpose of a deposit for their benefit from the contract to be increased by the amount of it. I do not mean by this that a deposit is and is only of the nature of a pre-payment against anticipated damages. As an earnest of the bargain, it may have other functions. But in all the circumstances of this case, it is in my opinion appropriate that the deposit be returned to Mr Revell.

14. It is worthy of note that the Court was considering a contract of sale of commercial real estate negotiated by parties of equal bargaining power and substantial means. A special condition in the contract covered the events which had occurred. Notwithstanding this, the Court considered that it would be unjust to retain the deposit given the other benefits gained by the vendor as matters had unfolded. It would appear to have been relevant that the purchaser was not ‘at fault’ in the loss of finance, and that the Court could infer that the purchaser’s efforts had resulted in the vendor achieving a higher on-sale price.

15. In Mulkearns v Chandos Developments Pty Ltd (No 4) (2005) 12 BPR 22,993; [2005] NSWSC 511, contracts were exchanged to sell a property for $2.5 million. The purchaser was experienced in land development. The purchaser was allowed into possession before settlement and agreed to pay a licence fee of $300,000 which was to be deducted from the purchase price. While in possession for over a year, the purchaser effected improvements. The purchaser had no contractual right to carry out any development work or renovations on the property, although the vendor knew that the purchaser was doing so. There was nothing that the purchaser did which was induced by the vendor. The value of the property increased as a result of the works, although the extent to which the value increased was disputed. The cost of the works was greater than any increase in value.

16. The contract was terminated by the vendor for the purchaser’s failure to complete. It is not entirely clear why the purchaser failed to complete. In separate reasons reported as Mulkearns v Chandos Developments Pty Ltd (2003) 11 BPR 21,277; [2003] NSWSC 1132, Young CJ in Eq recorded at [73]:

There was quite considerable cross examination about the availability of funds to Mr Mulkearns to complete. It seems to me from the evidence that the probabilities are that given a couple of weeks to organise things he would have been able to raise the money. However, the evidence also suggests that he was not particularly interested in doing that if it could be avoided or postponed.

17. The purchaser claimed return of the deposit, compensation for the forfeited licence fees and compensation for the improvements. The purchaser was held to be entitled to return of the licence fee less a reasonable occupation rent for the period the purchaser was in possession. However, the purchaser was not awarded compensation for the value of the improvements as his Honour considered it was not unconscionable for a vendor to retain the improvements without compensation where the vendor did not contribute to the purchaser’s breach nor to the purchaser’s expenditure. The Chief Judge also concluded that the purchaser was not entitled to the return of the deposit. His Honour considered at [95]:

… putting it succinctly … the purchaser was a developer who had practised brinkmanship and lost.

18. His Honour gave weight to the basal purpose of deposits under contracts for the sale of land and that, ordinarily, where the vendor has not been guilty of unconscionable conduct and the purchaser is a developer or a person in commerce well aware of his obligations under a contract, the purchaser is not entitled to a return of a deposit, even if the property has had a marked increase in value: at [140]-[142]. It seems to me that an important factor in Young CJ in Eq’s decision was the fact that the purchaser was experienced in land development. His Honour clearly did not approve of how the developer had conducted itself.

19. Both parties relied on the judgment of Pembroke J in Chambers v Borness (2014) BPR 33,545; [2014] NSWSC 890 where his Honour, citing Hasanovic v Polistena, said at [10]:

The proper approach of the Court in a case such as this is, in the first instance, to weigh in the balance the monetary outcomes to the parties. Those monetary outcomes should be considered in the context of the terms of the contract and overall circumstances of the case.

20. In that case, a property was sold for $2.97 million with completion to take place 12 months later. The contract permitted the purchaser to take possession and undertake specified works during that period. A special condition provided that, if the contract was not completed for any reason other than default of the vendor, the purchaser could not call upon the vendor to contribute to the cost of such work. In addition, the purchaser entered into a licence agreement which required the purchaser to pay some $4,000 a month and rates and taxes.

21. His Honour had regard to the fact that the purchaser had paid license fees of $70,000, spent $105,000 in carrying out improvements and paid rates and taxes. It was acknowledged that the vendor was also entitled to claim mesne profits and damages of $95,000 together with interest on the purchase price of $71,000, and the vendor also had the benefit of an increase in value in the property over the 12 month period together with interest earned on the deposit released on exchange. The purchaser said that all of these amounts totalled $700,000, in addition to which the vendor held the deposit of $445,000. His Honour was not prepared to take all of these amounts and benefits into account. His Honour disregarded the $105,000 spent on improvements as the evidence to support the figure was somewhat opaque and unreliable and it was doubtful whether the so-called improvements could be treated as such, since, at [13]:

… these things are very often a matter of taste and it does not follow that they are improvements which the vendor would himself had been prepared to carry out. Additionally, there is no evidence that those improvements added to the value of the property.

22. Further, in light of the special condition, “the bargain between the parties was that the purchaser would take the risk of the cost of any works carried out by her”: at [13]. His Honour regarded the improvements as a modest factor. Nor did his Honour take into account any increase in value of the property. Having compared the financial outcome if the deposit was not refunded, his Honour concluded that keeping the deposit would, at [16]:

… bring about a result that it is so economically lop-sided that the exercise of the Court’s discretion is justified in the circumstances. … The disparity between the respective financial outcomes of the plaintiff and the defendant is too great.

The judgment does not record whether the purchaser was a property developer, nor why the purchaser was unable to complete. Nor does it appear whether the increase in the value of the property was attributable to the market generally or by reason of the improvements.

23. In light of these cases, in contracts for sale of land where the purchaser takes possession and does work before completion but the contract is terminated, the Court may “think fit” to order the repayment of the deposit having regard to:

1. whether the purchaser is a sophisticated commercial person such as a developer;

2. whether the purchaser was responsible for the lack of finance to complete the purchase;

3. whether the contract contains a special condition which governs the parties’ rights in respect of the improvements in the circumstances;

4. whether the vendor has received other benefits or compensations aside from the deposit, such as an occupation fee, rates and outgoings, mesne profits, damages or interest on a deposit released on exchange; or

5. whether the vendor has on-sold the property for an higher price, where the uplift appears referable to the work done by the purchaser.

Each case will necessarily turn on its facts as to whether, having regard to these and other matters, “unjust and inequitable consequences” will result from forfeiture of the deposit.

24. In this case, Mr Stokes also relied on extensive pre-contractual dealings. Having regard to the wide discretion conferred by section 55(2A), it seems to me that such matters may be taken into account as part of the overall circumstances of the case in considering, whether it will be unjust or inequitable for the vendor to forfeit a deposit. For example, it not uncommon for purchasers in such applications to suggest that the vendor made misrepresentations which led them to enter into the contract: Havyn Pty Ltd v Webster; Nassif v Caminer;Rushcutters Bay Developments Pty Ltd v Dragon Asset Investment Pty Ltd (No 2) (2017) 18 BPR 37,025; [2017] NSWSC 866 at [42]; Butcher v Harkins [2001] NSWSC 15 at [161]-[163] (the latter reasoning not disturbed on appeal: Harkins v Butcher; Butcher v Lachlan Elder Realty Pty Ltd (2002) 55 NSWLR 558; [2002] NSWCA 237; Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592; [2004] HCA 60).

The facts

25. Ms Toyne did not give evidence. I infer that any evidence she would have given would not have assisted her claim: Jones v Dunkel (1959) 101 CLR 298. Ms Toyne’s attorney, Phil Langworthy, also did not give evidence, and I draw the same inference. Local real estate agent Christopher Dixon did not give evidence. Mr Dixon was initially appointed as an agent for Ms Toyne but later was also Mr Stokes’ agent to sell the sub-divided lots. Having acted for both parties in the course of these transactions, he does not appear to me to be in anyone’s “camp” and I therefore draw no Jones v Dunkel inference in respect of him.

Credibility of witnesses

26. Mr Stokes gave evidence in an open and “matter of fact” way, apart from one matter to which I refer below. Mr Stokes did not overstate his evidence and, indeed, in this respect I preferred his oral evidence to his affidavit and emails, which had a tendency to do so. Mr Stokes seemed experienced in his line of work. He answered questions appropriately and made reasonable concessions. Mr Stokes sought clarification of questions where needed but did not ask to see documents or his affidavit for the sake of it. Much of the cross-examination of Mr Stokes depended on a detailed chronology of the material which one would not expect a witness to have. Mr Stokes did not have detailed recall of some matters, and fairly accepted when he did not recall something.

27. Mr Stokes was cross-examined at length on letters sent by his conveyancer in support of requests for extensions of time to complete the purchase. The letters, on occasion, were not accurate as to the state of his financing at the time. However, it was never put to Mr Stokes that he saw the letters before they were sent out, or gave specific instructions on the matters in the letters. I am not prepared in those circumstances to find that any optimistic or exaggerated claims in the letters should cause me to find that he is not a credible witness. Further, when the conveyancer’s letters are read in conjunction with Mr Stoke’ direct communications with Ms Toyne’s attorney, the information which he provided was accurate.

28. Mr Stokes was cross-examined about the demolition of a shed and putting its concrete slab and brickwork into a dam.

Q. You say that you weren't aware that the shed contained asbestos or you weren't aware whether it did or not?

A. We saw no asbestos.

29. Ms Toyne tendered an Asbestos Assessment Report by Luke Nuttall. No objection was taken to Mr Nuttall’s report and he was not required for cross-examination. Mr Nuttall obtained photographs of the old butcher’s building which had been demolished. The photographs were taken in 2016 by local Gundaroo historian, Marion Meischke. Mr Nuttall considered, based on his knowledge, training and experience, that the photographs showed unpainted suspected asbestos cement cladding to the exterior walls as well as some white painted suspected asbestos cement wall sheeting to some interior walls.

30. The photographs indicate to me that Mr Stokes’ evidence that he did not see any asbestos when he demolished the shed is unlikely to be true. I think that a person as experienced as Mr Stokes in civil works would have readily identified that such cladding on a shed of that antiquity was likely to contain asbestos. Even if he wasn’t sure, Mr Stokes would have known be suspicious as to whether the cladding contained asbestos and take appropriate precautions. Whilst I do not accept his answer to this question as truthful, this does not cause me to reject his evidence generally.

31. I heard evidence from a valuer, Denis Lovell, and a quantity surveyor, Fiona Doherty. Both witnesses were impressive and I accept their evidence.

A subdivision in Gundaroo

32. Ms Toyne and her husband owned property on the outskirts of Gundaroo, which is a small village some 30 kilometres from Canberra said to be popular with those working in Canberra who prefer a semi-rural setting. They owned two lots:

1. Lot 68 in DP 754883, comprising some 1.4 hectares. The land was zoned for primary production and included a dilapidated shed. The parties referred to this as the “rural block”.

2. Lot 69 in DP 754883, comprising some 1.7 hectares. The land was zoned “RUS village” and thus suitable for homes. Lot 69 had a house and tennis court.

33. The lots were notionally separated by Gundaroo Terrace, which was an unused portion of Crown Land. Historically, the Toynes had fenced the Crown Land as part of their combined land holdings. Both lots also notionally fronted onto Rosamel Street on their southern boundary, but the street had not in fact been constructed or sealed on that boundary.

34. Mr and Ms Toyne wanted to subdivide Lot 69 into seven lots. In 2011, they obtained Development Consent from Yass Valley Council to do so. In the proposed sub-division, new Lot 7 would contain the house and tennis court. To subdivide Lot 69 in accordance with the Development Consent, civil engineering works were needed to construct bitumen roads, roadside drainage, boundary fencing, driveways, footpaths, stormwater drainage, street-scaping and other public landscaping. Suitable arrangements had to be made for the provision of electricity and telephone cables to each of the lots. Advanced street trees had to be planted in the road reserve. A survey plan of the subdivision was required before the subdivision could be registered with the Land Titles Office. The consent was to lapse on 27 July 2016 unless the development had been commenced.

35. In February 2014, Mr and Ms Stokes obtained engineering drawings from K&C Brown and Associates Pty Ltd. Quantity surveyors PHL Surveyors also provided a Bill of Quantities, in preparation for calling for tenders on the work.

36. Mr Stokes is a civil engineering contractor. He runs a business carrying out earthworks and civil works including the construction of roads. One of Mr Stokes’ clients was local real estate agent, Christopher Dixon of McGrath Real Estate Agents. In October 2014, Mr Dixon asked Mr Stokes whether he would quote on the civil works. Mr Stokes went to the site and provided a rough estimate, but needed the drawings. On receipt of the engineering drawings, Mr Stokes visited the site again and, in November 2014, provided a detailed quote of $294,000 plus GST.

An initial deal?

37. In the months after providing his quote, Mr Stokes was told by Mr Dixon that the owners did not have funds to do the subdivision, although it was a good development according to Mr Dixon. Mr Dixon proposed an arrangement whereby Mr Stokes undertook and funded the civil works and received an agreed share of the sale proceeds of the subdivided lots. Mr Stokes understood that, in doing so, Mr Dixon was acting as the agent for the Toynes, and with their knowledge and imprimatur. That was a reasonable assumption on Mr Stokes’ part. The benefits of this arrangement, so far as Mr Stokes understood it, were:

1. The Toyne did not have to finance the subdivision, did not have to deal with the Council and other authorities, could keep the subdivided lot with their home and likely keep some of the other lots as well after meeting the costs of subdivision.

2. Mr Stokes did not have to finance the purchase of the land and could set about doing the works more quickly. Mr Stokes estimated that, if the development proceeded in this fashion, the roads could be complete, power connected and the lots sold by mid-2015.

38. After these discussions, conducted through Mr Dixon, Mr Stokes understood that he had reached an agreement with Ms Toyne, and that she had instructed her solicitor to provide him with the necessary documents to formalise the agreement. Mr Stokes approached his bank, Commonwealth Bank, with whom he had banked for some 25 years. The bank said it would help him to finance the construction work and the power supply in order to get council approval. Bank approval was verbal. It seems to me that the discussions Mr Stokes had with Mr Dixon and his bank were of a preliminary nature.

39. In February 2015, Mr Toyne met on site with the council planner and Alan Longhurst of PHL Surveyors. They discussed a staged subdivision. Mr Stokes was not aware of this meeting. It would appear that the Toynes were exploring other ways to do the subdivision. This is consistent with any deal reached with Mr Stokes being preliminary in nature.

A second deal?

40. In early 2015, Mr Dixon told Mr Stokes that Ms Toyne was looking at selling the land and letting someone else do the subdivision. Mr Dixon suggested that Mr Stokes should consider buying it and doing the works himself. Mr Stokes obtained a copy of the development consent and ‘ran some numbers’ past Mr Dixon. The Toynes wished to keep new Lot 7, which had the house and tennis court. Mr Stokes suggested that six subdivided lots might achieve $1.8 million with costs of some $460,000. Mr Stokes asked,

What would I need to offer to secure the six blocks? …

One problem. I will need to get a loan from the bank of course. However, if the roads are not completed the six blocks will not officially exist! And so I will have no title to offer the bank for security. Any ideas?

Mr Stokes had, of course, identified the commercial risk associated with the development. It would be difficult to finance the cost of the civil works against the portion of Lot 69 to which he would be entitled on registration of the plan of subdivision, as that portion did not have separate title until registration. Such finance was likely to be expensive, or require security against other property. Mr Stokes owned a home in Sutton. In May 2015, Mr Stokes asked Mr Dixon to get a market appraisal on his home, presumably as a way of securing a loan to fund the civil works or acquisition of Lot 69.

41. Mr Dixon advised that Ms Toyne wanted $1.1 million for the six blocks, to which Mr Stokes replied on 5 May 2015:

I will not go higher with my offer for the blocks! If my current offer of $1.1 million is not enough then let’s just move ahead with option 2, I will build the roads according to the current design and pay the Toynes $20,000 and take one block as payment.

Mr Stokes also offered to purchase the whole of Lot 69. This would make it easier to secure funding, as the property had a house on it. But this was not acceptable to the Toynes, who wanted to keep the house.

42. On 15 May 2015, Mr Stokes’ offer to purchase Lots 1, 2, 3, 4, 5 and 6 in the sub-division for $1.1 million was accepted. Mr Stokes was taking a risk purchasing these lots in the proposed transaction. He knew, more than many other potential purchasers, of the risk. He had already prepared a detailed tender for the civil works. He did civil works for a living. He knew it would be more difficult to get finance for the civil works in circumstances where, unless the civil works were completed, there would be no subdivision and thus no lots for a financier to take security over or for him to sell. Nor did Mr Stokes have any finance in place at the time. Although Mr Stokes had ‘in principle’ approval from the Commonwealth Bank, that is not the same thing as an unconditional offer of finance on the deal as it had been struck.

43. On 28 May 2015, Mr Stokes emailed the Council advising he was “taking over the management of the project” at Gundaroo and wanted to make a couple of changes. On 5 June 2015, Mr Stokes met with Council’s chief engineer on site and learnt that the Toynes had not obtained a construction certificate. Mr Stokes emailed Mr Dixon requesting permission from the Toynes to deal with the council and engineers in respect of the construction certificate.

Please don’t forget that I need the price list and map of the blocks to supply to my financiers. Due to the unusual nature of the transaction, it’s proving problematic so I need it ASAP.

I met with council on site yesterday regarding changes that they want and also that I want in the road’s design. In that regard I need written permission from the Toynes to deal directly with council and engineers. I thought it might be easier to deal with you rather than with lawyers so as not to cause further stress on Molly.

44. Mr Dixon sent Mr Stokes a site plan prepared by McGraths showing the sub-divided lots with suggested prices. On 9 June 2015, Mr Stokes emailed Mr Dixon:

Just confirming that there is no construction certificate in place for the project and so no approved plan. PHL, the engineers, contacted council and it appears the paperwork was sent to the Toynes but was not returned. I wonder if Molly can find it. Further complicating the situation is that Alan Longhurst … is in Europe until mid July. I cannot get any further with my finance until this is cleaned up.

Mr Dixon replied, “Am chasing Molly for it although I suspect she’s lost it in a mountain of paperwork. I wonder if we can get a copy from council and get it re-sent.” Mr Stokes was endeavouring to obtain the documentation he needed from Council and the Toynes to support an application for finance.

Mr Stokes seeks finance

45. On 19 June 2015, Mr Stokes requested development finance from Global Capital. An email from Global Capital recorded:

As discussed you require approx. $300,000 to complete civil works on a joint venture land subdivision project using your residential property.

I take the reference to “joint venture” to be the initial deal with the Toynes whereby Mr Stokes would fund the civil works and receive a portion of the subdivided lots. On 22 June 2015, Global Capital proposed to provide up to $470,000 but not exceeding 30 per cent of the value of the Sutton property, by refinancing Mr Stokes’ existing mortgage with National Australia Bank.

46. In September 2015, Mr Stokes set aside a stockpile of sub-base rock for construction of the roads on Lot 69. He obtained the rock from Monaro Mix, a concrete supply company that was extending their premises and had excavated rock for the extension, crushed it, and wanted it removed. In October 2015, Mr Stokes made arrangements to move the sub-base rock to the site. Mr Stokes emailed a neighbour:

We’re still having trouble making meaningful contact with Molly. However we have a stockpile of rock in Queanbeyan which has been put aside for this job. The owner of the property on which it is stored needs the space so we have to move it. We have obtained permission from council to store it on the road reserve just beyond Molly’s rear shed. So we will be there with the excavator initially to remove grass and topsoil prior to the rock being delivered.

The neighbour replied:

I suggest to clear what you are planning for Rosamel Street with Molly directly, she is changing her mind constantly and very difficult to deal with. I heard that removal of fences for example came as a surprise… I would try talking to Molly beforehand.

47. Mr Stokes heeded the neighbour’s advice and emailed Mr Dixon:

[The neighbour’s email] suggests Molly is not aware of what is going on?? You said you would let her know that we would be there. I don’t want to step on toes so just making sure all the Ts are crossed?? We could be starting any day now!

Mr Dixon replied that he had contacted Ms Toyne over the weekend.

She’s aware of the rock being dumped on Rosamel – no concerns raised.

48. About a week before delivering the sub-base rock, Mr Stokes used a bulldozer to clear the site for storage of the rock. On arrival with the first load of rock a week later, Mr Stokes found that Ms Toyne had leased the site for horse agistment. Mr Stokes obtained permission from the Council to temporarily stockpile the sub-base rock within the unmade portion of Rosamel Street until the construction works took place. The rock was then progressively delivered over the next month.

No deal

49. In October 2015 Mr Dixon advised that Ms Toyne now wanted to retain the house and adjoining Lot 6 and sell Lots 1 to 5 to Mr Stokes. Mr Stokes offered to purchase Lots 1 to 5 for $835,000.

The proposal as I understand it is that the six blocks will still be developed but Molly will retain block 6. Indeed this will have to be the case otherwise new applications and engineering drawings will probably have to be submitted.

1. The cost to construct infrastructure to obtain council approval will be approx. $420K to $460K.

2. There will be no savings on road construction, power supply, telstra installations nor council contributions by decreasing block numbers. …

3. I will have only five blocks to sell so on the current offer price of $1.1 million I will lose money.

50. Mr Stokes soon became aware that Ms Toyne had instructed Mr Langworthy to act on her behalf with respect to the development of the land. Mr Langworthy was a local shopkeeper. Mr Stokes became frustrated as he understood that he had already reached an agreement with Ms Toyne and had commenced works on the land. Mr Stokes’ frustration does not appear to me to have been entirely justified in circumstances where there was no contract in place. Whilst Mr Stokes had stored sub-base rock on the site, he was taking a risk in doing so. He might not have been ultimately able to use the rock to build the road, either as a contractor or as the owner of the land, and might have had to remove it.

51. On 24 October 2015, Mr Stokes emailed Mr Dixon, protesting that a deal had been done at $1.1 million.

We mowed the blocks earlier to progress sales and are now [storing] rock on site for roads construction, all with Molly’s knowledge and presumed approval!?

I’ve made arrangements with the site in Queanbeyan some time ago to take 1400 tonnes of rock from the site. They have allowed the rock to stay until now but it is in the way of their building works and I have to move it otherwise they will charge me to get someone else to move it. Hence my need to bring it on site at Rosamel St.

Mr Stokes increased his offer to $900,000, noting “a joint venture then would net them an extra $150,000”. The reference to a joint venture appears to have been to the possibility of Mr Stokes funding the civil works in return for part of the sub-divided lots rather than buying the property himself. Both options appear to have been under consideration at the time.

A third deal?

52. In about October 2015, Mr Dixon told Mr Stokes that Ms Toyne proposed to develop the site in two stages:

1. The first stage was to subdivide Lot 69 into two lots, being Lots 106 and 107. Ms Toyne would sell Lot 106 to Mr Stokes and retain Lot 107.

2. The second stage was that Mr Stokes would subdivide Lot 106 into 5 sub-lots.

Mr Dixon said that his client didn’t want to wait for the construction works to be completed and for the subdivision to be registered. She wanted the money more quickly and so decided to re-subdivide the land and sell it.

53. The effect of the new proposal, as described by Mr Dixon, was that Ms Toyne would receive the sale proceeds for Lot 106 before Mr Stokes was able to complete the works and on-sell the subdivided lots. This proposal obviously presented a number of risks to Mr Stokes. He would have to finance the purchase of the new Lot 106, fund the civil works and undertake the subdivision of Lot 106 at his own expense. Mr Stokes did not have finance in place to fund this and rightly considered this to be a fundamental change to what had been agreed ‘in principle’ with the Commonwealth Bank.

53. In November 2015, Mr Stokes further negotiated with Ms Toyne and agreed to pay $1.1 million for new Lot 106 together with Lot 68. Mr Stokes spoke with the Department of Lands and reached an “in principle” agreement to purchase the section of Crown Land which separated Lots 68 and 69. This meant that Mr Stokes would be able to amalgamate new Lot 106 and Lot 68. Mr Stokes said:

I only agreed to the further change because I had invested considerable time and works on the project at significant cost to me and my company.

This was something of an overstatement by Mr Stokes. At this point in time, Mr Stokes had deposited rock on site, which suited him. He appears to have removed some fencing. He had also invested time and energy in investigating the investment opportunity and attempting to reach a concluded deal with Ms Toyne, which was proving difficult.

55. On 14 December 2015, Ms Toyne’s solicitors provided a draft Contract of Sale to sell Lots 1 to 5 Rosamel Street, Gundaroo, being part of Lot 69 and Lot 68 DP 754883 for $1.1 million. The proposed Special Conditions were onerous and required the purchaser to provide a new entrance for the existing house, achieve practical completion of Lot 6 in the subdivision, decommission an existing electrical service and water line between the house and a bore, not to access the site without specific authorisation of Ms Toyne, and:

Lot 6 and 7 in DP 754883 (containing the house and tennis court) is not to be included in the sale and it is noted that an application to subdivide this Lot is currently underway the completion of which will result in separate titles for Lot 6 and 7 and that completion of this contract shall take place within fourteen days from the date of separate titles being obtained.

Ms Toyne also required that the deposit be released on exchange.

56. Mr Stokes replied to Mr Dixon on 16 December 2015, generally expressing concerns with the proposed Special Conditions. In regards to the release of the deposit, Mr Stokes replied:

Could be a problem. Paying her $100K without any kind of security is highly questionable. I will speak with the lawyers and bank but I’m sure they will insist on some form of security.

On 17 December 2015, after speaking to his solicitor, Mr Stokes confirmed that releasing the deposit was not acceptable.

57. In December 2015, Ms Toyne’s surveyors, PHL Surveyors, prepared plans and details to support a two-stage development of the site as follows:

Stage 1   Creation of Lot 106 and Lot 107

Stage 2   Subdivision of Lot 106 to create five allotments of land

58. On 2 January 2016, Mr Stokes emailed Mr Dixon with further comments on the proposed Contract of Sale, including the release of deposit on exchange. Mr Stokes proposed that he take a lien over Lot 68 or buy it outright:

… with the other five blocks tied into the deal?? That gives her the money and me security and able to get on with work.

59. On 8 January 2016, Mr Stokes emailed Mr Dixon again expressing a number of concerns about the proposed deal.

… if this deal keeps on changing around, I’m going to lose my finance!

… The original deal was that I would build the roads and when that was complete and the blocks existed I would pay Molly for them. This is the scenario I went to the bank with and to which they agreed.

I then had to finance all the roads, power, telstra, council contributions etc. A couple of hundred thousand dollars.

Due to Molly’s desire for cash I now have to come up with the money to pay her for the “rural block”, this also has to come out of my pocket. Another 150 grand. I don’t have this kind of money sitting around! She now wants to move the goalposts again in that she wants full payment for blocks which do not exist!

My financiers want to see my input i.e. the infrastructure in place before they will front up with the purchase funds. Understandable.

With this new scheme I am going to be asking them to front up money for a single block of land that does not even have subdivided title!? I cannot see them agreeing! In fact I’m reluctant to even suggest it lest they just say forget it.

I now find that there is not even a construction certificate applied for? So we cannot build roads anyway! Alan needs that instruction ASAP!

In short, the new scheme of dividing off the front blocks and selling the remainder is probably not on. I think someone needs to sit down with these people and get some focus and understanding on the issues. This deal was done before Phillip [Toyne] died! …

At this point, it would appear that Mr Stokes apprehended that the deal as proposed by Ms Toyne was not commercially viable or, at least, was going to be difficult to finance.

60. On 15 January 2016, Global Capital gave conditional approval for a $471,105 loan to be secured over Mr Stokes’ property in Sutton. After paying out the existing loan, some $299,105 was available. Whilst this could fund the civil works, it would not fund the acquisition of the properties. Having secured these funds, Mr Stokes asked his conveyancer to follow up with Ms Toyne’s solicitors for the Contracts for Sale, which were provided on 20 January 2016. On 15 February 2016, Global Capital gave final approval for its loan to Mr Stokes.

61. On 16 February 2016, the Council approved a modified Development Consent for the site, permitting a two-stage process of development. The modification did not say whether the original lapsing date of 27 July 2016 was also modified, and therefore it was reasonable to proceed on the basis that the original date of expiry applied. The same day, Ms Toyne’s solicitors provided a further amended Contract.

62. By February 2016, it would appear that relations between Mr Stokes and Ms Toyne had soured. Mr Stokes was concerned about the modifications to the Development Consent to permit staged subdivision and Ms Toyne apparently continually holding up the process. In an email to Mr Dixon, Mr Stokes noted:

My concern is of course that once she has the second subdivision she will simply put the whole on the market?! It’s been too long to miss out now!

We will be mowing today and Alan will resurvey the blocks early next week.

It would appear from Mr Stokes’ email to Mr Dixon that Mr Stokes did not have a keen appreciation of the details of the third deal, but did not want to lose what he saw as a commercial opportunity which had been under negotiation for an extended period.

63. On receipt of another version of the Contract of Sale and Special Conditions, Mr Stokes reported to Mr Dixon that this was not what had been agreed. After discussion with his solicitor, Mr Stokes requested a number of changes to the Special Conditions. On 29 March 2016, Mr Stokes signed the Contracts with his changes and delivered them to Ms Toyne’s solicitor.

64. On 30 March 2016, Mr Stokes’ loan from Global Capital settled. He therefore had finance to undertake the civil works. On 4 April 2016, Mr Stokes paid a deposit of $110,000.

65. On about 7 April 2016, Mr Stokes became aware that Ms Toyne’s solicitor was no longer instructed. On 8 April 2016, Mr Stokes asked Mr Dixon to refund the deposit to him, as Mr Stokes was not confident that the matter was going to proceed. The deposit was refunded. On 11 April 2016, Mr Stokes’ conveyancer followed up Ms Toyne’s conveyancer, who said:

I do not know how or if the seller is proceeding. My instructions two weeks ago were to cease to act.

Since those instructions, the conveyancer said they had had no further communications at all. I infer that Ms Toyne, on seeing the Special Conditions attached to the Contract signed by Mr Stokes, was not prepared to proceed with the transaction in that form, nor to further negotiate with Mr Stokes. Communications appear to have ceased between the parties at that point.

The final deal

66. By 27 May 2016, it would appear that negotiations had resumed via Mr Dixon. Ms Toyne had given thought to revising the engineering works by removing the footpath, changing the road from sealed to gravel, decreasing the width of the road and shortening the road. Mr Stokes provided his comments to Mr Dixon on these proposals. Mr Stokes said that he was not interested in building a sub-standard road, nor a narrower road.

If I build it, it will be 6 metres wide. The trees will not be lost, they will be moved. It is in my interest to make the development as attractive as possible.

Further, Mr Stokes suggested that the changes would involve costs in revising the plans and having the revised plans approved by Council. Mr Stokes suggested that Ms Toyne simply proceed with the plans which had been approved as those could be completed within the same timeframe as it would take to have revised plans approved.

As I said, I have already applied to the council to get my bond ($5000) back from council for the construction certificate to be rescinded and the fee refunded as it appeared that this was not proceeding. I’ve asked them to put this on hold this morning but I don’t know if it may already have been actioned. If that is the case, the process may have to start again!? It took a month last time!

67. This appeared to have the desired effect. On 9 June 2016, Ms Toyne signed the Contracts for Sale which had previously been signed by Mr Stokes. Mr Dixon reported to Mr Stokes’ conveyancer:

The seller no longer has an appointed solicitor so once you’re happy with things at your end and Nick has managed to arranged a deposit I’m happy to meet with you to effect exchange.

68. Mr Stokes asked that Ms Toyne appoint Mr Langworthy as her Attorney. It appears from the contemporaneous records that Ms Toyne was difficult to deal with and changed her mind frequently. There may have been good reasons for this: I note that her husband passed away during the period in question. After the contracts of sale were exchanged, Ms Toyne sensibly delegated the task of dealing with Mr Stokes to others. On 14 June 2016, Ms Toyne executed a Limited Power of Attorney, appointing Mr Langworthy as her attorney to deal with Mr Stokes, Mr Dixon, the Council, Mr Longhurst and the NSW Department of Lands in relation to the sale, development and subdivision of the site. Mr Langworthy forwarded the Power of Attorney to Mr Dixon:

This may provide some assurance to Nick that the timely completion of this instrument has been done to assist in ensuring his rapid progression of subdivision administration in the vendor’s absence.

It would appear that Ms Toyne was planning on being away for some time, and I note that her contact address thereafter was in Melbourne. Mr Dixon forwarded Mr Langworthy’s email and the power of attorney to Mr Stokes, noting that Ms Toyne no longer had a solicitor, as “she’s sacked her last one and the new one wants to write up a new contract.”

69. On 19 June 2016, Mr Langworthy, issued a letter “To whom it may concern”, noting:

1. Ms Toyne had no objection to Mr Stokes seeking to acquire or close the Crown road easement between new Lot 106 and Lot 68;

2. Ms Toyne had no objection to Mr Stokes demolishing the “shedding structures” located on those lots;

3. Ms Toyne had no objection to Mr Stokes dealing with the Council in respect of the subdivision of new Lot 106 into five subsequent lots.

70. On 20 June 2016, Mr Stokes paid a deposit of $110,000. On 21 June 2016, contracts were exchanged and the deposit was released to Ms Toyne.

71. It is apparent from this sequence of events that, after an excruciating period of negotiation spanning some 18 months, Mr Stokes required a significant amount of comfort from Ms Toyne that, going forward, he would be able to progress the subdivision without further delay or interruption. The final deal however, contained significant risks of which Mr Stokes was keenly aware in the initial stages of the transaction but of which he may well have lost sight in his fervour to do the deal at all. In cross-examination, Mr Stokes said:

Q. You understood that that was a risk that you were taking in the contract for sale?

A. Yes.

Q. The risk was that if you were unable to complete within time, that the money and time that you spent on the development would be lost?

A. I hadn’t considered that because I didn’t see the eventuality.

Q. In any event, that risk of undertaking those works prior to settlement was something that you were willing to take?

A. It was, I didn’t see much risk at the time.

72. It is also clear that Ms Toyne had explored a number of ways to do the subdivision herself, or differently, and had decided to let Mr Stokes do the civil works for the portion of the properties which she wished to keep and develop the remainder himself. If Ms Toyne had hit upon a better way to develop the land, I think she would have pursued it herself. Ms Toyne was aware by reason of her own efforts of the costs and risks involved in developing the land, which largely now fell on Mr Stokes.

Contracts for Sale

73. Mr Dixon was noted as the vendor’s agent on both Contracts of Sale. In respect of Lot 68, the Contract provided that the price was $110,000, with a 10 per cent deposit. Those Special Conditions are not in evidence, although I have divined the relevant conditions from other documents. In respect of Lot 106, the land was sold for $990,000, also with a 10 per cent deposit. Special Condition 16 of the Contract for Lot 106 provided:

The vendor and the purchaser are also entering into a contract for the sale of Lot 68, DP 754883. It is agreed that the two contracts … are to be exchanged and settled simultaneously and further agreed that if the subdivision of Lot 69 shall fail both contracts may be rescinded ab initio. And further the purchaser and the vendor agree that a total sum of $110,000 will be the combined part deposit by instalment for both contracts, the balance of the 10 per cent for both contracts being payable on or before settlement. It is further agreed that the combined part deposit of $110,000 shall be immediately and unconditionally released to the vendor upon exchange.

74. The Special Conditions allowed the parties to serve Notices to Complete and, in the event of late completion, for the purchaser to pay interest at 10 per cent per annum. Special Condition 15 of the contract for Lot 106 provided:

Completion of this Contract shall take place within 14 days from the notification from the vendor to the purchaser that the subdivision of Lots 106 and 107 from the existing Lot 69 referred to in Clause 16 is registered.

The cross-reference to Clause 16 appears to be in error, and I take it to be intended to have been a reference to Clause 14.

75. Special Condition 14 noted that the vendor had commenced an application to subdivide Lot 69 into new Lots 106 and 107, and that new Lot 107 would comprise the tennis court and house and was not included in the sale. It was noted in respect of the subdivision that:

a.   The vendor will pay the costs associated only for the first stage subdivision of the new Lots 106 and 107 out of the existing Lot 69;

b.   The purchaser will pay for the second stage subdivision costs of the new Lot 106 into the intended five separate blocks and any other development costs, inspection, certification or related costs associated with the new Lot 106 and/or the Rosamel Street upgrade and completion (including the cost of the construction certificate for the Rosamel Street works).

76. The Special Conditions in respect of Lot 106 included 13 conditions in relation to the subdivision. Summarised, these required Mr Stokes to:

1. construct new entrances for the existing house and Lot 107 on the Rosamel Street frontage of the block;

2. complete Council’s requirements for the subdivision of Lot 107;

3. maintain at least one unobstructed entrance-point to a gate or opening in the southern boundary of Lot 106 until settlement;

4. decommission the existing electrical service and water line between the existing home and the bore on Lot 68; and

5. collaborate on the preservation of the existing gate.

77. Importantly, Special Condition 11 of the contract for Lot 106 provided:

The purchaser is permitted to access the site for the purposes of preliminary work on the subdivision driveways, fencing and infrastructure and to store machinery, equipment and materials on the site during the Rosamel Street road upgrade. The purchaser is not to demolish, modify, use or access any sheds on the land prior to completion, under any circumstances or for any purpose. The vendor retains exclusive right of access to sheds and their contents until settlement.

This was not consistent with Mr Langworthy’s declaration of 19 June 2016, that Ms Toyne had no objection to Mr Stokes demolishing the “shedding structures” on the lots.

78. After exchange of contracts, Mr Stokes asked Mr Dixon to proceed to market the lots which would be created on the subdivision of Lot 106. Mr Stokes also contacted the Commonwealth Bank to formalise the loan which had earlier been discussed. On 28 June 2016, McGrath issued sales advices for Lot 2 and Lot 5, each for $320,000. On 12 July 2016, McGrath submitted their invoice for marketing costs, totalling $1,270, which Mr Stokes paid so that the lots could be advertised on McGrath’s website.

Demolition of sheds and asbestos

79. On 11 July 2016, Mr Stokes demolished sheds on the property. Given the imminent expiry of the development consent on 27 July 2016, it is clear that this work was done to keep the approval on foot. Mr Stokes explained “we had to go and do substantial work to convince council that they wouldn’t cancel the DA.” Whilst Mr Stokes was criticised for demolishing the sheds, I do not think that was fair in light of Mr Langworthy’s declaration of 19 June 2016. Further, Mr Stokes said that he told Mr Langworthy that he was going to demolish the sheds, and Mr Langworthy asked if he could have the corrugated sheets and timber. Mr Langworthy visited the site while Mr Stokes demolished the shed and, together, they put aside the corrugated sheets and timber, which Mr Langworthy took with him. Mr Langworthy did not object to the demolition or raise any concern about the possibility of asbestos at the site. And that is the real complaint: what Mr Stokes did with the asbestos in respect of a shed on Lot 68.

80. On 8 November 2017, David Davies met with Mr Langworthy at Mr Davies’ home in the ACT. Mr Langworthy gave Mr Davies some bonded fibre sheet to be tested for asbestos. Mr Davies gave the sample to Robson Environmental, who tested it and confirmed that it contained chrysotile asbestos. Mr Langworthy did not give evidence in these proceedings. As there is no evidence as to where Mr Langworthy got the fibre sheet from, this evidence does not assist me.

81. As earlier mentioned, Ms Toyne tendered an Asbestos Assessment Report by Luke Nuttall. Mr Nuttall inspected Lot 68 where a shed once stood and three stockpiles of material near the dam. Mr Nuttall saw debris consistent with the demolition of a small building containing asbestos cement sheeting with asbestos cement debris spread across the topsoil, mixed with demolition waste, stockpiled soils and other materials. Testing detected chrysotile asbestos fibres on the ground where the building once stood. Of the three stockpiles at the dam: one was asbestos-free; one had an unacceptable level of contamination for residential development and must be remediated or removed from site; and the third stockpile had acceptable level of asbestos contamination. Non-friable asbestos–containing materials were also present in topsoil areas due to the demolition of the building and movement of the waste with asbestos. In one area, asbestos contamination at unacceptable levels for residential development was present within the topsoil to a depth of at least 30 centimetres below ground surface.

Looking for another financier

82. In August 2016, the Commonwealth Bank advised Mr Stokes that they would no longer lend him the funds. It would appear that this was because the deal as evident from the Contracts of Sale was different to that first discussed in May 2015. Mr Stokes investigated the possibility of obtaining a loan from another bank, but was unsuccessful. He then contacted a finance broker to assist him to secure finance. On 6 August 2016, Mr Stokes emailed Global Capital again, seeking bridging finance.

You secured a mortgage for me to give me capital to purchase a residential subdivision of five lots. Price was $1.1 million. I have paid the deposit of 10% and have until late October to pay the remainder. I was expecting to have the infrastructure built by the end of August (I’m a civil engineering contractor so will build the roads myself). Rain however has held up play and we will not be complete till mid-October. I then have to get the lots registered with Department of Lands before I can sell. I have two lots already signed up under contract and another one close ($320,000 each). I need to borrow the $1 million late October for approximately 4/5 months.

Mr Stokes gave evidence that it was a very wet winter. It is apparent from this email that Mr Stokes thought he had until late October 2016 to obtain finance to complete the purchase. By then, he expected to have completed the civil works and on-sold the new lots. Global Capital said they would forward the request to their commercial specialist as it fell outside residential funding.

83. On 19 August 2016, contracts were exchanged for the sale of Lots 2 and 5.

Registration of sub-division

84. On 6 September 2016, Ms Toyne’s former conveyancer, who appears to have been re-engaged, advised that the subdivision had been registered and thus settlement was due on 21 September 2016. This was a month earlier than Mr Stokes expected, according to his email to Global Capital.

85. On 14 September 2016, Mr Stokes submitted a loan application to the Commonwealth Bank. The application was jointly made with Mr Stokes’ daughter and his daughter’s partner. Mr Stokes sought a loan of $1.035 million to complete the purchase of the properties. The same day Mr Stokes also approached a finance broker, Bronko Kozel, of Development Finance Partners. Mr Stokes was clearly not assuming he would get finance from the Commonwealth Bank, nor was he waiting for Global Capital. Mr Stokes informed the broker that he expected to on-sell the lots for $1.93 million, being $830,000 in excess of the purchase price. He intended to fund infrastructure, council contributions, electrical and phone connections and linen plan registration himself (this seems reasonable given the finance obtained through Global Capital) and sought finance for the remaining purchase price of $990,000.

The roads would have been constructed by now but for the ridiculously wet weather for the past two months. The program is now that the roads and infrastructure will be complete by the end of November, two weeks for council approval then it is in the hands of the Department of Lands so I estimate mid-February before I can collect funds from my buyers.

On 16 September 2016, Mr Kozel sought further information from Mr Stokes, which was provided.

First extension

86. On 22 September 2016, Ms Toyne served a Notice to Complete. The Commonwealth Bank officer assessing Mr Stokes’ application internally recommended approval of the loan. On 23 September 2016, Global Capital responded that they could not fund on the basis proposed by Mr Stokes.

The max we could fund is 50% of the initial land value or organise a construction loan which would be drawn down on a progressive basis with the funder always retaining sufficient funds to complete the project.

On 25 September 2016, the Commonwealth Bank declined Mr Stokes’ application for a loan notwithstanding initial internal approval.

87. On 27 September 2016, Development Finance Partners submitted a proposal to arrange finance for $1,061,500 at 13 per cent interest for an advisory fee of $23,540, of which $11,000 was payable on acceptance of the proposal. Finance was subject to satisfactory valuation of the properties, together with an evaluation of Mr Stokes’ Sutton property of no less than $1.8 million. Prior to the commencement of construction, Mr Stokes had to provide satisfactory evidence of exchanged contracts with a net sales value of at least the loan amount.

88. On 5 October 2016, Mr Kozel advised Mr Stokes that a non-bank mortgage lender was interested in refinancing the loan on Mr Stokes’ Sutton property at 55 per cent of valuation. Assuming that the Sutton property was valued at $1.8 million then, after discharging the existing loan, funds of $500,000 would be available. Mr Stokes’ conveyancer advised Ms Toyne’s conveyancer:

Our client has encountered difficulties with finance. He has now arranged finance with a second tier lender at some significant costs, including a large upfront fee which he must pay prior to even obtaining approval. He is prepared to pay the significant costs associated with this style of finance, providing he can be assured that your client will extend the notice to complete to enable him to put the application in place and then obtain approval. In the circumstances we have been instructed to ask that the time for completion be extended to 4 November 2016. The indication our client has from the financier is that completion will occur within another two to three weeks. However we believe that it is safer to allow a little more time so that the matter can proceed to completion.

Although Mr Stokes was cross-examined at length about the contents of the letter, it roughly accords with his dealings with potential financiers at the time.

89. On 7 October 2016, Ms Toyne’s solicitors advised that their client had agreed to a two-week extension and, in the meantime, penalties would apply under Special Condition 4. A further Notice to Complete was issued, requiring the Contracts to be settled on 24 October 2016.

90. On 17 October 2016, a sales advice was issued in respect of lot 4 for $320,000.

91. On 20 October 2016, Mr Stokes enquired of Mr Kozel whether a better finance deal would be available if his daughter, Tracey Stokes, became involved. He also provided further information in support of the application for finance, noting that construction was envisaged to commence during the first week of November and to be complete within four weeks. On 21 October 2016, Mr Stokes pressed Mr Kozel as to progress, noting there was still no word from the valuer, presumably of the Sutton property. Mr Stokes advised the broker that Ms Toyne had given an extension of time to settle, which expired the following week, and it was necessary to get something definite to her before then. Mr Kozel’s superiors sought further information, which Mr Stokes provided.

Second extension

92. The extended date to complete on 24 October 2016 came and went. That evening, Ms Toyne’s solicitor emailed Mr Stokes’ solicitor noting that settlement should have occurred that day. On 25 October 2016, Mr Stokes’ conveyancer replied that Mr Stokes should be ready and able to settle in seven days. I think it is more likely that Mr Stokes expected that, within seven days, he would have arranged finance but not that the finance would be available to be drawn down quickly. I expect he hoped to use more specific details about finance to request a further extension of time. Ms Toyne’s conveyancer confirmed that they would book the settlement for 2 November 2016. This information was forwarded to Mr Kozel.

93. On 26 October 2016, Mr Stokes responded to Mr Kozel’s request for further information noting that sale of the third lot should finalise in a few days but the fourth would have to be “massage[d] a little”. On 26 October 2016, Mr Kozel reported to his superiors, noting an extension of time had been effectively given until 2 November 2016 and Mr Stokes had said that “the other side just need to confirm approval is in place to provide time to settle.” Mr Stokes was aware that he had to exchange contracts on the last two lots before settlement of the funds could be provided. A valuation had come in for the Sutton property at $1.65 million and Mr Kozel was now working with Mr Stokes and a funder, LaTrobe Financial, to refinance that property as soon as possible.

94. On 27 October 2016, Mr Kozel’s superiors advised that they had completed a paper in respect of the transaction and forwarded the deal to a number of potential lenders for indicative terms. On 1 November 2016, Mr Stokes submitted an application for mortgage finance to LaTrobe Financial seeking to refinance the existing Sutton loan with additional cash of $457,500. These funds would provide some, but not all, of the purchase price.

A third extension

95. On 1 November 2016, Mr Stokes’ conveyancer advised:

We are instructed that our client expected his finance to be available today but that now requires a further 48 hours. Accordingly, we propose to reschedule settlement to Friday 4 November 2016.

96. The contents of this email were clearly at odds with the reality of Mr Stokes’ then financial situation. Shortly after this, Mr Stokes emailed Mr Langworthy directly advising:

The finance co promised me they would have the approval letter to you by tomorrow. Then sent me a list of more info they wanted. It’s taken me the past 2 days to get it all together. It has now gone over to them so the approval should be in hand within 48 hours.

97. Mr Stokes’ email to Mr Langworthy, I think, clarifies the situation. That is, Mr Stokes expected to have finance approved within the next two days but not necessarily to have funds within two days. The conveyancer may not have understood that, or may have considered that this was not sufficient to keep the deal alive. Either way, I do not think that Ms Toyne was actively misled as her Attorney was apprised of the real situation. Mr Langworthy responded to Mr Stokes, copied to Ms Toyne, noting that he would discuss the matter with Ms Toyne:

But I expect her position will be stay the course with advice from her solicitor and noting her costs are at least partially being offset through the modest penalties accruing on the deferral. At least the rain has stopped for a period!

By his email, Mr Langworthy forwarded Mr Stokes’ email regarding his difficulties with the finance company to Ms Toyne. Later that evening, Ms Toyne’s conveyancer advised they would re-book the settlement for 4 November 2016 and requested a settlement statement.

A financier is found

98. On 4 November 2016, Development Finance Partners advised Mr Stokes that they had terms from a lender which they would provide on payment of $5,000. The Conditional Letter of Offer was for a construction loan of $1.05 million, not to exceed 60 per cent of valuation, available for seven months at 13 per cent interest, prepaid in full. An upfront fee of $7,700 was payable together with an establishment fee of 2.75 per cent. A condition of the offer was unconditional qualified pre-sales greater or equal to the loan amount. With two contracts exchanged, and a sales advice issued in respect of the third, this condition was not satisfied at that point in time and would not be until contracts had been exchanged for three more lots.

99. At 3.10pm on 4 November 2016, Mr Stokes’ conveyancer emailed Ms Toyne’s conveyancer noting:

My client has sent me a short time ago, a letter from his loan broker indicating that approval had been obtained for finance. However my client needs to pay the broker a fee of $5000 before the formal letter of offer will be made available.

My client will attend to the payment later today. This means that none of us will see the formal letter of offer until Monday. Once [we] have had a chance to review that, we will be in a much better position to advise you on timelines.

100. On about 7 November 2016, Mr Stokes paid the $5,000 and an indicative loan offer was issued by Vertex Mortgages Pty Ltd for $1,050,000, of which $144,305 was for loan fees and charges. Purchase funds of $480,191 were offered, together with a further $425,504 for development, to be progressively drawn down. Unsurprisingly, Mr Stokes emailed the broker with a number of concerns about the offer which, I have to say, were fairly worded, but prompted an internal email by the broker: “How about you be thankful for your offer so you don’t lose your $110K deposit?”

101. On 10 November 2016, Mr Stokes followed up his broker, noting, “I’ve been heavily involved of late with roads construction after the wet weather ceased and I’m a bit lost.” Mr Stokes asked whether they had a solid loan offer from either lender:

Having put in now $16,000 and no firm heading I’m somewhat reluctant to spend a further $7,700. Exactly where are we up to? The vendor will not wait much longer. I really don’t want to lose a further $110,000!

It is also apparent from Mr Stokes’ emails at this time that he was busy working on site and relied on the broker and his conveyancer to progress matters while he was out of telephone contact.

102. On 17 November 2016, Mr Stokes received an email from his conveyancer:

We have been given verbal assurances that we have till the 1st December 2016. So my recommendation is to pay the $10,000 and let’s make this happen. If it doesn’t happen on that date she’s instructed to terminate the contract.

103. It appears that, on the basis of this, Mr Stokes decided to pursue the perhaps unattractive offer of finance from Vertex. Mr Stokes’ conveyancer sought assurances from Vertex that it would be able to complete the transaction by 1 December 2016, and Vertex said they would do their best but could not guarantee it given the short time remaining and the fact that a valuation still needed to be obtained. A loan application form was sent to Vertex later that day.

104. On 20 November 2016, contracts were exchanged for the sale of Lot 1 for $330,000. This left Lots 3 and 4 to sell.

105. On 21 November 2016, Vertex sent through a list of the lender’s requirements. It is readily apparent that those conditions could not be met. In particular, the lender required a copy of each contract and, by then, only three contracts had been exchanged with a combined purchase price of $970,000. A flurry of emails on 24 November 2016 between Mr Stokes’ conveyancer and Vertex followed, including the following acknowledgement from Vertex:

It is becoming evidence that we are not going to make the 1st December deadline. Is this going to cause any issues? Also, we will be visiting Canberra next Thursday 1 December to do a site inspection and would like to also meet with the borrower.

Mr Stokes agreed to meet the lender. Mr Stokes also advised his conveyancer and broker that he would be away from midday on 25 November until 7:00am on 29 November to attend his daughter’s wedding in Sydney and would not be contactable during that time.

Request for a fifth extension

106. On 30 November 2016, Vertex advised Mr Stokes’ conveyancer that they would not be able to settle by 1 December. The conveyancer asked for a letter advising when they could settle as “this may persuade the seller to give you more time.” Vertex sent a letter as requested, explaining that it was unable to complete settlement of the loan by 1 December 2016, noting that the valuation report had been received that day and loan information would now be issued to the investors and, once accepted, loan documents would be prepared. They specified that:

Subject to prompt acceptance by our investors, settlement conditions being met and preparation of the loan documentation, we anticipate that settlement of this loan should be able to take place by no later than 16 December 2016. We are however aiming for a settlement to take place sooner than this date.

107. Vertex’s letter was immediately forwarded to Ms Toyne’s conveyancer, under cover of a request:

We again seek your client’s indulgence to grant our client a further extension now that we have some solid information regarding our client’s finance.

108. On 1 December 2016, Mr Stokes wrote directly to Ms Toyne and Mr Langworthy. He probably should not have communicated with Ms Toyne directly, but there was a degree of informality which attended the parties’ interactions. Mr Stokes gave a fair and reasonable update on his progress with both lenders. He proposed that LaTrobe’s finance be placed in an interest-bearing trust account with Ms Toyne’s conveyancer pending provision of finance by Vertex.

109. On 2 December 2016, Mr Stokes’ conveyancer sought instructions from Ms Toyne’s conveyancer as to whether a further extension of time had been agreed to. No instructions were available. Mr Stokes again emailed Ms Toyne directly, as follows:

I’ve just received confirmation that my previous mortgage has settled at a cost to me of approx. $14,000. I now have $500,000 available immediately. I am now paying a much higher rate on almost $1 million borrowed. I spoke with the second lender this morning and they asked whether they should continue putting the loan in place. Again, costs are escalating. I asked them to keep pushing ahead to their expected settlement date. With doubts as to the situation I worry that the timeframe might slip further however. What are we doing??

110. On 5 December 2016, Mr Stokes again emailed Ms Toyne directly advising that Vertex had approved the loan and would issue formal documentation in the afternoon of 6 December or early 7 December.

They assure me that the 16th is a definite but that an earlier date is very likely, they suggest 12th or 13th.

111. On 7 December 2016, Vertex advised, “Everything is fine from our end” and, subject to various matters, they intended to aim for settlement on 14 December 2016. Mr Stokes’ conveyancer immediately forwarded this email to Ms Toyne’s solicitors. It would appear at this point, finally, that completion was imminent.

Termination

112. On 7 December 2016 at 4:53pm, Ms Toyne’s conveyancer emailed Ms Toyne referring to their recent telephone conversations and confirming her instructions to terminate the contracts for sale.

I note that you have also instructed that you want fresh contracts issued in respect of both lots to the same purchaser. Further, you instruct that you want the purchaser to enter into these fresh contracts simultaneously with the original contracts being terminated and that you want settlement to occur on 16 December 2016. … I confirm your instructions with regard to the price of the lots for the fresh contracts as follows: the original purchase price, plus the penalties the original purchaser has incurred by not settling to date and an amount representing the capitalisation of the blocks.

I understand capitalisation of the blocks to be a reference to the increased value of the blocks at the time of exchange.

113. The conveyancer sought confirmation of these instructions, and an agreement to pay the additional fees which would be incurred in attending to them. It cannot reasonably have been thought by Ms Toyne that, if she proceeded in the manner proposed, Mr Stokes would have been able to pay the new purchase price of $1,175,016.10 in circumstances where Mr Stokes would have lost the deposit already paid and was clearly having significant difficulty raising the funds to complete the purchase under the existing contracts. Whilst Ms Toyne was entitled to take that course if she wished, it indicated either a lack of commercial reality on her part or a wish to exploit Mr Stokes’ difficulties.

114. On 7 December 2016, Vertex issued the long-awaited loan approval letter. It was accepted by Mr Stokes the same day. I note that settlement of the loan was subject to Vertex’s solicitors certifying sale contracts. Two lots had yet to be sold: this may well have further delayed completion or necessitated a variation of the loan agreement or conditions.

115. On 8 December 2016, Mr Stokes emailed his broker, as follows:

I understood that the $400,000+ was to be deposited into my account. This hasn’t happened at this time. I’ve made a suggestion that I could transfer this money to a trust account as a sweetener for the vendor. I can’t let her down yet again for obvious reasons. What is the process??

116. Later that morning, Mr Stokes emailed Ms Toyne directly, forwarding the signed Vertex letter of approval:

They have given the 14th as the definite date for settlement. The rest of the funds are sitting in my St George account awaiting transfer. The $990,000 can be in your account Wednesday next week.

Molly, the main reason I’m still pursuing this is that $110,000 deposit you hold. To be perfectly honest, but for that, the deal would not be worthwhile. The borrowing costs that I’ve already incurred amount to almost $100,000, GST on sales will be $50,000, power $50K, Telstra $10K, council contributions $32K, transfer duty etc etc, the construction work that I’ve already put in and then there’s the Goodfellow situation which makes the rural lot virtually worthless.

I’ve not organised further work as I thought I would be at Gundaroo.

Molly, I’m in a situation where, following the Mietschke debacle (same broker) I could lose my home. I know you have the right to take my money and walk away. Please don’t do it.

Mr Stokes’ plea was ineffective. Soon afterwards, Ms Toyne’s conveyancer served a Notice to Terminate.

117. Mr Stokes enquired by email of Ms Toyne why she was taking this course, and then sent a further desperate email pleading his case to allow the transaction to remain on foot. Mr Stokes made clear that if he lost this finance, then he would not be able to retrieve it and the deal would be completely dead. Ms Toyne replied later that evening, copying in her conveyancer, Mr Dixon and Mr Langworthy. Ms Toyne expressed her frustration with the protracted financing process, saying that that was Mr Stokes’ problem and he should have had his finance in order before exchanging the contracts. Ms Toyne said that it had required her to renegotiate her finance arrangements for investments, debts and her house which were all contingent on the sale of the land.

If the purchaser wishes to re-enter into a new contract to purchase the development blocks once his finance is actually in hand, I am prepared to explore that process immediately.

This would require a compressed settlement period and a payment of the 10% deposit which will be forgone by the purchaser if settlement does not occur promptly. Whilst I am possibly prepared to recognise the existing deposit in a reduced sale price, the contract price will need to be adjusted to reflect all accrued penalties, the removal of works for the vendor (which will need to be costed and added so they can be completed by other contractors) and a market adjustment in acknowledgement of the current value of the site.

If this is not of interest to the purchaser, I must re-evaluate my options and proceed with alternative disposal and/or development options with a purchaser who will honour in the first instance the financial obligations.

118. Ms Toyne also emailed Mr Stokes directly, copied to Mr Langworthy, noting:

This has been impossible on my finances as you can imagine. Too many extensions, too many missed settlements. I offered simultaneous new exchanged contracts to try and help. I am ready to sell when you are actually in a position to buy. But that utterly violated contract had to finish. Talk to Phil.

Further negotiations

119. On 9 December 2016, Vertex provided its valuation and confirmed that the documents should be finalised that day. On 12 December 2016, Vertex issued its loan agreement. On 12 December 2016, Mr Stokes signed the Vertex loan agreement. On 14 December 2016, Mr Stokes received $511,600 into his solicitor’s trust account. This appears to have been the LaTrobe refinancing of Mr Stokes’ Sutton home.

120. On 18 December 2016, Mr Stokes sought advice from Mr Dixon as to how to proceed, noting that he had tried to call Mr Langworthy but he was not taking his calls or replying. Mr Dixon replied on 19 December 2016, noting that he had not been able to get hold of Ms Toyne or Mr Langworthy either and, “It doesn’t look hopeful”. Mr Dixon noted that they couldn’t continue to hold sales deposits on the pre-sale contracts if indeed the contract was terminated. Later that morning, Mr Stokes again emailed Ms Toyne, Mr Dixon and Mr Langworthy pleading to be permitted to complete the sale. He suggested that they would do better to resolve their dispute sensibly rather than resort to the courts. There was no response.

121. On 10 January 2017, Mr Stokes’ conveyancer advised Vertex’s solicitors that Mr Stokes was no longer in a position to proceed with the loan as he was not currently proceeding with the purchase of the property. On 12 January 2017, Vertex’s solicitors requested payment of Vertex’s fees totalling $51,250 and sought payment by 20 January 2017.

122. On 14 January 2017, Mr Stokes met with Mr Langworthy and put forward three options being: refund his deposit and walk away; settle the original contracts with payment of interest penalties of $36,000 plus an additional $30,000; or, enter into a new construction contract in exchange for new Lot 1. As Mr Stokes reported to his conveyancer:

I said I think I can keep the current purchase on foot until this coming Wednesday. I said if no go then I will offer to build the roads for the original quote price of $300K plus GST and install electricity conduits in exchange for Lot 1 as payment. … He will talk with the vendor though she is currently skiing in Japan. I think she is getting advice from a barrister who resides in Gundaroo…

123. It is not clear to me how Mr Stokes thought he would be able to finance the completion of the purchase on the terms of the existing contract, having already notified Vertex that he would not proceed with the loan which had been arranged which such difficulty and expense. In any event, Mr Langworthy emailed soon afterwards, having spoken to Ms Toyne, and advised that the three options were not appealing. The balance of a rather long email does appear to bear the hand of a barrister. Ms Toyne had apparently expended the deposit and wanted to keep Lot 68. Ms Toyne proposed three alternatives for consideration, being:

1. The contracts stand as terminated with her retaining the deposits.

2. Lots 1 to 5 be sold to Mr Stokes for $1 million. Ms Toyne may credit $100,000 of the forfeited deposit less the penalties calculated under the terminated contracts calculated to an accelerated and immediate settlement date less a further $30,000 penalty for vendor losses “as agreed on 14 December 2016 in related discussions” and a release from all other claims including in respect of the removal of trees.

3. A new construction contract in exchange for one lot, in which case Ms Toyne might then reimburse $100,000 of the deposit less penalties and a further $30,000 for vendor losses and a potential further deduction for compensation for removal of the trees.

The email referred to a loss of amenity due to the allegedly illegal demolition of 100-year-old trees which was said to have deeply eroded Ms Toyne’s confidence in Mr Stokes. I do not know why the removal of trees was said to be illegal. The conditions of the Development Approval made no reference to trees and there was no evidence that the trees were protected.

124. On 19 January 2017, Mr Stokes’ new solicitor advised Mr Langworthy that the second or third options were acceptable to Mr Stokes, although he had a preference for the third option. It is unclear to me how Mr Stokes proposed to fund the second option. However, discussions proceeded in respect of the third option and Mr Stokes’ solicitor arranged to meet with Mr Langworthy. The parties met on 24 January 2017. Mr Stokes said that he would forward detailed costings to complete the subdivision.

125. On 2 February 2017, Mr Stokes submitted detailed costings to complete the subdivision of Lot 106, being $483,000 plus GST. In those circumstances, the proposed compensation in the form of Lot 1 for undertaking the work was said to be uncommercial. Mr Stokes proposed instead to complete the works to registration/certification stage in return for Lot 1 plus $180,000 with all other rights waived and released. If agreement could not be reached along these lines, Mr Stokes advised that he would take legal action. Mr Langworthy replied:

I am responding only out of courtesy to acknowledge your correspondence. I feel the assurances you made via email and telephone prior to our meeting were entirely misleading and I have felt my willingness to broker an outcome of benefit to your client was misused. I will therefore have no further engagement with [Mr Stokes or his conveyancer] on this matter.

There was no further communication. I think that Mr Stokes’ increased costings to complete the subdivision reflected the significant financing costs which he had incurred to that point in time.

126. On 7 February 2017, Mr Stokes advised Mr Dixon to rescind the three contracts of sale exchanged for the subdivided lots and refund the deposits, and to advise the buyer of the fourth lot that it would not be proceeding.

127. Mr Stokes spent $11,660 on Vertex. Vertex sued Mr Stokes for further unpaid fees. On 15 March 2018, Mr Stokes settled the proceedings, agreeing to pay Vertex $75,000. Mr Stokes also incurred $14,000 in costs in refinancing his home loan and committed to a higher interest at 3 per cent above market rate.

Improvements

128. Mr Stokes has spent $37,295 on council fees, design fees, the purchase and delivery of stormwater pipes and headwalls, sub-base rock, armour rock for creek embankment protection, transporting earthmoving equipment to the site and mowing. Mr Stokes has since retrieved the stormwater pipes and headwalls and these remain available for his use in the future.

129. Within Lot 106, Mr Stokes has excavated and compacted two access roads to the battle-axe lots, surveyed all boundaries and disconnected the power to the bore. Within Lot 107, Mr Stokes has constructed two entry driveways to the boundary involving excavation, compaction and installation of road base. He has removed the fencing within the road reserve and re-erected it on the correct alignment. On the Crown land, Mr Stokes has stored the road base, stormwater pipes and structures, removed topsoil and stockpiled for later reuse and supplied and compacted some 300 tonnes of fill within the new road. The Crown land does not, of course, belong to Ms Toyne nor Mr Stokes. What the Department of Lands thinks about this is not known.

130. Mr Stokes’ valuer, Mr Lovell, visited the site and took photographs which give a further indication of the extent of the works. Mr Lovell observed that the site had been “cut” for construction of an access road along about 70 metres of Rosamel Street and the eastern section of the road had been constructed for a distance of around 165 metres. Mr Lovell’s photographs show: an incomplete western end of the road with topsoil removed and cut for road base; a stockpile of road base; an upgraded roadway showing relocated trees on the right; pipes placed in the road at the eastern end; and a compacted entry to battle-axe block Lot 2. Mr Lovell noted the presence on Lot 68 of large amounts of fill.

131. In August 2017, Mr Stokes attended the site with Jason Shepheard, quantity surveyor. In addition to the work described by Mr Stokes in his affidavit of 6 July 2017, Mr Stokes told Mr Shepheard that he had removed and transplanted 20 trees, backfilled the dam, demolished an existing double fence, demolished old sheds and structures “including asbestos”, relocated a sign and excavated for drainage. I infer from this that Mr Stokes told Mr Shepheard that there was asbestos in the shed. This would not be surprising given the apparent antiquity of this shed and the building materials with which it was constructed. Ms Toyne accepted that Mr Stokes did some of these additional items described to Mr Shepheard.

132. Mr Shepheard estimated the cost of the work performed by Mr Stokes on the assumption that Mr Stokes had performed the work which he said he did. Mr Shepheard excluded the cost of the stormwater pipes and headwalls which Mr Stokes had retrieved from the site. Mr Shepheard also excluded the monies paid by Mr Stokes to the council and for design. He estimated that the work related to the development cost $98,435. The items which Ms Toyne did not accept were done, and which were not supported by Mr Stokes’ affidavit or other contemporaneous documents, were backfilling the dam, sign relocation and drainage excavation. If one excludes these items, then Mr Shepheard’s estimate of the cost of the works done by Mr Stokes is $82,535.

133. Ms Toyne criticised Mr Shepheard’s report for its lack of detailed calculations. That criticism is fairly made. Ms Toyne relied upon an expert report by quantity surveyor Fiona Doherty, who estimated that the value of work done by Mr Stokes on the land was $36,156.75. Ms Doherty viewed the works with Mr Langworthy. Ms Doherty’s observations on the site included that the re-erected fence was of star picket posts with wire fencing, which appeared temporary in nature, and not a strained wire fence. She observed seven trees which had been replanted along the roadway and considered that the dam had not been backfilled but rather used for disposal of excavated material and stockpiling. Ms Doherty expressed concern that the shed may have contained asbestos and that the works had not been completed in accordance with the permitted works under the Contracts of Sale, and further that the dam had not been filled appropriately. Ms Doherty noted that there may be some cost of rectifying the works or remediating the site.

134. Ms Doherty excluded the 10 per cent mark-up for margin and overheads as she understood this to be a claim for recovering the cost of works incurred directly by Mr Stokes. It is not. Mr Stokes is simply asking the Court to have regard to the value of the works in deciding whether Ms Toyne should have the benefit of the works and the deposit. As such, I think it is appropriate to include the 10 per cent mark-up in order to have a more accurate sense of what Ms Toyne would have had to pay for those services if she had retained another contractor to do the work. If I remove the items which I have rejected in Mr Shepheard’s report, because there is no admissible evidence that the work was done, but add the mark-up, then Ms Doherty’s figure becomes $37,000.

135. Ms Doherty’s calculations were also based upon how many tonnes of road base were needed to complete the roads, which depended upon taking the second section in the engineering drawings but not other sections needed to construct the roads. Given that the road was in fact made, I do not think it is correct to only cost one layer of it, so I prefer Mr Shepheard’s cost estimate on that subject. This would bring Ms Doherty’s calculations to $53,000.

136. Ms Doherty said further that her costings would be reduced if the road fill was simply delivered to the site but had not yet been spread out and compacted. I do not know why this proposition was put to Ms Doherty in chief, as Mr Stokes’ affidavit indicates that he did excavate, compact and install road base to two access roads to the battle-axe lots and two entry driveways and undertook “supply, haulage placement and compaction of approximately 300 tonnes of fill within the new road”. Ms Doherty accepted in cross-examination that, when on site, she had observed roads that had been installed with compacted road base.

137. The range of figures from the quantity surveyors is therefore between $53,000 and $83,000. Ms Doherty’s work is generally more detailed and comprehensive and I prefer her calculations and approach. Some portion of the $35,000 of expenses incurred by Mr Stokes should be added, such as council fees, as Ms Toyne would otherwise have incurred these costs herself. It is not necessary to reach a precise figure for the purpose of this application, save to say that Ms Toyne has benefited from the works done and expenses paid should she choose to pursue the approved subdivision herself or sell the land to someone who does.

138. Against this, Mr Stokes’ approach to demolishing an old shed and disposing of the materials was cavalier. It wasn’t necessary to demolish the shed on Lot 68 to keep the Development Approval alive and so I infer that the shed was demolished in order to improve the saleability of the sub-divided lots in Lot 106. I consider that a person of Mr Stokes’ experience would have readily perceived that the shed likely contained asbestos, and should be handled accordingly. Mr Stokes submitted that the standard which Mr Nuttall used to assess whether the level of contamination of asbestos was acceptable was that applicable to a home site. However, Lot 68 was a rural parcel which was not zoned residential. Further, the asbestos already existed on the site, albeit it the form of a shed. The state of the shed was poor and the asbestos sheeting can be seen on the photographs to have been in a poor state in any event. That may be true, but spreading it around makes it more expensive to pick up.

139. In the result, Mr Stokes has conferred a benefit and a detriment on Ms Toyne. Mr Nuttall recommended that, having regard to the sporadic distribution of asbestos materials within the topsoil and stockpiled materials, the most appropriate method of remediation was removal via excavation and disposal as asbestos waste at an appropriately licenced waste facility. This would include removal of one of the stockpiles, removal of topsoil to a depth of at least 15 centimetres below the existing ground level over the area of topsoil examined, with removal of soil to a depth of at least 30 centimetres in the area of topsoil particularly affected. What remediation would be required for a rural lot is not in evidence.

140. Mr Stokes did confer a benefit on Ms Toyne by performing civil works which she would otherwise have had to pay someone to do in order to satisfy the conditions of the Development Approval and register a plan of subdivision for Lot 106. This was a project which Ms Toyne and her husband had spent some years endeavouring to progress. It is reasonable to think that the civil works are of value to her. The cost of cleaning up the asbestos is not known. The extent of remediation required for a rural lot is not known. It will, however, be a cost which a potential purchaser of Lot 68 will likely factor into their purchase price, or that Ms Toyne will herself have to bear. Overall, I consider that Mr Stokes’ improvements are a modest factor.

Value of land

141. Mr Stokes relied upon a valuation by Mr Lovell who attended the site on 13 March 2018. Mr Lovell considered that the completion of the works by Mr Stokes added value to the land by ensuring that the development approval did not lapse, brought the project closer to completion, removed risks associated with getting to completion and made the proposed lots more visible and marketable.

142. Mr Lovell valued the property on a direct comparison approach: he valued Lot 68 at $140,000 and Lot 106 at $1 million. Mr Lovell also valued the properties on a hypothetical development approach, having regard to the costs which would be incurred to complete the development and the higher sale price of the individual lots. Mr Lovell considered that a rate of return on costs on a development such as this would be between 10 and 20 per cent, and adopted a 10 per cent factor reflecting the fact that the works were part-complete and there was a continuing shortage of land in Gundaroo. By this approach, Mr Lovell arrived at a total value of $1,165,000. Mr Lovell considered that the direct comparison approach was more reliable in this instance but noted that the hypothetical development approach confirmed that the purchase and subdivision of the land was also feasible at that price. Mr Lovell’s valuation indicates that the subdivision is reasonably marginal in terms of profitability.

143. Mr Lovell was instructed to pay no regard to the suggestion that the dam was contaminated with asbestos, and did not take this into account in his valuation. Mr Lovell accepted that, if the fill at the dam contained contamination, it might affect his valuation of Lot 68 but he was unable to say how much as it depended on the type and quantum of asbestos contamination. It would not impact his valuation of Lot 106. I agree that whoever buys Lot 68 can be expected to factor in the cost of remediation and its value is less than that assessed by Mr Lovell, but Lot 106 is unaffected.

141. The defendant submits that the report of Mr Lovell does not establish that the value of the land has increased by virtue of the works performed: Mr Lovell assesses the value of the property as at 13 March 2018 ‘as is’ and does not provide a valuation of the property at the time contracts were exchanged or on the assumption that the works were not completed.

142. Whilst Mr Lovell’s valuation does not specifically identify the increase in value of the land which is attributable to the improvements as opposed to the passage of time or that the Development Consent remains ‘alive’, overall I find that Mr Stokes’ work on the land did give rise to a modest increase in the value of the land. It made the property more attractive to a purchaser who wishes to subdivide the lots. There was value in keeping the Development Consent alive. There was value in undertaking some of the civil works. I do not however, propose to take into account both the value of the improvements and the increase in value of the land as, in this case, they are effectively the same benefit.

submissions

146. Put shortly, Mr Stokes says it would be unjust for Ms Toyne to retain the deposits in circumstances where he has performed civil works on the properties and Ms Toyne retains the benefit of those works. Further, Mr Stokes says that Ms Toyne terminated the contracts when she was on notice that Mr Stokes was in a position to complete, having experienced financing difficulties of which he had kept Ms Toyne appraised. Ms Toyne disclaims any benefit conferred by the civil works and says there is nothing unjust in retaining the deposits in circumstances where Mr Stokes agreed to a deal which he was unable to perform and where she gave him ample time to arrange finance.

Plaintiff’s submissions

147. Adopting the approach of Pembroke J in Chambers v Borness at [10], Mr Stokes submits that the following factors demonstrate that the retention of the deposit by Ms Toyne is unjust or inequitable:

1. Mr Stokes contributed funds and labour so that Ms Toyne was able to sell the land in its subdivided form, by progressing the civil works required by the Development Approval, commencing works to ensure that the approval did not lapse, and expending time and money on the works.

2. Mr Stokes was the only purchaser to whom Ms Toyne could realistically sell the land on the terms she preferred (including the price and the retention of the house and tennis court).

3. At all times Mr Stokes took the development and the contract seriously, was willing to complete and made known to Ms Toyne that he was so willing.

4. Mr Stokes was entitled under the contracts for sale to perform the works in relation to the subdivision prior to completion, and he acted consistently with those obligations. Ms Toyne knew that Mr Stokes had performed works upon the land prior to completion.

5. Ms Toyne had extended time for completion a number of times prior to terminating. By the time Ms Toyne terminated the contract, Mr Stokes had secured finance and advised Ms Toyne that he had done so.

148. Mr Stokes submits that, in Kinder Investments Pty Ltd v Sydney City Council (2005) 143 LGERA 237; [2005] NSWLEC 737 Preston CJ, said, at [1]:

A development consent is a valuable asset. It is a statutory permission that authorises carrying out a development on land, mostly for economic gain. … It adds value to the land.

Mr Stokes’ work in obtaining a construction certificate and commencing works on the land to prevent the lapsing of the Development Approval provides an economic gain to Ms Toyne. It was submitted that Ms Toyne obtained an unjust and inequitable benefit from the transaction in both retaining the $110,000 deposit as well as the value of the work provided by Mr Stokes to improve the value of her land.

149. Mr Stokes submits that regard must be had to Special Condition 14(a) of the contract, which provided,

The Vendor will pay the costs associated only for the first stage subdivision of the new Lots 106 and 107 out of the existing Lot 69.

Ms Toyne has not paid those costs, it is said. I am not sure that is correct. The subdivision being referred to here was Stage 1 of the staged development, and it is not clear to me that Mr Stokes’ works assisted with that subdivision.

150. Mr Stokes submits that the delays which he experienced in arranging finance were relatively short when compared with the period Ms Toyne had taken to provide a contract for sale and exchange. I am not sure this follows either. Certainly, the negotiations were protracted. But once a deal was struck, Ms Toyne was reasonably prompt in providing the necessary documentation. Mr Stokes submits that, whilst he did fail to obtain his finance by the essential date, when viewed against the background of the long interactions of the parties, his undoubtedly serious intention to settle and the relative benefit taken from those interactions by Ms Toyne, the retention of the deposit is unjust and/or inequitable.

Defendant’s submissions

151. Ms Toyne submitted that, at law, a vendor’s right to forfeit a deposit in the event of a purchaser’s default does not bear any necessary relation to the damages actually suffered by the vendor. At law, a forfeited deposit could result in a vendor making a profit that, in justice and equity, the vendor ought not be permitted to enjoy at the purchaser’s expense. A vendor who forfeits a deposit in strict enforcement of the vendor’s legal rights is not to be deprived of it unless it is unjust and inequitable to permit its retention: Dasreef Developments Pty Ltd v Velkovski (2017) 96 NSWLR 318; [2017] NSWSC 1698 at [37]. Mr Stokes freely entered into two Contracts for Sale which required him to pay a deposit of $110,000 which, pursuant to special condition 16, was “immediately and unconditionally” released to Ms Toyne. Despite multiple extensions, Mr Stokes was unable to obtain the required finance and the Contracts for Sale were validly terminated.

152. Ms Toyne also relied on the passages of Chambers v Borness cited above. Ms Toyne submitted that, when the judgment is read as a whole, that Pembroke J did not take the improvements into account when considering whether it was unjust and inequitable for the vendor to keep the deposit. Further, Pembroke J considered the increase in value of the property between the date of the contract and the date of the hearing and said at [14]:

Nor do I think it is appropriate to take into account any increase in value of the property between the date of the contract and the date of hearing. I do not think that any such increase ought to be used in a way which penalises the vendor.

I am not sure this fairly reflects his Honour’s judgment, as he regarded improvements as a modest factor rather than disregarded the improvements entirely. Nor did his Honour’s decision not to disregard any increase in value of the property indicate any wider principle. Each case turns on its own facts.

153. As Ms Toyne put it, Mr Stokes must establish that it would be unjust and inequitable to permit Ms Toyne to retain the deposit: Lucas and Tait (Investments) Pty Limited v Victoria Securities; Rushcutters Bay Developments Pty Ltd v Dragon Asset Investment Pty Ltd (No 2); Fu Tian Fortune Pty Ltd v Park Cho Pty Ltd [2018] NSWSC 528 (I note the latter judgment was upheld on appeal: Fu Tian Fortune Pty Ltd v Park Cho Pty Ltd [2018] NSWCA 282). However, a proper approach to the discretion must appreciate the legal context of the established nature of a deposit as an earnest of performance in conveying transactions and the Court should not take an approach to ordering the return of deposits under section 55(2A) which weakens the proper function of a deposit in providing a sanction so that purchasers treat the making and completing of contracts with due seriousness: Havyn Pty Limited v Webster at [150]-[155]; Rushcutters Bay Developments Pty Ltd v Dragon Asset Investment Pty Ltd (No 2) at [70]-[71].

154. Ms Toyne submitted that it was not unjust or inequitable for Ms Toyne to retain the deposit because Ms Toyne was entitled to terminate the contracts for sale and the deposit was to be “immediately and unconditionally released” to her. It would be unjust not to allow Ms Toyne to retain a deposit contrary to the terms of the bargain reached with Mr Stokes. That is certainly a relevant consideration.

155. It was submitted that Mr Stokes did not undertake the works in his personal capacity. Rather, the works were undertaken by Stokes Contractors Pty Ltd and Mr Stokes has not directly suffered any personal loss as result of the termination of the contracts. If any detriment was suffered, it was suffered by Stokes Contractors. The evidentiary basis for this submission is the following exchange in cross-examination:

… did you purchase the property with the intention of completing the subdivision and selling the subdivided lots?

A. Yes.

Q. So you were undertaking a development of the subject property?

A. Yes.

Q. You were planning to undertake much of the work yourself?

A. Within my company, yes.

Q. Did that involve you undertaking some works?

A. I physically worked within the company, yes. I'm an employee essentially of the company.

Q. And the fact that you were able to undertake those works within your company meant that there was reduced costs for the development?

A. No, the, the - we're separate entities. Nicholas Stokes is a separate entity to Stokes Contractors Pty Ltd.

Q. Stokes Contractors Pty Ltd had certain equipment which assisted with the construction works?

A. It was used - would have been used within the construction work, yes.

Q. There were excavators?

A. Yes.

Q. Bobcats?

A. Yes.

Q. A grader?

A. Yes.

Q. Bulldozer?

A. Yes.

Q. Roller?

A. Yes.

Q. Water trucks?

A. Yes.

Q. Tip trucks?

A. Yes.

Q. And they were all owned by your company, Stokes Contractors?

A. Yes.

It was submitted that Mr Stokes’ counsel had confirmed there was no charge by Stokes Contractors for the work, but the transcript relied upon does not support that submission.

156. Mr Stokes’ initial quote to do the civil works was provided by Stokes Contractors. Mr Stokes was the proprietor of the company. It seems to me that Mr Stokes used equipment owned by the company, and spent time which he would otherwise have spent on the company’s other projects on this project. Whether the company charged him for the services rendered or not does not appear to me to matter when he owned the company. Any loss to the company was a loss to him as its owner.

157. It was submitted that the works were to benefit Mr Stokes by reducing his holding costs by enabling him to complete the works and be in a position to on-sell the subdivided lots as soon as possible after completion. That is true. It was submitted that it would be unjust for Mr Stokes to rely upon a Special Condition which was included for his benefit in order to demand the return of the deposit. It seems to me that the Special Condition was included for the benefit of both parties as, without it, a developer would be unlikely to agree to pay Ms Toyne $1.1 million for the land at all. Further, it was submitted that vendors should not be required to underwrite the risks taken by developers in these types of situations. In the event Mr Stokes is successful it may lead to developers entering contracts for sale with a deferred settlement date with the knowledge that if they undertake works and are unable to settle they will be able to seek the return of their deposit. I agree that the fact that Mr Stokes was a developer of sorts counts against him in obtaining relief under section 55(2A). But I do not think that making an order under section 55(2A) will open the floodgates. Ordinarily, developers will find it more difficult to obtain such an order but everything depends upon the facts of a particular case: see PC Developments Pty Ltd v Revell.

158. It is submitted that Mr Stokes has failed to establish that the works undertaken by Stokes Contractors resulted in any benefit to Ms Toyne. Given the analysis above, I cannot accept this submission. It is said that Mr Stokes’ actions in seeking to extend the time for settlement were misleading and deceptive. I do not agree, nor was this put squarely to Mr Stokes in cross-examination.

159. It was submitted that Mr Stokes removed trees from the property “in defiance” of the terms of the Contracts for Sale. The Contracts for Sale said nothing about trees. It does appear from the engineering drawings that some trees needed to be removed to widen the road. Trees were also felled on new Lot 2. The engineering drawings specified in the notes “No trees shall be removed without the written permission of [the Council]”. There was no evidence that the note reflected a requirement of Yass Valley Council, or whether the trees were protected in some way. Removal of established trees was no doubt distressing to Ms Toyne but, on the evidence before me, she did not object to Mr Stokes entering upon her land nor attending to any works including removal of trees until after termination of the Contracts.

160. Further, it was submitted that the actions of Mr Stokes in inappropriately discarding the asbestos have left Ms Toyne in a worse position than had she not entered into the Contract for Sale with Mr Stokes. I agree that Mr Stokes did not deal with asbestos appropriately. There will be a cost to someone in the future to remediate this. There is no evidence as to what the cost of doing so is, either for a rural lot or at all. Doing the best I can, I do not accept that the cost of remediation exceeds, or resembles, the value of the improvements to the site and the increased value by reason of the works and the Development Approval remaining on foot.

161. Ms Toyne submitted that Mr Stokes entered into the contracts for sale freely. As a part of his bargain, Mr Stokes chose to take the risk that if he was unable to complete the contracts for sale that the time and money spent on the development would be lost. The risk of losing his deposit was known to Mr Stokes. Despite his concerns on this front, he agreed to those terms and ought to be held to those terms. This is certainly a relevant consideration.

CONCLUSION

162. After 18 months in which the vendor investigated different ways to develop the land, including paying the purchaser to do the civil works or a joint venture with the purchaser to fund the civil works and receive a portion of the proceeds of sale of the development, the Contracts of Sale were entered into. The vendor had, it would appear, exhausted other options of developing the land herself. As a developer of sorts, the purchaser knew the risks associated with the transaction, including in obtaining finance. He did grapple with those risks and endeavour, at some expense, to secure finance. Difficulties in obtaining finance were largely referable to the features of the deal as ultimately struck with the vendor. The purchaser was thwarted, in part, by a rainy winter which meant he could not start the civil works when initially planned.

163. Mr Stokes kept Ms Toyne apprised of his efforts to secure finance, the difficulties and small victories. Mr Stokes sought indications from Ms Toyne, before expending further fees to the broker, whether Ms Toyne was going to exercise her right to terminate or not. Ms Toyne gave extensions, likely because she apprehended that no one else would give her a deal on comparable terms to that agreed with Mr Stokes. Mr Stoke expended further funds as a consequence. Terminating the Contracts at the moment when Mr Stokes appeared to finally have finance in order was within Ms Toyne’s contractual rights but was harsh in the circumstances. Ms Toyne would have appreciated, when she did so, that it would likely inflict financial loss on Mr Stokes from which he would be unlikely to recover.

164. Ms Toyne did this in circumstances where Mr Stokes had been labouring on the site for months to her knowledge, including by improving the portions of the property which she wanted to continue to live on. Ms Toyne must have appreciated that it was necessary for the works to be done in order to make the sale of land feasible at all.

165. Ms Toyne has received other benefits from the failed contracts in the form of a Development Approval which remains on foot and partially completed civil works. These have resulted in an increase in the value of the property. There is some asbestos on Lot 68, which was there before but is now in a form which may need to be remediated. This detracts from the benefits conferred on Ms Toyne, in the terms of the improvements undertaken and the increase in value of Lot 68, but not greatly.

166. Mr Stokes has sustained substantial losses as a result of his attempt to complete the contracts of sale. He has spent some $35,000 on building costs and council fees; he has spent time working on the site which he could otherwise have spent working for his company; he has spent some $100,000 on finance costs and is now committed to a home loan at a higher interest than he enjoyed before. All of these losses may be ones which a developer could be expected to bear, having gambled and lost. But in this case it seems to me that it was only when Mr Stokes appeared to have finally overcome the multitude of hurdles in his path — many of which were there at Ms Toyne’s request — that Ms Toyne exercised her right to terminate. Overall, I consider that it would be unjust in all of the circumstances for Ms Toyne to retain the benefits of the work done by Mr Stokes and also the deposit. Mr Stokes will hardly be a winner in all of this: it will simply reduce his losses.

Orders

167. I make the following orders:

1. Order pursuant to section 55(2A) of the Conveyancing Act 1919 (NSW), that the Defendant repay to the Plaintiff deposits of $110,000 together with any interest earned on the deposits.

2. The Defendant to pay the Plaintiff’s costs.

Decision last updated: 19 March 2019