Strategic Property Reservoir Pty Ltd v Condec Pty Ltd - [2012] VSC 634

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

S CI 2011 3218

STRATEGIC PROPERTY RESERVOIR PTY LTD (formerly STRATEGIC FSG PROPERTY PTY LTD (ACN 134 480 61) (As trustee for the STRATEGIC RESERVOIR UNIT TRUST)	Plaintiff
V
CONDEC PTY LTD (ACN 079 453 955) (As trustee for the PLENTY ROAD RESERVOIR UNIT TRUST)	Defendant

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JUDGE:	ALMOND J
WHERE HELD:	Melbourne
DATES OF HEARING:	13-17, 20, 21, 23, 27, 29 August 2012; 6, 7, 11 September 2012
DATE OF JUDGMENT:	19 December 2012
CASE MAY BE CITED AS:	Strategic Property Reservoir Pty Ltd v Condec Pty Ltd
MEDIUM NEUTRAL CITATION:	[2012] VSC 634	Revised 20 December 2012

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CONTRACT – Parties entered into agreements for the development of a property – Variation of contract – Breach of contracts – Termination of contract – Fiduciary duties between joint venturers – Breach of fiduciary duties – Diversion of business opportunity – Estoppel by convention and equitable estoppel – Claims dismissed.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr S Anderson SC and Mr D Crennan	HWL Ebsworth Lawyers
For the Defendant	Mr P Bick QC and Mr L Hawas	Rigby Cooke

HIS HONOUR:

This case concerns a project to redevelop the Reservoir Shopping Centre at 850 Plenty Road, Reservoir. The plaintiff, Strategic, conducted business as a property developer. The defendant, Condec, was the owner of the property.

On 15 December 2008, Strategic and Condec executed Heads of Agreement pursuant to which Strategic was required to prepare a Feasibility Report for a proposed development of the property for retail use on certain agreed assumptions and meeting defined benchmarks.

The Heads of Agreement provided that if the results of the Feasibility Report satisfied the Benchmark Requirements, Condec could elect to proceed with the development of the retail project on the terms and conditions of a Development Agreement (which had been annexed to the Heads of Agreement). Alternatively Condec was required to execute a call option which would give Strategic the option to purchase the property at the site value.

On 30 April 2009, Condec acknowledged receipt of the Feasibility Report from Strategic and advised that it would proceed with the development of the retail project.

Thereafter, Strategic engaged architects, engineers and other consultants for the purpose of obtaining planning permission for the development of the site. In June 2010, a planning permit was issued by the City of Darebin for a mixed use development.

Strategic alleges, among other things, that it negotiated and agreed upon the documentation for agreements for leases and leases with retail tenants, negotiated and agreed upon the documentation for letters of offer for speciality tenants, procured an offer by Coles Supermarkets Australia Pty Ltd of $10 million of mezzanine finance and obtained an indicative offer of finance from Australia and New Zealand Banking Group Bank Ltd (“ANZ”).

Strategic alleges that Condec refused to sign the Agreements for Lease (either in their original or in re-drafted form), declined to accept the Coles offer of mezzanine finance and rejected the ANZ indicative offer.

Strategic alleges that the refusal to sign the agreements for lease (in re-drafted form) and the refusal to accept the Coles offer and the ANZ indicative offer was in breach of the Heads of Agreement and the Development Agreement and of fiduciary duties owed by Condec to Strategic.

By letter dated 20 June 2011, the solicitors for Condec wrote to Strategic and sought “satisfactory irrefutable evidence” by the close of business 30 June 2011 that Strategic could procure the retail project finance debt that meets the provisions of the Development Agreement and that the first draw down could occur no later than 31 July 2011. Strategic alleges that by this conduct Condec was in breach of its obligations under the Development Agreement and the Heads of Agreement.

On 23 June 2011, Strategic commenced this proceeding seeking injunctive and other relief. On the same day, the solicitors for Strategic wrote to the solicitors for Condec seeking undertakings pending the hearing and determination of the proceeding that Condec would not terminate the Development Agreement or deal with the property.

On 24 June 2011, Condec terminated the Development Agreement. Strategic alleges that the termination was wrongful and constituted a repudiation of the Development Agreement and was in breach of fiduciary duties owed by Condec to Strategic.

Further, Strategic alleges that Condec represented to Strategic by its conduct that the calculation of the loan to value ratio (“LVR”) of 65% referred to in clause 4.1(f) of the Development Agreement did not include the “Owner’s Equity” and cannot now rely on the exclusion of “Owner’s Equity” in the calculation of the LVR in the ANZ indicative offer of finance as a basis for alleging that the offer did not comply with the Development Agreement.

Finally, Strategic alleges that in breach of fiduciary duties owed to Strategic, Condec diverted a business opportunity, being a proposal from a third party, Qualitas, for its own benefit to the exclusion of Strategic.

Condec denies Strategic’s claims.

Pursuant to court order, the trial proceeded on the issue of liability only.

The questions for determination of liability may be summarised as follows:

(1)Was clause 4.1(f) of the Development Agreement varied to exclude the expression “the Owner’s Equity”?
(2)Was Condec in breach of the Heads of Agreement or the Development Agreement as alleged?;
(3)Was the Development Agreement wrongfully terminated by Condec?;
(4)Did Condec owe Strategic fiduciary duties in relation to the project and, if so, was Condec in breach of any fiduciary duty owed; and
(5)Is Condec estopped by its conduct from relying on the exclusion of “the Owner’s Equity” as a basis for alleging that the ANZ offer in its indicative term sheet does not comply with clause 4.1(f) of the Development Agreement?

Was clause 4.1(f) of the Development Agreement varied to exclude the expression “the Owner’s Equity”?

Under the Heads of Agreement, Condec granted Strategic an exclusive dealing period of 60 days to enable Strategic to complete a Feasibility Report on redevelopment of the Property and to submit the report to Condec as soon as practicably possible after it had been finalised. The purpose of the Feasibility Report was to allow Condec and Strategic to assess whether they wished to participate in the redevelopment.

Clause 1.1(a) of the Heads of Agreement set out the Benchmark Requirements, including the benchmark requirement in clause 1.1(a)(iii) which provides:

An expression of interest in writing from a financier confirming its indicative interest to finance the proposed Retail Development and an indicative interest rate. The proposed finance must be sufficient to complete the Retail Development. The Retail Finance Debt plus Condec’s Existing Equity in the Property will not at any stage during the term of the Development Agreement exceed 65% of the value of the Property from time to time. Condec will receive priority for its existing equity behind the Project Financier but ahead of all third party debt. Strategic FSG will endeavour to negotiate a position with the Project Financier whereby Condec is granted first priority for its existing equity ahead of the Retail Finance Debt and third party debt. The parties acknowledge that this is Condec’s preferred position.[1]

[1]Emphasis added.

Under the Heads of Agreement, “Retail Finance Debt” means all debt required to fund the retail project. “Condec’s Existing Equity” means site value less Condec’s finance debt secured against the property at the date of the Development Agreement.[2] “Development Agreement” means:

the Development Agreement to be entered into by the parties on expiry of the exclusive dealing period in accordance with the terms of this Deed, a copy of which comprises Annexure B.

[2]There were other Benchmark Requirements and some express assumptions underpinning the feasibility analysis which are not presently relevant

Clause 4.1 of the Development Agreement provides relevantly:

(e)     The Retail Project Finance Debt for the whole of the Retail Project must be on terms and conditions approved by the Management Committee subject always to such Retail Project Finance Debt meeting the criteria requirements outlined in clause 4.1(f) below. The parties acknowledge that the directors of the Owner will not be required to give personal guarantees or provide collateral security.
(f)      The Owner must grant a mortgage over the Site as security for the Retail Project Finance for the Retail Project Finance Debt and if required must enter into a tripartite agreement between the Owner, the Retail Project Financier and the relevant builder granting security over building contracts for the Retail Project. The parties agree that the combined value of the Owner’s Equity the Retail Project Finance Debt and the Non-Retail Project Finance Debt that is to be or may be secured by the mortgage over the Site from time to time is to be capped at an amount equal to 65% of the value of the Site from time to time.
The Parties acknowledge and agree that the Retail Project Finance Debt will be limited in recourse to the Site only and the Retail Project Financier will have no recourse to the Owner or its directors or shareholders or to any unitholders of the Trust. The Developer will use reasonable endeavours to procure from the Retail Project Financier an acknowledgement that the Owner’s Equity will take priority over the Retail Finance Debt however the Owner will raise no objection or purport to terminate this agreement in circumstances where the Retail Project Financier does not agree to grant priority to the Owner’s Equity.
The Parties acknowledge and agree that the Retail Project Finance Debt must be on terms contemplated by the Heads of Agreement regarding finance debt generally.
The Parties acknowledge and agree that aside from the Retail Project Finance Debt and the Non-Retail Project Finance Debt, the Site or any part of it shall not be used as security by the Developer for any other purpose without the prior written consent of the Owner.
…
(h)     The Developer must procure or provide Retail Project Finance Debt to fund the Retail Project on terms contemplated by subclause 4(f). If the Developer is unable to procure Retail Project Finance Debt or, if the Retail Project Financier withdraws any offer to provide Retail Project Finance Debt and the Developer is unable to procure alternate finance on terms contemplated by subclause (f) the Owner may, by notice in writing to the Developer, terminate this agreement and, subject to a Party’s rights in respect of any prior breach, neither Party will have any further claim against the other.

The Feasibility Report estimated the end value of the development at $95,031,667 and stated that the required funding would be $59,540,000 with gearing on completion of 62.6%.

Included within the Feasibility Report was a letter dated 30 March 2009 from Bank of Western Australia Limited (“the Bankwest letter”) which advised that the bank would be prepared to consider funding the development on the basis of a loan of $60,512,000.00, a loan to value ratio of 61.5% on a margin based on the BBSY (bank bill swap reference rate) plus 2.25% and bank fees.

By letter dated 30 April 2009, Condec, among other things, acknowledged receipt of the Feasibility Report and advised Strategic that it would proceed with the development of the retail project on the basis contemplated by the Heads of Agreement.

The plaintiff submits that as a consequence of these matters, the Development Agreement was varied such that Strategic was obliged to procure finance on a basis which excluded the value of “the Owner’s Equity” in determining the upper limit of the debt that could be secured by the mortgage over the site from time to time (being an amount equal to 65% of the value of the property). The plaintiff submits that in consideration for that variation, it entered into the Development Agreement (as varied).

The Heads of Agreement and the Development Agreement each contemplate that any amendments must be in writing. In answer to this, Strategic relied on GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd,[3] where Finn J states that, notwithstanding a contractual provision requiring writing, it is open to the parties by express oral agreement or by contract implied from conduct to impose further or different rights and obligations on each other from those contained in the original contract.[4] It is clear that a variation may come into existence through the conduct of the parties, viewed in light of the surrounding circumstances and in the commercial context in which the dispute arose.[5] The conduct must be of such a character as to necessarily lead to an inference that the agreement had been accepted and acted upon.[6]
[3](2003) 128 FCR 1, 61 [217] (GEC Marconi).
[4]Liebe v Molloy (1906) 4 CLR 347, 353-355; Commonwealth v Crothall Hospital Services (Aust) Ltd (1981) 54 FLR 439, 448.
[5]Australian Broadcasting Commission v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540, 548.
[6]Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523, 535; Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153, 195; Brogden v Metropolitan Railway Co (1877) 2 AC 666, 686.

In GEC Marconi, Finn J also observed that:

Conduct engaged in for the purposes of ongoing commercial arrangements is not always readily susceptible to the traditional forms of analysis employed by common lawyers for the purposes of determining whether a contract has been formed… This can be particularly the case when dealings are analysed on an offer and acceptance basis.[7]

To like effect, Ormiston J in Vroon BV v Foster’s Brewing Group Ltd observed that:[8]
agreement and thus a contract can be extracted from circumstances where no acceptance of an offer can be established or inferred and where the most that can be said is that a manifestation of mutual assent must be implied from the circumstances.

[7](2003) 128 FCR 1, 64-65 [227].

[8][1994] 2 VR 32, 81.

It was submitted that the imputed intention of the parties may be discovered by looking at their dealings, the documents passing between them, and the absence of any objection to the relevant term sought to be relied upon.[9]
[9]Chattis Nominees Pty Ltd v Norman Ross Homeworks Pty Ltd (1992) 28 NSWLR 338, 344.

There was no dispute between the parties about the applicable legal principles.

In relation to the Feasibility Report, Strategic submitted:

[n]owhere in the Development Feasibility Report does the analysis or calculation of gearing refer to or include “owners equity”. It is clear that the Development Feasibility Report proceeds on the basis that “owners equity” is not included in the LVR calculation.

In relation to the Bankwest letter, Strategic submitted:

No reference is made to “owners equity” in the calculation of the LVR in the Bankwest letter.. It is plain from the information contained in the Bankwest letter that ‘owners equity” of $16 million is not included in the LVR calculation.

Further, Strategic submitted in effect that Condec had given written acknowledgement of receipt of the Feasibility Report “without any qualification or limitation on its contents” and that as a result, Strategic was entitled to conclude that the parties agreed to proceed with the proposed development on the basis contained in the Feasibility Report which included the procuring of Retail Finance Debt with gearing calculated on a basis which did not include “Owner’s Equity” and that the Development Agreement had been varied accordingly.

In my opinion, clause 4.1(f) of the Development Agreement was not varied as alleged.

First, it is necessary to take account of the provenance of the owner’s equity requirement in the Development Agreement and the significance of the clause in the Development Agreement as a whole.

The owner’s equity requirement was inserted after negotiations had taken place between the parties over the terms of the Heads of Agreement and the Development Agreement. These negotiations occurred during the period from July 2008 until December 2008.

Strategic’s lawyers prepared draft documents during August 2008. After receiving the draft Heads of Agreement, Roger Velik for Condec requested that clause 1.1(a)(iii) be amended to provide that the Finance Debt combined with Condec’s residual equity of $16 million must not during the term of the Development Agreement exceed 65% of the value of the property from time to time. Proposed amendments to the Development Agreement were addressed separately in written communications and at meetings held during October 2008. Mr Williams of Strategic gave evidence that he had no recollection of the owner’s equity issue being discussed.

Mr Davis of Strategic testified that during the meetings in which the LVR was discussed, none of Condec’s representatives made any statements that owner’s equity was to be included in the valuation of the LVR. Mr Davis’s attention was drawn to an email from Mr Roger Velik to Strategic’s lawyer Mark Lacy of Hickey Lawyers, which was copied to Mr Davis and included Mr Velik’s observation that the finance debt being introduced by the developer should allow “for Condec’s approx $16 million equity to be given priority ahead of all other funding or, at the least, covered within the maximum 65% of debt to site value ratio until completion, in line with discussions with John Davis”.

Mr Davis denied having had specific discussions to that effect and said that his recollection of discussions with Mr Velik was that Condec’s equity would be protected by capping the loan to value ratio at 65% which, by definition, offered protection to Condec in the balance of 35%.

Mr Davis conceded that in that case the wording of clause 4.1(f) did not reflect those discussions and needed to be corrected. He said that he did not pause to “take it apart” and assumed it was a 65% lending cap, that 65% was the constraint because that was what the dialogue had been about.

Mr Davis agreed that he had been copied in to communications between Mr Roger Velik and Mr Lacy and had received drafts of the Heads of Agreement. At one point, he said he did not have a great deal of input into the content. At another he said he was copied into round after round of emails, but could not say he had input into it.

Mr Roger Velik of Condec gave evidence that on 5 September 2008, he had received an email from Mr Davis stating that the points he had made in his email of the same day were valid and that he had asked Mr Lacy to make the requested changes. Mr Velik also gave evidence of having sent a summary of issues to Mr Davis prior to meetings where those issues were discussed. In particular, Mr Velik testified that he had made changes to clauses 4.1(f) and 4.1(h) of the Development Agreement, and that he had previously discussed the changes with Davis who told him that he agreed to the changes.

I prefer the testimony of Mr Roger Velik on this issue. Mr Velik had a positive recollection of having discussed the changes to the Heads of Agreement and the Development Agreement with Mr Davis. In the email communications there is express reference to the inclusion of Condec’s equity in the calculation of the loan to value ratio and reference to discussions between Mr Velik and Mr Davis during that period. I am satisfied that Mr Davis participated in discussions with Mr Roger Velik to the effect that Condec’s equity was to be combined with the debt in calculating the loan to value ratio from time to time. I am satisfied that Mr Davis, a qualified solicitor with a commercial background, was sufficiently engaged in the drafting process to know that the LVR would not be calculated on a conventional basis.

I am also satisfied that relevant written communications were sent to the parties and to their respective lawyers. During this period, Condec received from Strategic’s lawyers an amended version of the Heads of Agreement and an amended version of the Development Agreement, each of which contained terms which included reference to the value of the owner’s equity. In the Heads of Agreement, the final draft provided that the debt plus Condec’s existing equity would not, at any stage during the term of the Development Agreement, exceed 65% of the value of the property from time to time. In the Development Agreement, the final draft provided that the combined value of the owner’s equity and the debt that could be secured by the mortgage over the site from time to time would be capped at an amount equal to 65% of the value of the site from time to time.

Mr Davis agreed that he signed the Heads of Agreement, that he read it before signing it and that there was no issue in it that he thought should be raised prior to signing it. Similarly, Mr Davis agreed that the Development Agreement was attached to the Heads of Agreement; that he read the Development Agreement and was prepared go into a venture on the basis of the terms of the Development Agreement and had no comment about any part of it. Having signed the documents he must be taken to have read and understood the contents, which included the annexed Development Agreement.[10]
[10]Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, 185 [57].

Mr Davis testified that he did not pause to consider how the clause would operate in practice; he missed the impact of the clause; he didn’t pick up the nuance or the meaning of the clause. However, this is not something that can be attributed to Condec. Clause 4.1(f) was in unambiguous terms and is readily understood. In particular, I reject Mr Davis’s evidence to the effect that the clause had not been drawn to his attention or that Mr Roger Velik had “kept quiet about it.”

It is plain that the contract documents were carefully drafted, each taking into account the terms of the other. Clause 1.1(a)(iii) in the Heads of Agreement imposes a ceiling on the amount which can be borrowed during the term of the Development Agreement. Clause 4.1(f) of the Development Agreement imposes an identical ceiling on the amount which can be secured by mortgage against the property from time to time.

In addition, it is evident that clause 4.1(f) has particular significance. It is cross referenced with mandatory language in other parts of clause 4.1 of the Development Agreement, suggesting it is to have governing force. For example, clause 4.1(e) provides that the debt for the project ‘must’ be on terms and conditions approved by the management committee ‘subject always to such retail project finance debt meeting the criteria requirements outlined in clause 4.1(f) below’. Similarly, clause 4.1(h) provides that Strategic ‘must procure or provide Retail Project Finance Debt to fund the Retail Project on terms contemplated by sub-clause 4(f) [sic]’.[11]
[11]Emphasis added.

Further, as previously noted, the agreements each contemplate that any amendments must be in writing.

In these circumstances, in my view, it is improbable that the parties would have agreed to vary such a significant clause without discussion or documentation of the variation.

Second, Condec wished to protect its equity in the land during the construction phase of any development. Mr Davis and Mr Williams each acknowledged that it was a fundamental element of the deal with Condec that the arrangements with Strategic would protect Condec’s equity. Mr Williams accepted that Condec wanted its equity to be protected as far as it could be protected (though not guaranteed).

In that context, it is improbable that an element of the arrangement, which would operate as a key safeguard of Condec’s equity in the property during the course of construction, would be varied without discussion or documentation of the variation.

Third, I do not accept that the absence of any reference to or apparent inclusion of “Owner’s equity” in the calculation of the loan to value ratio in the Feasibility Report and in the Bankwest letter and the “failure” by Condec to take issue with this necessarily leads to an inference that Condec agreed to vary the Development Agreement to exclude the value of the owners equity in the LVR calculations. In the Feasibility Overview in the Feasibility Report, the LVR is calculated on the basis of total debt on completion of $59.4 million, based on an assumed end value of $95.03 million producing gearing on completion of 62.6%. The Bankwest LVR calculation also appears to be a calculation of gearing on completion, although this is not expressly stated in the Bankwest letter.

Nowhere in the Feasibility Report is there a detailed analysis of borrowings relative to value from time to time during the course of development.

In a covering letter to Condec which accompanied the Feasibility Report, Strategic drew attention to material on which it had relied in preparing the Feasibility Report. This included material in Appendix 1 to the Feasibility Report described as “Estate Master Development Feasibility” which Strategic referred to as follows:

The Estate Master Report sets out the full financial model which will allow you to examine all aspects of the process which we have been through.

The Estate Master report does briefly reference the level of borrowings during the course of the development. It refers to a maximum debt exposure of $44.184 million and projects a maximum project overdraft to occur in January 2011. It includes the total equity contribution of $26 million in a list of performance indicators, as well as $44.184 million for debt and (depending on various capitalisation rates) imputes a residual land value of between $28 million and $35 million.

There is a summary of project returns which models a return on funds invested which also assumes a maximum debt exposure of $44.184 million in January 2011. There is a breakdown of projected construction costs at various stages during the proposed construction period from February 2010 to March 2011. However, there is no material which correlates the level of borrowing from time to time with the value of the site from time to time. In my view, the Estate Master data would not preclude taking the value of the owner’s equity into account in calculating the amount which could be secured by the mortgage over the site from time to time. It follows there is nothing in the Estate Master data which necessarily leads to the inference that the parties had agreed to exclude the value of the owner’s equity from that calculation.

Fourth, Strategic submits that Condec acknowledged receipt of the Feasibility Report in its letter of 30 April 2009 “without any qualification or limitation on its contents”. I disagree. It is true that there was no express reference made to the owner’s equity component in the LVR calculation in the letter of 30 April 2009. But the agreement to proceed was qualified. Condec advised that it would proceed with the development of the retail project “on the basis contemplated by the Heads of Agreement”. It is not disputed that the Heads of Agreement contained the requirement that the retail finance debt plus Condec’s existing equity in the property will not at any stage during the term of the development agreement exceed 65% of the value of the property from time to time. It is not contended that the provisions of the Heads of Agreement were varied. It is not disputed that the form of the unexecuted draft of the Development Agreement annexed to the Heads of Agreement includes clause 4.1(f) in its original form. In my view, the Heads of Agreement document “contemplates” a Development Agreement which contains clause 4.1(f) in the form in which it was drafted at the time of entry into the Heads of Agreement on 15 December 2008. I am satisfied that the correspondence indicates that Condec agreed to proceed with the development with clause 4.1(f) as originally drafted.

In summary, I find there is no manifestation of mutual assent to the alleged variation to be implied from these circumstances. Nor does the conduct of the parties lead to an inference that clause 4.1(f) had been varied.

2. Was Condec in breach of the Heads of Agreement or the Development Agreement as alleged?

There were terms of the Heads of Agreement that Condec and Strategic would:

·be just and faithful to the other in their activities and dealings with each other to fulfil the objects and intent of the Heads of Agreement and in their activities and dealing with each other under any other agreement arising out of the Heads of Agreement including without limitation any Development Agreement or unitholders and/or shareholders agreement;
·cooperate with each other for the purpose of completing the Feasibility Report; and
·diligently perform their respective obligations under the Heads of Agreement.

There were terms of the Development Agreement:

(a)that each of the parties must:
· be just and faithful to the other party in their activities and dealings with each other and in all transactions in relation to both the Retail Project and Non-Retail Project and give a true account of the transactions to the other party as often as may reasonably be required;
· cooperate with each other in carrying out the Retail Project and the Non-Retail Project;

· diligently perform their obligations under the Development Agreement;

· use their best endeavours to ensure the success of the Retail Project and the Non-Retail Project; and

· act honestly and in good faith with each other in pursuing the objectives of the Development Agreement.
(b)that Condec would do all such further acts and things and sign such documents and grant to Strategic such authority as Strategic may reasonably require to allow Strategic to fulfil its obligations under the Development Agreement and give effect to the transactions contemplated by it.

ANZ Indicative Term Sheet

On about 13 May 2011, ANZ provided Strategic with an Indicative Term Sheet (“ITS”) which contained indicative terms of finance for the proposed project.[12]
[12]Project means the Retail Project plus the creation of two podiums on either end for future development of two residential buildings.

The ANZ Indicative Term Sheet proposed two facilities; Facility A, which was a $72.2 million progressive drawdown facility to finance the construction and associated approved development costs and Facility B, which was a $63.5 million fully drawn cash advance facility to re-finance Facility A following Practical Completion.

In the ANZ Indicative Term Sheet, Strategic was named as Developer and the Borrower with respect to Facility A; Condec was named as Borrower with respect to Facility B. Condec was named as the Land Owner and as a Guarantor.

The obligations of Strategic were to be guaranteed on a joint and several basis by, among others, Strategic, Condec and by each unitholder of Condec (limited to the extent of their unitholding). There was to be an unlimited cross-guarantee and indemnity from each guarantor, a first ranking fixed and floating charge over all assets and undertaking of the borrower and guarantors (including Condec) and mortgages over any units in Condec. The Indicative Term Sheet provided that the developer and guarantors (known as Obligors) must ensure that the milestones under the project documents were met and that the project was completed in line with the expected date for Practical Completion and by no later than 16 months from the date of initial drawdown under the Facility. At no time during the currency of the progressive drawdown facility (Facility A) was the LVR to exceed 61% of the “as if complete” value of the project.

Strategic emailed the ANZ proposal to Condec requesting “immediate feedback” and indicating that Strategic would like to accept the ANZ “offer” and proceed to arrange finance with ANZ.

On 23 May 2011, Mr Roger Velik responded:

that the terms and conditions of the ANZ proposal are a significant distance from and in many aspects, in direct conflict with the provisions and principles mapped through the Development Agreement and the Heads of Agreement and the obligations of Condec under those documents….As an immediate concern there is a need to understand why the ANZ requires, as part of its security, guarantees from Condec and each shareholder and each unitholder of Condec. By this requirement, Condec is also being required to give guarantees in favour of Strategic, Hub Projects Pty Ltd and the shareholders and unitholders of each of those companies and associated trusts. This is not consistent with Condec’s obligations and the “non-recourse” requirements under the Development Agreement and Heads of Agreement and goes well beyond Condec being only required to provide security by way of mortgage over the freehold land.

Mr Velik also identified matters which Condec wished to have clarified and asked whether the bank was willing to consider its position on various issues. Mr Velik suggested that the 10 day time limit allowed by the ANZ was not sufficient and needed to be extended by a number of weeks to enable the parties to work through and discuss the issues to allow the parties to seek clarification from ANZ and to understand where changes could be achieved.

As a consequence, a meeting was arranged with Mr Gil Norwood of ANZ Bank. Mr Davis, Mr Williams, Mr Guy Nelson, Mr Roger Velik, Ms Sylvia Urbach and Mr Jeremy Urbach attended the meeting which took place on 1 June 2011.

Mr Williams testified that Mr Roger Velik asked Mr Gil Norwood of the ANZ if the ANZ were prepared to move forward without guarantees and that Mr Norwood had replied no. In cross-examination, Mr Williams agreed that Mr Velik was unhappy that the ANZ required security over the shares and units of Condec. Mr Williams said the discussion went on for some time, that it would only be limited to recourse in the property. Mr Williams was referred to a comment attributed to Mr Norwood in that meeting that the ANZ funds would not flow until after a proposed $10 million loan from Coles had paid out the CBA, enabling the ANZ to take a first mortgage. Mr Williams said that Mr Velik responded that he did not expect Coles to be paying out the CBA mortgage.

Mr Davis testified that he attended the meeting. He referred to his notes taken at the meeting. In cross-examination, Mr Davis agreed that the notes represented a summary of what occurred at the meeting. Part of the notes are reproduced below:

Notes of Meeting with Gil Norwood at ANZ Bank
100 Queen Street Melb 2.00pm 1^st June 2011
Present: John Davis, Simon Williams, Guy Nelson, Roger Velik, Sylvia Urbach, Jeremy Urbach
RV:    We want to look at what’s real and cure aspects that need curing.
Strategic has the obligation to arrange finance.
I want to explain the foundation aspects of this deal:
1.        Condec would give up the land as security with certain ratios being honoured.
2.        Not giving guarantees.

The ANZ Terms Sheet is not consistent with the Development Agreement.
I want to understand commercial principles of ANZ.
Gil:Bank sees its risk as the period it takes to deliver the asset. After that there is a certain ownership which Strategic and Condec share. Because there is a 3^rd party security offered and an SPV as the Borrower we need to make sure the Bank captures the land and this means we also need to capture the IP in the plans and the development permits, etc so that we can deal with the asset if we have to.
On a realisation we can sell the land but that may not be the best way to realise it. If the land is detached from the structure that owns the plans, permits, etc. We see the Approvals and IP as part of the equity in the land.
We need a share mortgage over the shares in Condec because we can’t have you selling the shares in the entity that gives us the mortgage. We are not asking you to guarantee the facility or pledge capital. It is just the value of the shares that are the means of ownership of the property.

RV: Can the Bank work without that?
Gil: No we can’t. The Bank gets a fixed return and only downside.
Condec is a single asset entity – therefore the shares’ only value is the equity in the land.
RV:Condec’s position is that as long as our equity is protected we will allow a mortgage. This may undermine our ability to sell if the Bank is in control. Who will the Bank go to if there is a problem?
Gil:If there are problems such as cost overruns we will go to the sponsors first. Then to the Guarantors. The Owner may pay the Bank out and sue Strategic if it is able to.
If there is a financial shortfall Condec needs to fund it or sell the property.
…

RV: It is essential that we protect our equity and have step in rights.
Gil:Usually if there is value left in the structure you would be motivated to cure.
RV:I want Coles to take the first hit before Condec’s equity i.e. Condec equity gets priority.
Gil:The Bank will want a Deed of Subordination with Coles. No acceleration rights against ANZ. Repayment Order, Default and Sale rights.

…
RV: I emphasise that Condec sits secured behind the ANZ.???
Gil:The ANZ funds won’t flow until after the Coles money has paid out the CBA and the ANZ can then take a first mortgage.

RV: I did not expect Coles to be paying out the CBA mortgage.
GN:Gave RV a detailed explanation of how a Cost to Compete facility works.
RV:Because of the order of priority concerns Condec’s expectations are not running in parallel.

…

Under cross-examination, Mr Davis agreed that the reference in the notes to the bank capturing the land and the IP in the plans and the development permits was a reference to the need to have the shareholders and unitholders in Condec give guarantees to the extent of their interest in Condec and that the reference to dealing with the asset on a realisation would give the bank the option if things went bad to sell the trust, that is to sell Condec itself rather than just the land as mortgagee. Mr Davis agreed that Mr Norwood was unwavering in this requirement.

Mr Norwood of the ANZ Bank gave evidence that an Indicative Term Sheet is a document which provides “very high level detail on what the bank [ANZ] would intend to fund a transaction; that it is a commencement of a transaction not a credit approval; and if the terms are accepted by a client then the bank will go forward for credit approval and confirmation of the proposed terms and conditions; that before the facilities could be approved there would be a process of due diligence, which would include an assessment of the creditworthiness of those behind the development, and that documentation would need to be prepared.

In terms of the security to be provided to the bank, Mr Norwood testified that the land owner, Condec would be required to give an unlimited cross-guarantee and indemnity, and that the purpose of the guarantee was to capture the land and all assets within Condec. It was clear that Mr Norwood was proceeding on the understanding that Condec only had one asset;[13] and that the bank had not seen the Development Agreement. Mr Norwood said that would have been relevant to see the Development Agreement as part of the due diligence process; that the LVR of 61% in the ITS was calculated on the basis of the facility limit of proposed facility A by the “as if complete” valuation. Mr Norwood was shown clause 4.1(f) of the Development Agreement which he read for the first time in the witness box. Mr Norwood immediately noted that the ANZ’s request for a charge over the units in Condec might be an issue.[14] Under cross-examination on this point, Mr Norwood agreed it would be a big issue if there was no security from the shareholders or unitholders, and that if the owner’s equity was included in the formula for determining LVR on the debt side then the transaction would not go ahead.
[13]As at 30 June 2011 Condec had current assets (excluding the land) exceeding $14 million. (“Exhibit D6”) Even if ANZ had agreed to confine the reach of its security to the value of the land in the trust by excluding the current assets, this would not have been an answer to the fact that clause 4.1(f) of the Development Agreement expressly provided that the Retail Project Financier will have no recourse to the Owner (Condec) or its directors or shareholders or to any unit holders of the Trust.
[14]Part of clause 4.1(f) states that the parties acknowledge and agree that the retail project financier will have no recourse to the owner or its directors or shareholders or to any unitholders of the trust.

On 3 June 2011, Mr Roger Velik emailed John Davis advising, in substance, that Condec did not consider it either appropriate or acceptable to be asked to consider the detailed ANZ Indicative Term Sheet where the ANZ had not been informed of the contents of or had any access to the Development Agreement so that ANZ could properly understand the risk profile which Condec would accept as part of any retail funding. Mr Velik stated that Condec would only accept a security position whereby any financier would have recourse only to the underlying land as security and otherwise at the LVR prescribed by the Development Agreement; that Condec did not accept the position put to it by Strategic that Strategic would only disclose sources of its equity after Condec agreed to the ANZ Indicative Term Sheet and that the ANZ term sheet was not acceptable to Condec because it did not meet the requirements for retail project finance under the terms of the Development Agreement. Mr Velik further stated that he understood that the ANZ would not amend the ANZ Indicative Term Sheet to meet the security profile.

Strategic submitted that the grounds relied on by Condec were unfounded and, in the case of Condec’s refusal to accept that Strategic would only disclose sources of equity after Condec had agreed to the ANZ indicative term sheet, was irrelevant and not a proper basis for rejection of the ANZ indicative term sheet.

In my view, the ANZ Indicative Term Sheet does not meet the requirements of the retail project finance under the terms of the Development Agreement.

First and foremost, it is clear that Strategic did not inform the ANZ of critical terms of the Development Agreement that:

· limited the amount that could be secured by the mortgage over the site from time to time;

· included the value of the owner’s equity with the amount of debt in the formula for calculation of the amount which could be secured by the mortgage over the site from time to time;

· contained an acknowledgment and agreement that the retail project finance debt would be limited in recourse to the site only;

· contained an acknowledgement and agreement that the retail project financier would have no recourse to Condec or its directors or shareholders or to any unitholders of the trust; and

· required that the Developer procure or provide retail project finance debt to fund the retail project on terms contemplated by clause 4.1(f).

Strategic approached ANZ for finance on a basis that did not take into account the value of the owner’s equity in the formula for determining the amount of debt which could be secured by the mortgage over the site from time to time. In light of my finding that clause 4.1(f) was not varied, it follows that, at least in this respect, Strategic had not on an indicative basis procured or provided retail project finance debt on the terms required under the Development Agreement.

The indicative terms proposed by ANZ required that the obligations of Strategic under the construction facility would be guaranteed on a joint and several basis by Condec and by each shareholder and unitholder of the land owner (Condec) limited to the extent of their share or unitholding. The bank also required first ranking security, including fixed and floating charges over all the assets and undertaking of Condec and share or unit mortgages over any shares or units in Condec. Whilst these requirements might be regarded as conventional security requirements, they were squarely at odds with the agreement between Strategic and Condec that:

(a)the retail project finance debt would be limited in recourse to the site only; and
(b)the retail project financier would have no recourse to Condec or its directors, shareholders or to any unitholders of the trust.

During final submissions Strategic placed heavy reliance on qualifying words found:

· in the definition of Retail Finance Debt, the Retail Finance Debt “must, so far as practicable, be negotiated on terms consistent with the terms contemplated by the Heads of Agreement and the principals [sic] prescribed by clause 4.1(f)”; [15] and

· in clause 4.1(f), that the Retail Project Finance Debt “must be on terms contemplated by the Heads of Agreement regarding finance debt generally.”[16]

[15]Emphasis added.

[16]Emphasis added. There was no definition of Retail Project Finance Debt in the Heads of Agreement or the Development Agreement. In my view, the expression Retail Finance Debt (which was defined) was used interchangeably with Retail Project Finance Debt (which was not defined).

In my view, the indicative terms negotiated by Strategic with ANZ were so different from and inconsistent with what was contemplated by the Heads of Agreement and clause 4.1(f) that their acceptance would have entailed fundamental changes to the obligations. Whilst the qualifying words connote some potential for flexibility in the financing arrangements, they do not, in my view, require either party to accept fundamental changes to those arrangements.

In my view, the ANZ Indicative Term Sheet did not meet the requirements of the Retail Finance Debt under the Development Agreement and Condec was not in breach of either the Heads of Agreement or the Development Agreement by reason of its conduct in notifying Strategic that the ANZ indicative terms were unacceptable.

Coles offer of finance

Strategic alleges that between February and June 2010, Strategic procured an offer by Coles Supermarkets (Australia) Pty Ltd (Coles) to provide mezzanine financing of $10,000,000 secured by a second mortgage in favour of Coles to be subordinated to a first ranking mortgage to the primary lender.

Condec admits that Strategic procured an offer by Coles for the proposed loan but denies that the Coles offer of finance was capable of acceptance or capable of bringing into existence a legally enforceable obligation to advance their proposed funds.

In a project position paper tabled at a meeting on 15 December 2010, there is a reference to the provision of finance by Coles as follows:

Coles has confirmed that it is prepared to provide a facility of $10,000,000 secured behind the NAB.

Mr Leon Velik testified that he had spoken to Mr Greg Chubb and Mr Dean Perry from Coles who told him that Coles would not lend the $10,000,000 that Strategic had sought unsecured and that Coles required a second mortgage over the property. Mr Velik said that at the meeting on 15 December 2010 there was a discussion about the proposed Coles loan. Mr Velik said he reiterated that he would not accept any loan from Coles secured by a second mortgage against the property. Under cross-examination, Mr Velik gave evidence that he took exception to two things; one that he was not prepared to allow Coles to have a second mortgage as Condec’s equity had to rank behind the primary funder and secondly, he felt that it was not appropriate for a potential tenant to be a lender to the project.

Condec submitted that the Coles offer was immature and was not capable of acceptance, but even if it was capable of acceptance Condec was not obliged to provide a mortgage and security for the loan under the terms of the Development Agreement. Strategic submitted that the under the terms of the Development Agreement there could be more than one mortgage and more than one financier. This argument was based on a reference to the definition in clause 1.1 of the Development Agreement that the singular includes the plural and the plural includes the singular unless the contrary intention appears.

In my view, Condec was not obliged to provide a mortgage as security for any loan provided by Coles. Under the terms of the Development Agreement, Condec was obliged to grant a mortgage over the site as security for the Retail Project Financier.

For the purposes of the Development Agreement, “Retail Project Financier” means the primary third party provider of finance for the retail project. Given this definition, the owner’s obligation to grant a mortgage over the site extends only to the provision of security for the primary third party provider of finance and does not extend to a secondary third party provider of finance. As Coles was not the Retail Project Financier under the Development Agreement, there was no relevant obligation.

Further, clause 1.1(a)(iii) of the Heads of Agreement provided that Condec will receive priority for its existing equity behind the Project Financier but ahead of all third party debt.

Accordingly, in my view, Condec was not in breach of the Development Agreement by reason of Mr Velik’s refusal to grant a second mortgage to Coles.

Condec’s refusal to sign agreements for lease

Strategic alleges that in February 2011, Strategic requested that Condec execute agreements for lease with major retail tenants namely Coles, Kmart, Kmart Auto, Liquorland and Aldi, the terms of which they negotiated and agreed between June and December 2010 and that Condec refused to sign the agreements for lease without any proper basis for doing so.

Strategic alleges that in March 2011, it redrafted the agreements for lease to include a right to terminate the agreements for lease by Condec if financing could not be procured or if Condec reassessed the economic feasibility of the retail project and the non-retail project and that on 20 April 2011, Condec refused to sign the redrafted agreements for lease without any proper basis for doing so.

Condec admits that it refused to sign the agreements for lease and the redrafted agreements for lease at least with respect to Harris Scarfe.

Condec submitted that it was entitled to refuse to sign these documents and relied upon clause 4.3(i) of the Development Agreement.

Clause 4.3(i) of the Development Agreement provides:

All Contracts (including Contracts with builders, consultants and Agreements for Lease with prospective tenants) will be entered in the name of the Developer in its own right and not as agent for the Owner. The owner will do all things reasonably necessary to allow the Developer to fulfil its obligations under the Contracts and will sign leases with tenants on completion of construction of the Proposed Development in the manner prescribed by the Agreements for Lease.

I accept Condec’s submission. Clause 4.3(i) clearly provides that all contracts including agreements for lease would be entered into in the name of the developer in its own right and not as agent for the owner and that the owner would only be obliged to sign leases with tenants on completion of construction of the proposed development.

As completion of construction of the proposed development did not occur the pre-condition was not satisfied. As a result, Condec was not in breach of any contractual obligation at the time it refused to sign the agreements for lease.

(3) Was the Development Agreement wrongly terminated by Condec?

In broad terms, Strategic submitted that Strategic did all of the things to achieve the objectives under the Development Agreement (as varied) but that in about late September 2010 or October 2010, Condec decided that Strategic had not procured the required funding and decided to terminate Strategic and thereafter embarked on a campaign to achieve that outcome.

Strategic submitted that the relationship with Strategic was prematurely terminated by Condec before the ANZ Indicative Term Sheet could be subject to discussions between parties and before the due diligence process could be carried out and that Condec acted in bad faith; that instead of treating with Strategic fairly and in good faith and diligently trying to pursue the objectives of the Development Agreement, Condec wrongfully contended that the ANZ ITS did not satisfy clause 4.1(f) of the Development Agreement, wrongfully declined to accept the Coles mortgage finance, wrongfully demanded on 20 June 2011 that Strategic provide “satisfactory, irrefutable evidence” by the close of business on 30 June 2011 that it could procure, without further delay, the Retail Project Finance Debt that met the provisions of the Development Agreement and that the first drawdown of such finance could occur no later than 31 July 2007, and ultimately wrongfully terminated the Development Agreement.[17]
[17]There was a further allegation relating to Condec causing diminution in value of the property. This allegation was not pursued during the trial on liability.

I have found that Condec did not breach the Development Agreement by notifying Strategic that the ANZ indicative terms were unacceptable, by notifying Strategic that it would not grant a second mortgage over the site to Coles or by declining to sign the proposed agreements for lease.

It remains for me to consider whether Condec was in breach of the Development Agreement and the Heads of Agreement by demanding that Strategic provide “satisfactory, irrefutable evidence” by the close of business on 30 July 2011 that it could procure the retail project finance debt and, in the events which occurred, by terminating the Development Agreement.

Clause 4.1(h) of the Development Agreement provides that the Developer (Strategic) must procure or provide the debt to fund the retail project on terms contemplated by clause 4(f) [sic] and that if the Developer is unable to do so the owner may terminate the agreement by notice in writing to the Developer.

The Development Agreement does not specify a deadline for the time within which the debt must be procured or provided. Senior counsel for each party agreed, correctly in my view, that to give business efficacy to the agreement, it is implicit that Strategic was to procure or provide the retail project finance debt within a reasonable time.[18] What is a reasonable time for present purposes is a question of fact to be determined in the light of all the circumstances.[19]
[18]Ordinarily when a contract provides for the doing of an act and there is no express provision as to time the law implies that it must be done within a reasonable time. York Air Conditioning and Refrigeration (A/sia) Pty Ltd v The Commonwealth (1949) 80 CLR 11.
[19]York Air Conditioning and Refrigeration (A/asia) Pty Ltd v Commonwealth (1949) 80 CLR 11, 63.

The evidence establishes that Condec terminated the Development Agreement 30 months after the parties first signed the Heads of Agreement on 15 December 2008. On 20 October 2010, Condec notified Strategic that it required Strategic to obtain the equity and debt funding for the Retail Project by 28 February 2011. In an email from Roger Velik to Guy Nelson, which was copied to Mr Davis and Mr Williams of Strategic among others, Mr Velik stated that Condec was keen to move forward with the project, however it “needs to make it clear that it cannot allow Strategic to continue to proceed on the basis that the time to secure both equity and loan funding is unlimited without any sunset date and believes that such funding must be finalised by 28 February 2011”.

Strategic did not procure funding by the nominated sunset date of 28 February 2011. Condec allowed Strategic to continue with its endeavours to procure funding after 28 February 2011.

By the time the ANZ provided the Indicative Term Sheet dated 13 May 2011, Strategic had tried unsuccessfully to procure funding from three of the four major Australian banks, Commonwealth Bank of Australia, National Australia Bank and Westpac Banking Corporation. All wanted similar security, including a charge over the shares and units in Condec.

Mr Davis and Mr Williams agreed that having regard to the amount of money involved, only a major bank would be interested in funding the development.

Some insight into whether a reasonable time had passed may be gleaned by contextual reference. In the Feasibility Report prepared by Strategic and submitted to Condec, Strategic set out the projected milestone dates for the development.

Preparation for Development Approval was to occur during the third quarter of 2009. Development approval and detailed design was to occur between the first and second quarters of 2010. Tender and construction was to occur (at the latest) between the end of the second quarter of 2010 and the end of the first quarter of 2011. Completion of the building was to occur by the end of the first quarter of 2011.

As events transpired, development approval was obtained on 17 June 2010. This was in line with the projected target date for Development Approval.

Whilst the project went out to tender, in the absence of funding, the construction and completion phases could not and did not occur.

It is against that background that Condec demanded in writing that Strategic provide “satisfactory and irrefutable evidence by close of business on 30 June 2011” that Strategic could procure without further delay the Retail Project Finance Debt “that meets the provisions of clause 4.1(f) and all the other provisions of the development agreement and that the first drawdown under that finance debt facility can occur by no later than 31 July 2011”. In its letter, Condec expressly reserved all of its rights.

Strategic submitted that these steps were part of an orchestrated campaign by Condec conceived in about September or October 2010 to terminate the Development Agreement so that Condec could take the benefit of the work done by Strategic and either sell the property to someone else or treat with someone else to try and undertake the development.

It was submitted that this conduct demonstrated a failure on Condec’s part to act honestly, in good faith or to use its best endeavours to ensure the success of the project.

I am not persuaded by this submission. The notion of an orchestrated campaign is no more than hypothesis which was not borne out by the testimony of the Condec witnesses at trial or by contemporaneous documents.

Mr Davis testified that Condec wanted to terminated the Development Agreement from September 2010 and gave Strategic the sunset date of 28 February 2011 to try to trigger the termination. Mr Davis also said that after the meeting at the ANZ Bank with Mr Norwood on 1 June 2011, he could see that Condec was looking to terminate the Development Agreement by not allowing Strategic to proceed with the ANZ Indicative Term Sheet.

Mr Williams agreed with the general proposition that it was Strategic’s case that it had been deprived of the opportunity of completing the project by reason of breaches by Condec. He did not expressly state that Condec had decided to terminate the Development Agreement in October 2010 or that it set about the task of achieving that outcome from that point forward. Mr Williams testified that on 23 June 2011, Strategic had been given nine days to provide irrefutable evidence that it could in 39 days time be able to draw down funds otherwise Condec was going to terminate the Development Agreement, but Mr Williams did not expressly connect this event with an overall design on Strategic’s part to terminate the Development Agreement from September or October 2010.

In my view, the evidence given by Strategic in support of the proposition that there was an overall design on the part of Condec to deprive Strategic of the benefit of the project is flimsy and unconvincing, even accepting that this may have been a genuinely held view of Mr Davis and Mr Williams.

There is much evidence to the contrary. Mr Roger Velik testified that in September 2010 he was becoming concerned about the delay in Strategic obtaining funding and the delay in construction commencing. This is unsurprising. Over 16 months had elapsed since 30 April 2009 when Condec had agreed to proceed and by September 2010, Strategic’s application for funding had been rejected by major banks. On 20 October 2010, Mr Roger Velik sent an email to Guy Nelson (from Alpha Partners who had been retained by Strategic to assist in procuring funding) copied to the Strategic representatives stating that whilst Condec was happy to consider any reasonable proposal that was in accordance with the Heads of Agreement including the Development Agreement that might assist Strategic to get its equity and loan funding, it expected Strategic to meet its obligations under the transaction documents. In the email, Mr Velik stated that Condec was keen to move forward with the project but could not allow Strategic unlimited time to secure equity and loan funding and specified the sunset date of 28 February 2011. Further, Mr Velik states:

We confirm our willingness to keep things moving, and will consider and respond to any outcome of negotiations in relation to equity and loan funding by Strategic as soon as practicable after receiving any formal letter of offer. As always, we are available on short notice to meet and discuss any issues.

The tenor of this email does not suggest to me that Condec had made up its mind to terminate the Development Agreement.

Under cross-examination, Mr Roger Velik denied that by October 2010 Condec had decided that it no longer wanted to go forward with Strategic with the development and denied that the reason that Condec specified a sunset date was that it wanted to terminate Strategic’s involvement with the development. Mr Leon Velik agreed that at a meeting with Simon Williams and John Davis on 10 May 2011, he was told that they were of the view that Condec was deliberately trying to terminate their involvement in the project and trying to cut them out of all of the work they had done on the development. Mr Roger Velik said he took a completely different view and was determined to try and find a commercial solution; and that he was encouraging the discussions that were taking place.

Mr Roger Velik denied the suggestion that by 1 June 2011, Condec had decided it was going to terminate its relationship with Strategic and attending the meeting with Strategic at the ANZ Bank on 1 June 2011 to discuss the ANZ Indicative Term Sheet was just a charade.

Mr Roger Velik also denied that Condec had decided prior to sending the critique of the ANZ Indicative Term Sheet on 3 June 2011 that Condec wanted to terminate Strategic’s involvement in the development.

Mr Leon Velik gave evidence that he had formed the view by about 12 May 2011 that if Strategic could not produce the debt funding for the project then Condec would in due course terminate the contract. Mr Leon Velik said:

We were trying to give them every opportunity to honour and produce what they were saying they could do and would do.
…
We could have if we wanted to, we could have terminated on 28 February 2011 but we were trying to act in good faith and give them the opportunity.

Mr Leon Velik said he objected very strongly to the suggestion that Condec had decided that it wanted to get rid of Strategic so it could trade with other equity partners. Mr Leon Velik gave evidence that he had told Mr Guy Nelson of Alpha Partners before the sunset date email was sent that without funding, the Development Agreement could not go on forever, that there had to be a sunset date and that if Strategic did not obtain funding by 28 February 2011 that Condec would look to terminate the Development Agreement. This evidence was corroborated by his son, Mr Roger Velik.

In my view, considered overall, the evidence tends to suggest that Condec had not made up its mind to terminate the Development Agreement, either in October 2010 or before Condec had had the opportunity to consider the ANZ Indicative Term Sheet and discuss the matter at the meeting with Mr Gil Norwood of ANZ on 1 June 2011.

At one point in its submissions, Strategic focused on an email sent by Roger Velik to Sandra Velik for Leon Velik on 23 May 2011 in which Roger Velik states:

Without going into detail at this stage (we will run you through the situation when you get back).
There were very specific reasons why the email was constructed in the form that it was sent. Most notably, I am conscious that we may need to serve a termination of agreement notice on Strategic, in part relying upon Strategic’s “finance” obligations under the agreement.

It was submitted that Mr Roger Velik’s reference to the “very specific reasons why the email was constructed” suggests that Mr Roger Velik had already decided to reject the ANZ ITS and ultimately attempted to terminate the Development Agreement.

I am not persuaded that the email has the connotation suggested. It would require me to infer that Mr Roger Velik deliberately constructed a disingenuous statement in the email, “we may need to serve a termination of the agreement notice”, when in fact he had already decided that Condec would do so. I am not prepared to draw such an inference.

Condec had sought legal advice in October 2010 before it nominated the sunset date of 28 February 2011. As at 23 May 2011, Strategic had not procured or provided the Retail Project Finance Debt. Under the terms of clause 4.1(h) of the Development Agreement, Condec had a right of termination if the developer was unable to procure the Retail Project Finance Debt.

I accept Mr Roger Velik’s explanation that the email was constructed in the form that it was sent because Condec had taken legal advice and had to provide full detail in the email to make clear Condec’s concerns. The email is expressed in potential rather than absolute terms which tends to suggest that Mr Roger Velik had not made up his mind to terminate the Development Agreement as at 23 May 2011. In my opinion, the email corroborates the testimony of Mr Roger Velik and Mr Leon Velik who each denied that Condec had already decided to terminate the relationship.

I do not accept that Condec played out a charade from October 2010 to June 2011 when the Development Agreement was terminated, or that Condec acted in bad faith or failed to use its best endeavours. Strategic had been on notice of the potential for termination of the Development Agreement since October 2010. Had Condec already decided to terminate the agreement, one would have expected that termination would have occurred at the first opportunity either on or immediately after the specified sunset date of 28 February 2011.

Given the lengthy delay, I do not consider that Condec’s request to Strategic to provide satisfactory and irrefutable evidence that finance had been obtained was unreasonable. On the contrary, in my view, Condec gave Strategic every opportunity to procure or provide funding in accordance with the terms contemplated by the Development Agreement within a reasonable time frame.

I accept that it had become clear in early June 2011 that ANZ was resolute in its requirement that it would require security from Condec beyond recourse to the site only by requiring guarantees from each shareholder and unitholder of Condec, a fixed and floating charge over all the assets and undertaking of Condec and mortgage(s) over the shares in Condec and the units in the trust. In the circumstances, I am satisfied that for the purposes of clause 4.1(h) Strategic was “unable” to procure the Retail Project Finance Debt in accordance with the terms contemplated by the Development Agreement within a reasonable time.

At that point, in my view, the right to terminate the Development Agreement under clause 4.1(h) arose. By letter dated 20 June 2011, the solicitor for Condec wrote to the solicitor for Strategic expressing the view that it was apparent that Strategic was unable to procure the Retail Project Finance Debt pursuant to the requirements of the Development Agreement and advising that because of the delay in the commencement of the development, Condec had been incurring losses from the property; specifically that Condec was servicing a mortgage and was incurring expenses to maintain the site and was continuing to do so.

The letter concluded with the following:

Our client needs immediate certainty and, therefore, satisfactory irrefutable evidence from your client by close of business 30 June 2011, that it can procure, without further delay, the Retail Project Finance Debt that meets the provisions of clause 4.1(f) and all other relevant provisions of the development agreement and that the first drawdown under that finance debt facility can occur by no later than 31 July 2011.
In the interim, our client’s rights remain strictly and unconditionally reserved.

Whilst Condec requested from Strategic “irrefutable evidence by close of business on 30 June 2011” that it could procure the retail project finance debt that met the provisions of the Development Agreement, Condec strictly and unconditionally reserved all of its rights. In my view, those rights included the crystallised right to terminate immediately by notice in writing under clause 4.1(h) should Condec see fit to do so.

On 23 June 2011, Strategic commenced this proceeding. In its statement of claim filed with the writ, Strategic alleged that Condec was in breach of fiduciary duties and in breach of contract, and claimed relief including an interlocutory injunction restraining Condec from acting on its letter of 20 June 2011 in exercising any rights to terminate the Heads of Agreement or the Development Agreement until further court order. As events transpired, Strategic did not pursue the application for interlocutory relief.

By letter dated 24 June 2011, Condec terminated the Development Agreement. Having expressly reserved all of its rights in its letter of 20 June 2011, in my view, there was no impediment to Condec exercising its right to terminate the Development Agreement in the circumstances which occurred.

(4) Did Condec owe Strategic fiduciary duties in relation to the project and, if so, was Condec in breach of any fiduciary duty owed?
Relevant principles

Though the relevant principles are not contentious, it is convenient to encapsulate the true character of a fiduciary relationship and the nature of fiduciary obligation. In Hospital Products Limited v United States Surgical Corporation, Mason J referred to the well recognised fiduciary relationships of trustee and beneficiary, agent and principal, solicitor and clerk, director and company, and partners. Mason J characterised the critical feature of these relationships as follows:

The critical feature of these relationships is that the fiduciary undertakes or agrees to act for or on behalf of or in the interests of another person in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense. The relationship between the parties is therefore one which gives the fiduciary a special opportunity to exercise the power or discretion to the detriment of that other person who is accordingly vulnerable to abuse by the fiduciary of his position. [20]

[20]Hospital Products Limited v United States Surgical Corporation (1984) 156 CLR 41, 96-97.

In Pilmer v Duke Group Limited,[21] the majority (McHugh, Gummow, Hayne and Callinan JJ) observed that it was important to recognise the distinct character of the fiduciary obligation which sets it apart from contract and tort, citing Norberg v Wynrib,[22] where McLachlin J said:

The foundation and ambit of the fiduciary obligation are conceptually distinct from the foundation and ambit of contract and tort. Sometimes the doctrines may overlap in their application, but that does not destroy the conceptual and functional uniqueness. In negligence and contract the parties are taken to be independent and equal actors, concerned primarily with their own self interest. Consequently the law seeks to balance between enforcing obligations by awarding compensation when those obligations are breached, and preserving optimum freedom for those involved in the relationship in question. The essence of a fiduciary relationship, by contrast, is that one party exercises power on behalf of another and pledges himself or herself to act in the best interests of the other.[23]

[21](2001) 207 CLR 165, 196-197 [71].

[22][1992] 2 SCR 226, 272.

[23]Pilmer v Duke Group Limited (2001) 207 CLR 165, 196-197 [71].

In this case, Strategic submits that Strategic and Condec were engaged in a joint venture during the currency of the Heads of Agreement and the Development Agreement and that fiduciary obligations existed between them as joint venturers.

A fiduciary relationship may exist between joint venturers but engagement in a joint venture is not of itself determinative of whether parties are in a fiduciary relationship. In United Dominions Corporation Ltd v Brian Pty Ltd,[24] Mason, Brennan and Deane JJ observed:

The term “joint venture” is not a technical one with a settled common law meaning. As a matter of ordinary language, it connotes an association of persons for the purposes of a particular trading, commercial, mining or other financial undertaking or endeavour with a view to mutual profit, with each participant usually (but not necessarily) contributing money, property or skill. Such a joint venture (or, under Scots’ law, “adventure”) will often be a partnership. The term is, however, apposite to refer to a joint undertaking or activity carried out through a medium other than a partnership such as a company, a trust, an agency or joint ownership. The borderline between what can properly be described as a “joint venture” and what should more properly be seen as no more than a simple contractual relationship may on occasion be blurred. Thus, where one party contributes only money or other property, it may sometimes be difficult to determine whether a relationship is a joint venture in which both parties are entitled to a share of profits or a simple contract of loan or a lease under which the interest or rent payable to the party providing the money or property is determined by reference to the profits made by the other. One would need a more confined and precise notion of what constitutes a “joint venture” than that which the term bears as a matter of ordinary language before it could be said by way of general proposition that the relationship between joint venturers is necessarily a fiduciary one:
…
The most that can be said is that whether or not the relationship between joint venturers is fiduciary will depend upon the form which the particular joint venture takes and upon the content of the obligations which the parties to it have undertaken.

[24](1985) 157 CLR 1 (“United Dominions”).

In support of its submission that Strategic and Condec were engaged in a joint venture in which fiduciary duties arose between the joint venturers, Strategic relied on the observations of Dawson J in United Dominions who said:

Although the relationship between participants in a joint venture which is not a partnership will be governed by the particular contract rather than extrinsic principles of law, the relationship may nevertheless be a fiduciary one if the necessary confidence is reposed by the participants in one another. Of course, in a partnership the parties are agents for each other and this may constitute a separate reason for the fiduciary character of a partnership. There may be no such agency between participants in a joint venture but, as Dixon J pointed out in Birtchnell v Equity Trustees, Executors & Agency Co. Ltd,[25] even in a partnership it is really the mutual confidence between partners which imposes fiduciary duties upon them and the same confidence may, in appropriate circumstances, be found to exist between participants in a joint venture.[26]

[25](1929) 42 CLR 384, 407-408.

[26](1985) 157 CLR 1, 16.

Strategic also relied on a passage from the judgment of Mason J in Hospital Products where Mason J observed:

That contractual and fiduciary relationships may co-exist between the same parties has never been doubted. Indeed, the existence of a basic contractual relationship has in many situations provided a foundation for the erection of a fiduciary relationship. In these situations it is the contractual foundation which is all important because it is the contract that regulates the basic rights and liabilities of the parties. The fiduciary relationship, if it is to exist at all, must accommodate itself to the terms of the contract so that it is consistent with, and conforms to, them. The fiduciary relationship cannot be superimposed upon the contract in such a way as to alter the operation which the contract was intended to have according to its true construction.[27]

[27]Hospital Products Limited v United States Surgical Corporation (1984) 156 CLR 41, 97.

Strategic contends that a contractual and fiduciary relationship did co-exist in this case.

Strategic relies on the following matters:

· Condec agreed to provide the property as security for the financing of the development of the project;

· Strategic agreed to contribute its skill and expertise to develop the project which included all retail development activities under the Development Agreement which included designing the proposed retail development, obtaining all necessary approvals, constructing the proposed retail development, complying with the conditions of the required retail development approvals, registration of plans, obtaining necessary consents and funding and negotiating leasing of the retail development. Both Strategic and Condec were entitled to share in any retail development profit according to an agreed formula.

Further, Strategic relies on the mutual covenants in the Development Agreement requiring the parties to be just and faithful to the other party, to co-operate, to diligently perform their obligations, to use their best endeavours to ensure the success of the retail project and the non-retail project and to act honestly and in good faith with each other.

On the basis of these matters Strategic submitted, in substance, that the mutual trust and confidence reposed by the participants in one another under the Development Agreement was sufficient to attract fiduciary obligations.

Condec submitted that the parties were not engaged in a joint venture and, in any event, were not in a fiduciary relationship.

In support of the contention that the parties were not engaged in a joint venture, Condec relied upon clause 18.5 of the Development Agreement which provides:

This document does not create any relationship between the parties of joint ventures, partnership, landlord and tenant, vendor and purchaser or employer and employee. The relationship between the Owner and the Developer is limited to carrying out the Project. The parties’ respective rights, duties, obligations and liabilities in relation to the Project shall in every case be several and not joint or joint and several.

Strategic submitted that despite this clause, substance is to prevail over form and that the development project can accurately be described as a joint venture between Strategic and Condec. Condec submitted that the characteristics of the Development Agreement militate against the conclusion that the agreement created a joint venture to develop the property because Strategic alone was to develop the property and was to assume the risk of doing so as developer, whereas Condec’s only contribution to the development was to provide the property on which the development would take place and to allow the property to be used as security for the retail finance debt.

Accepting that Strategic and Condec had separate roles and responsibilities under the terms of the Development Agreement does not, in my view, militate against a characterisation in ordinary language that they were engaged in a joint venture. They were entities which associated for the purpose of a particular project with a view to mutual profit with each party contributing something to it. Mr Leon Velik described the relationship between Strategic and Condec as a joint venture in his own words in a letter to Mr Davis. Mr Leon Velik testified that the description was inadvertently made and incorrect. I disagree that it was incorrect. In my view, “joint venture” was an apt description, though ultimately in this case, nothing of significance turns on this.

Of significance, for present purposes, is the issue of whether the relationship attracted fiduciary obligations.

Condec submitted that whether a fiduciary relationship exists turns fundamentally upon the detail of what the parties have agreed and the context of the agreement.

In this case, I accept that both Strategic and Condec (through their respective directors) were sophisticated commercial parties with established histories in property development and property investment respectively.

Mr Davis of Strategic was a former partner of Cornwall Stodart who retired from that firm about 1999, after which he engaged in property syndication and property advisory work. Mr Williams of Strategic was a finance broker for approximately 10 years; he worked for a retail franchising outlet becoming general manager and director and then developed a factory outlet centre and a shopping centre in Nunawading.

Strategic was an entity which came into existence for the purpose of this development. Condec was an experienced property investor that had owned property since 1995.

Both parties were legally represented at all relevant times and dealt with each other at arm’s length. The lawyers for Strategic prepared the draft documentation. At all times during the negotiation of the Heads of Agreement and the Development Agreement, Condec was represented by lawyers. When a dispute began to emerge over funding for the retail project, both parties had lawyers acting for them.

I accept Condec’s submission that the roles and duties of each party were clearly delineated under the Development Agreement which provided that Strategic had the obligation to attend to all of the matters necessary to complete the retail project including taking possession of the property, managing it and entering into agreements with all necessary third parties to bring it to completion. The profit sharing structure provided an incentive to Strategic to maximise profit to gain an uplift in its entitlement in the completed retail project. The structure rewarded Strategic for taking on risk. Among other things, the Development Agreement provided that:

· Strategic was required to undertake all negotiations with third parties in relation to the retail project and Condec was not allowed to interfere or conduct any negotiations itself;

· Strategic was to have possession of the property until the development was completed;

· Strategic was entitled to receive a development management fee; and

· Strategic was entitled to receive up to 33% of the units in the Condec trust once the retail development was completed and if it realised a profit.

The Development Agreement provided that the parties would be just and faithful to the other; would co-operate with each other; would use their best endeavours to ensure the success of the project; and would act honestly and in good faith with each other.

There was no provision in the Development Agreement which required either party to act for or on behalf of or in the interests of the other, except in the broad and indirect sense that each party was obliged to perform its obligations under the Development Agreement in accordance with its terms. There were provisions which expressly stated that the Developer is not contracting as agent for the owner and that the relationship is not a partnership and that the parties’ respective rights, duties, obligations and liabilities with respect to the project “shall in every case be several and not joint or joint and several”. This is consistent with an agreement which is non-fiduciary in nature and allows each party to pursue its own legitimate commercial interests.

In this case there was no power imbalance between the parties. Strategic did not occupy a position of vulnerability. It had free rein to carry out the development activity as it saw fit, within the framework of the Development Agreement. Strategic had the expertise in property development. It did not depend on Condec in carrying out the development activities. Under the terms of the Development Agreement Condec was not permitted to interfere with Strategic carrying out the development activities.

Neither party was in a position of ascendency over the other. The only vulnerability of Strategic was that which any contracting party has to breach by the other contracting party.[28] Both parties in this case should be taken to be equal and independent actors. The mutual obligations of cooperation and fidelity in this case merely reflect that equality.
[28]John Alexander’s Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1, 34 [83].

Finally, I accept Condec’s submission that fiduciary duties should not be imposed on common law duties simply to improve the nature and extent of the common law remedies.[29]
[29]Pilmer v Duke Group Limited (2001) 207 CLR 165, 196 [71] citing Norberg v Wynrib [1972] 2 SCR 226, 312.

In my view, Condec did not owe fiduciary duties to Strategic. In the circumstances, it is therefore unnecessary to consider whether there was a breach of any fiduciary duty. Nevertheless, I propose to refer to one matter; namely the allegation that in breach of fiduciary duties, Condec diverted a business opportunity from a firm called Qualitas for Condec’s benefit to the exclusion of Strategic.

Alleged diversion of a business opportunity

First, I reiterate that Condec did not owe fiduciary duties to Strategic so the dealings Condec had with Qualitas, such as they were, were not in breach of any fiduciary duty. Second, Strategic failed to prove there was a diversion of any business opportunity.

In its pleadings, Strategic alleged that Condec breached a fiduciary duty to Strategic by diverting a proposal prepared by Qualitas to fund and develop the project. In its final submissions at trial, Strategic submitted that Condec misappropriated the opportunity of the joint venture represented by the introduction to Qualitas and the Qualitas proposal to fund and develop the project.

Strategic was introduced to Qualitas by a consultant, Mr Tim Boyce of TSB Consultants. Mr Boyce was retained to assist Strategic in relation to the introduction of investors either to partner with Strategic or to acquire the whole or part of the project.

On 16 June 2011, Tim Boyce emailed Condec and Strategic advising that he had arranged a meeting with Qualitas, seeking lists of questions from Strategic and Condec about the Qualitas proposal stating that he intended together with John Lincoln to go through the list of questions both parties would like addressed at the proposed meeting.

On 18 June 2011, Mr Roger Velik sent an email to Tim Boyce (copied to Strategic) where he stated, among other things, that the Qualitas proposal would need to be discussed with representatives of Qualitas present in a forum which would “allow for a frank and open discussion between Qualitas and Condec about the terms that each would be seeking for it to make commercial sense to both parties to proceed further, whilst understanding that Strategic would be looking for a solution to its position as part of those discussions”. Mr Velik concluded, “[i]n light of the above, John and yourself may wish to meet up with Qualitas on Monday, but please be clear in any discussions that you might have that you are only speaking on behalf of Strategic and are not representing any of Condec Pty Ltd’s views. From that meeting you may wish to organise a meeting that presents the forum for discussion as I outlined earlier”.

Strategic’s underlying challenge was that Condec was seeking to gain the benefit of the work Strategic had done for the joint venture without paying for it.

Mr Roger Velik was cross-examined on this issue at length. It was suggested variously:

· that on 20 June 2011 Mr Roger Velik sought to obtain information from Strategic so that Condec could treat directly with a third party;

· that Condec sought to exclude Strategic from the project to take the benefit of work done for itself; and

· that Condec wanted to have direct communication with Qualitas to the exclusion of Strategic.

Mr Roger Velik’s response under cross-examination was to the effect:

· that Condec did not want to take information for itself but wanted the relevant material circulated;

· that he had had discussions with Mr Adam Slade of Qualitas but not in any way to interfere;

· that he had a meeting on 30 June 2011 in the absence of representatives of Strategic which was brought about because John Lincoln (of Strategic) had asked Condec to meet with Qualitas;

· that Qualitas put to Condec a solution that Qualitas believed would “cover off” Condec and Strategic; and

· that Mr Roger Velik felt that if a commercial solution was achieved “we would avoid all of this”.

Specifically, Mr Roger Velik said:

My father and I were very strongly of the view to try and see whether this would avoid long litigation proceedings that were already underway and if we could find a commercial solution in it, and we were being told by Qualitas that they were talking to Strategic, that if we could find that solution, great, that would avoid all of this.

Finally, when it was suggested to him that Condec wanted to have direct communication with Qualitas to the exclusion of Strategic, Mr Velik said, “I think quite the opposite. What we said to them specifically was, you must deal with Strategic, we are in litigation with them. If you can find a solution with them and you can bring it to the table signed, it will make then the opportunity to talk about the rest.”

Senior counsel for Strategic challenged the veracity of Mr Roger Velik in respect of these matters. In my view, Mr Roger Velik successfully resisted the attack. Mr Jeremy Urbach of Condec also denied that Condec terminated the agreement so it could treat directly with Qualitas.

I accept the evidence given by Condec’s witnesses. The plaintiff did not call any witness from Qualitas, nor Mr John Lincoln to contradict that evidence.

Finally, if it matters, the diversion of business opportunity case was, in practical terms, moot because nothing eventuated from the communications with Qualitas.

(5) Is Condec estopped by its conduct from relying on the exclusion of “the owners equity” as a basis for alleging that the ANZ offer in its indicative term sheet does not comply with clause 4.1(f) of the Development Agreement?
Relevant principles

Estoppel by convention is founded on the conduct of relations between the parties on the basis of an agreed or assumed state of affairs (whether as to a matter of fact or a matter of legal effect), which both will be estopped from denying.[30] The assumed state of affairs takes as a given the terms of the contract between the parties, but from which the parties have departed in the course of furthering their relationship under the contract.[31]
[30] Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226, 244 (Gibbs CJ, Mason, Wilson, Brennan and Dawson JJ).
[31] Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603, 644 [194].

In the Indian Grace, Lord Steyn said:

an estoppel by convention may arise where parties to a transaction act on an assumed state of facts or law, the assumption being either shared…or made by one and acquiesced in by the other. The effect of an estoppel by convention is to preclude a party from denying the assumed facts or law if it would be unjust to allow him to go back on the assumption.[32]

[32]India v India Steamship Co Ltd (The Indian Endurance and The Indian Grace) (No. 2) [1997] 2 WLR 818, 913.

In Ryledar Pty Ltd v Euphoric Pty Ltd (which also concerned an alleged variation to terms of a contract), the New South Wales Court of Appeal summarised the elements required to establish an estoppel by convention.[33] The plaintiff must prove that:

(a)the plaintiff has adopted an assumption as to the terms of its legal relationship with the defendant;
(b)the defendant has adopted the same assumption;
(c)both parties have conducted their relationship on the basis of that mutual assumption;
(d)each party knew or intended that the other act on that basis; and
(e)departure from that assumption will occasion detriment to the plaintiff.

[33](2007) 69 NSWLR 603, 645 [200] (Tobin JA (Mason P and Campbell JA agreeing)) citing Moratic Pty Ltd v Gordon (2007) Aus Contract Reports 90-25 (89,914 [32]).

The doctrine of estoppel by acquiescence is encompassed by the general principles of equitable estoppel as stated by the High Court in Waltons Stores (Interstate) Ltd v Maher.

To establish an equitable estoppel, the plaintiff must prove that:[34]

(a)the plaintiff assumed that a particular legal relationship then existed between the plaintiff and the defendant or expected that a particular legal relationship would exist between them and, in the latter case, that the defendant would not be free to withdraw from the expected legal relationship;
(b)the defendant has induced the plaintiff to adopt that assumption or expectation;
(c)the plaintiff acts or abstains from acting in reliance on the assumption or expectation;
(d)the defendant knew or intended him to do so;
(e)the plaintiff's action or inaction will occasion detriment if the assumption or expectation is not fulfilled; and
(f)the defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise.

[34] Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 38, 428-429 (Brennan J).

To underpin its estoppel case, Strategic submitted that:

· Condec knew in March 2009 that the LVR on completion in the Feasibility Report was 62.6% and that Condec’s equity of $16 million was not included in that LVR calculation;

· the Feasibility Report included the Bankwest letter dated 30 March 2009 which stated that the bank would be prepared to consider the transaction on the basis including a statement that the LVR would be 61.5%;

· a feasibility statement was tabled at a meeting on 24 March 2010 and was adopted as the current version of the feasibility summary for the project and referred to a total debt of $67.4 million, an end value of $102.7 million and an LVR of 65.6%. The LVR self-evidently did not include Condec’s equity of $16 million;

· Strategic prepared and provided to Condec a PCG Development Report on 12 May 2010 which summarised “funding required” LVR of 68.74%, not including Condec’s equity;

· Strategic proposed and provided a funding proposal to Westpac which contained a copy of the feasibility statement;

· at a meeting on 17 May 2010, Strategic and Condec attended a meeting with Westpac and discussed the feasibility statement;

· on 19 May 2010, John Davis of Strategic sent an email to Roger Velik of Condec attaching a proposal from CBA which referred to an LVR on completion of 60% and did not refer to Condec’s equity of $16 million;

· on 31 May 2010, Westpac emailed John Davis and stated among other things that Westpac’s appetite for debt sizing “would not exceed 65% of an acceptable on completion” valuation; that a commitment to both the Construction Phase and a Term Phase may be possible (but the bank) would not expect the LVR to exceed 65% at any time; that the maximum debt sizing would likely be in the $63 million to $65 million range with a preference to include things like “end value” LVR not exceeding 65%”. This email was brought to Roger Velik’s attention and, despite its contents, Roger Velik did not take issue with Strategic about how Westpac calculated the LVR;

· the ANZ Indicative Term Sheet of 11 June 2010 outlined indicative terms on which it might provide finance and referred to a residential LVR of 60% and a retail LVR of 60%;

· NAB provided a funding proposal for the project with an LVR for a retail construction facility of 67% of the net realisation value of the project;

· Mr Roger Velik agreed that he was provided with a copy of the NAB letter and agreed he probably read this at the time. Mr Velik saw that NAB had calculated the LVR on the basis that it did not include Condec’s equity and said nothing to “correct” this;

· on 6 July 2010, Westpac wrote to Strategic, who had provided a copy to Condec outlining indicative terms for finance, which included an LVR during the construction phase of approximately 65% of an agreed on-completion valuation (but not to exceed 75% of development costs), that it would have been obvious to Condec that Westpac was not including “Owner’s Equity” in the LVR calculations;

· a development report of 21 July 2010 contains minutes of a PCG meeting on that date. In the development report, the essential elements of the indicative funding proposals are recorded in the minutes. The minutes refer to a facility limit of 65% of the completion value for Westpac and 67% of the on-completion value for NAB. The minutes do not record that these LVR calculations include “Owner’s Equity” and Mr Roger Velik did not raise any issue about this at the meeting on 21 July 2010; and

· Strategic relies on other correspondence during August and September 2010 which showed LVR calculations which did not include owner’s equity.

Strategic also sought to rely upon matters which occurred subsequent to 28 September 2010. In my view, that reliance is misplaced because by that time Strategic knew Condec would require adherence with the gearing cap set out in clause 4.1(f) of the Development Agreement.[35] In an email from Davis to Nelson dated 28 September 2010, it is clear that by that date Davis is aware of Condec’s position.
[35]On 21 September 2010, Roger Velik advised Nelson of Alpha Partners of the gearing cap in clause 4.1(f) of the Development Agreement.

In my view, Strategic’s estoppel claim is fundamentally flawed.

First, I do not accept that Strategic and Condec each adopted an assumption that the gearing cap on borrowings would be calculated on a conventional basis, i.e. simply as a ratio of loans to value from time to time and excluding the owner’s equity.

As I have previously found:

· Mr Davis was made aware of the fact that Condec’s equity was to be combined with the debt and calculating the loan to value ratio from time to time.

· there is nothing in the Estate Master Data (which accompanied the Feasibility Report) which would lead to the necessary inference that the parties had agreed to exclude the value of the owner’s equity from the LVR calculation.

· Condec advised Strategic that it would proceed with the development of the retail project on a basis contemplated by the Heads of Agreement which included a Development Agreement as an annexure in which clause 4.1(f) was in its original form.

Strategic failed to reconcile the fact that in March 2010 it approached the CBA for financing on the terms of an unvaried clause 4.1(f) (and not on the conventional basis now alleged) in a document described as “CBA Presentation dated 3 March 2010” prepared by Strategic. I note the CBA presentation states that the project is governed by legal documents including the Heads of Agreement and the Development Agreement; that Condec and Strategic are parties to a Development Agreement pursuant to which they have agreed to carry out the development, and that Condec agreed that it will provide the property as security for the development subject to certain terms and conditions as follows. Item 1 of those terms and conditions was as follows:

1. The facility (including the value of the owner’s current equity of $17m) is to be capped at 65% of the value of the property from time to time.

This paragraph was deleted from a later proposal document.

In my view, the inclusion of Item 1 in the CBA presentation runs directly counter to Strategic’s argument that it assumed, at all relevant times, that the gearing cap would be calculated on a conventional basis.

In cross-examination, Mr Davis asserted that he probably wrote and approved the contents of the CBA presentation and that document Item 1 was sourced directly from the Development Agreement. I accept Condec’s submission that Strategic plainly knew of the precise wording of clause 4.1(f) because it had approached the CBA based on the original wording of the clause. Armed with this knowledge, I cannot accept that Strategic had a basis to assume that the gearing cap would be calculated without including the value of the owner’s equity.

Further, no estoppel claim could attach to dealings with financiers in relation to financing of the project after September 2010. By this time, on any view Strategic was under no misapprehension of Condec’s insistence on strict reliance on clause 4.1(f) of the Development Agreement. Strategic’s negotiation with ANZ in relation to the ANZ Indicative Term Sheet, subsequent to September 2010, must be seen in that context.

Even if Strategic had at any time adopted the assumption as to the terms of its relationship with Condec, I am not satisfied that Condec adopted the same assumption. For reasons previously given, the evidence does not establish that the modelling in the Feasibility Report is premised upon an LVR which excludes the value of the owner’s equity. Further, the numerous documents upon which Strategic relies in support of its estoppel claim refer to LVR ceilings on completion of the retail project and not to LVR ceilings which would be applicable during construction of the project. There is a world of difference between the two. The apparent object of clause 4.1, viewed objectively, is to control the level of risk during the course of construction of the project. This is wholly consistent with the surrounding circumstances evident at the time the contract came into existence to the effect that Condec was conservative and risk-averse. In particular, Mr Urbach, who gave evidence for Condec, explains that in the emails he sent he was referring to the on-completion LVR and that Condec was content to have the property geared at 65% on completion, excluding Condec’s equity, once the retail project was completed and the development risk had passed.

On the balance of probabilities, I am not satisfied that Condec proceeded on the basis of the assumption that Strategic alleges.

In my view, Strategic’s estoppel claims are unfounded.

Conclusion

I have concluded that clause 4.1(f) of the Development Agreement was not varied; that Condec was not in breach of the Heads of Agreement or the Development Agreement; that Condec did not wrongfully terminate the Development Agreement; that Condec did not owe Strategic fiduciary duties; and that Condec is not estopped by its conduct from relying on the exclusion of “the Owner’s Equity” as a basis for alleging that the ANZ offer in its indicative term sheet does not comply with clause 4.1(f) of the Development Agreement.

Accordingly, the answer to each of questions 1-5 above is no. The plaintiff’s claims must be dismissed.

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CERTIFICATE

I certify that this and the 50 preceding pages are a true copy of the reasons for Judgment of Almond J of the Supreme Court of Victoria delivered on 19 December 2012.
DATED this nineteenth day of December 2012.

Associate