Tyneside Property Management Pty Ltd v Hammersmith Management Pty Ltd
[2013] NSWSC 635
•28 May 2013
Supreme Court
New South Wales
Medium Neutral Citation: Tyneside Property Management Pty Ltd & ors v Hammersmith Management Pty Ltd & ors [2013] NSWSC 635 Hearing dates: 7-11, 14-17, 21-24, 28 February, 1-4 March, 2-5, 25-27 May 2011 Decision date: 28 May 2013 Jurisdiction: Equity Division - Corporations List Before: Brereton J Decision: Defendants bring in short minutes
Catchwords: CONTRACT - claim for damages by plaintiff manager against defendant owner for repudiation of contract for project management of subdivision development - no question of principle - whether contract had been discharged by agreement - whether manager was in default under contract - whether manager had failed to comply with directions of owner - whether warranty by manager that it had the skill, experience, competence and ability to manage the project was not true and correct
CONTRACT - cross-claim for repayment of money advanced under contract
JOINT OBLIGATIONS - whether necessary to join all joint obligorsLegislation Cited: (NSW) Civil Procedure Act, s 95
(NSW) Corporations Act, s 459G, s 459H(4)Cases Cited: Creamota Ltd v The Rice Equalization Association Ltd (1953) 89 CLR 286
Masters v Cameron (1954) 91 CLR 353; (1954) 28 ALJR 438
Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387Category: Principal judgment Parties: Tyneside Property Management Pty Limited (First Plaintiff)
Namlot Nominees Pty Limited (Second Plaintiff)
Roy Frederick Haggis (Third Plaintiff)
Hammersmith Management Pty Limited (First Defendant)
Roche Group Pty Limited (Second Defendant)
John Oliver (Third Defendant)
Tasmanian Prosperity Investment Pty Limited (Fourth Defendant)
Bluegrass Nominees Pty Limited (Fifth Defendant)
Nathan Oliver (Sixth Defendant)
Frederick James Boswell (Seventh Defendant)Representation: Counsel:
Mr DA Smallbone & Mr DP O'Connor (Plaintiffs)
Mr DL Williams SC & Mr Scott Goodman (First & Second Defendants)
Solicitors:
Moray & Agnew (Plaintiffs)
Clayton Utz (First & Second Defendants)
File Number(s): 2003/ 83732 2004/ 181624
Judgment
HIS HONOUR: Under contractual arrangements comprising a Profit Deed and a Management Agreement made on 4 June 1999, the first plaintiff Tyneside Property Management Pty Ltd (Tyneside), of which the third plaintiff Mr Roy Haggis and the third defendant Mr John Oliver were principals, was engaged by the first defendant Hammersmith Management Pty Limited (Hammersmith), which had been acquired by the second defendant Roche Group Pty Limited, to manage the development of land near West Wallsend (relevantly lots 102/1000408, 103/1000408, 104/1000408 and 105/1000408) which Hammersmith purchased from BHP. The second plaintiff Namlot Nominees Pty Ltd - of which Mr Haggis was also a principal - was to receive a specified share of the profits generated by the development, calculated according to a formula contained in the Profit Deed (as were two other companies, the fourth defendant Tasmanian Prosperity Investments Pty Limited (a company associated with the seventh defendant Mr Frederick Boswell) and the fifth defendant Bluegrass Nominees Pty Limited (a company associated with Mr Oliver). It was envisaged that the project, which became known as Pambulong Forest, would entail a subdivision of 1550 lots, with construction to commence in February 2000, sales commencing in the third quarter of 2000, and a profit of almost $70 million by March 2011. However, by early 2003, construction had commenced only on a lake and fore bay, and council approval had been obtained only in respect of one precinct of 37 lots (including some master lots, capable of further subdivision producing a total of 63 lots). The first and second defendants (who were the only active defendants and, for convenience, are hereinafter referred to as "the Defendants") primarily contend that the Management Agreement was terminated by mutual consent at a Hammersmith board meeting on 28 January 2003 when, consequent on Tyneside's resignation as project manager, it was agreed that Roche Group would assume management of the project; and that the Profit Deed was terminated by notice given on 11 March 2003. Alternatively, they contend that Hammersmith and Roche Group terminated the Management Agreement and the Profit Deed on 11 March 2003, being entitled to do so on the bases, first, that Tyneside had repudiated the Management Agreement and the Profit Deed by its resignation on 28 January 2003, and secondly, that Tyneside was in default in several respects.
In proceedings 03/83732, Tyneside and Namlot, having abandoned an earlier claim for specific performance, claim damages for the alleged repudiation by Hammersmith of their contractual arrangements: Tyneside claims the management fees which it would have but did not earn under the Management Agreement, and Namlot claims the profit share to which it would have been entitled had the contracts been performed. Hammersmith cross-claims to recover an advance of $100,000 made to Tyneside under the Management Agreement, and also for return of the management fees paid under that agreement. Repayment of the advance was previously demanded by way of creditors' statutory demand on 29 April 2003 and 2 December 2004, and by interlocutory process in proceedings 03/83732 (as to the first notice) and originating process in proceedings 04/181624 (as to the second notice), Tyneside applied pursuant to Corporations Act, s 459G, to have those demands set aside.
The main issues are:
(a) Was the Management Agreement discharged by agreement at the Hammersmith board meeting on 28 January 2003? Alternatively, did Tyneside repudiate the Management Agreement by resigning on that occasion?
(b) Did Tyneside commit events of default under (1) the Management Agreement and/or (2) the Profit Deed, entitling Hammersmith to terminate those agreements (as it purported to do on 11 March 2003)?
(c) If no to (a) and (b), what are Tyneside's damages for Hammersmith's repudiation of the agreements? Associated with this, was Lot 107/1000408 included in the project the subject of the agreements?
(d) If yes to (a) or (b), is Hammersmith entitled to recover the advance of $100,000 and/or the management fees paid to Tyneside under the Management Agreement?
(e) Should the creditor's statutory demands be set aside?
BACKGROUND
What follows is a chronological outline of some of the main events concerning the relationship of the parties and the Pambulong Forest project, in order to provide context for and facilitate understanding of the discussion of the issues. It does not purport to be a complete chronology of those events. Additional detail is provided, where relevant, under the particular issues addressed later.
The West Wallsend land was owned by BHP, which in late 1998 was prepared to sell lots 102, 103, 104 and 105 for $4.635 million. Mr Haggis, a property developer, perceived that this was perhaps half of its true value. He, Mr Oliver and Mr Boswell incorporated Hammersmith for the purpose of acquiring the land, and contracts for sale were prepared. Exchange was due to occur on 2 March 1999, but Hammersmith, Mr Haggis and Mr Oliver did not then have the requisite 10% deposit of $463,500. They were seeking an investor, and a firm of financial consultants, Fay & Cannon, were assisting in their search. In late February 1999, Fay & Cannon introduced Mr Haggis and Mr Oliver to Mr William (Bill) Roche of Roche Group.
On 27 February 1999, Mr Haggis and Mr Oliver met with Mr Bill Roche of Roche Group and Mr Bob Frost of Fay & Cannon at a Paddington restaurant, when there were preliminary discussions concerning a potential investment by Roche Group in the proposed development. A further meeting ensued, on 2 March 1999, at Apollo Motor Inn, Charlestown between Mr Haggis and Mr Oliver (Hammersmith), Mr B Roche and Mr David Hall (Roche Group) and Mr Fay (Fay & Cannon). Mr Haggis and Mr Oliver provided Roche Group with a project assessment report in respect of the proposed development of the land (the Report), which had been prepared by Hammersmith - principally by Mr Haggis - and which contained timeframes for the development and sale of the land, and projections as to the profit that could be generated. The Roche Group representatives were also provided with a copy of Mr Haggis' "Profile" (or resume). After considering the Report and after being told by Mr Haggis and Mr Oliver that they were capable of managing the proposed development of the land, Roche Group agreed to purchase Hammersmith for $2, to place Hammersmith in funds sufficient to enable it purchase the land, to appoint a vehicle to be incorporated by Mr Haggis and Mr Oliver to manage the development, and to give them a share of the profits or losses. Notes forming the basis of an agreement governing their future relationship were handwritten onto a copy of the Report, and signed by the participants.
Consequent upon that meeting, on 2 March 1999, Roche Group agreed to acquire the shares in Hammersmith for $2, and paid the $463,500 deposit for the land. Hammersmith thereupon exchanged contracts with BHP for the purchase of the land.
Messrs Haggis and Oliver incorporated Tyneside as their intended project management vehicle on 30 March 1999.
The share transfers in Hammersmith were registered on 16 April 1999. Mr B Roche, Mr D Roche and Mr Hall were appointed directors of Hammersmith; Mr Oliver resigned, but Mr Haggis remained a director to represent the interests of Tyneside.
Hammersmith completed the acquisition of the land on 17 May 1999, for a total purchase price of $4,635,000, funded by Roche Group.
Between 2 March and 4 June 1999, the terms of the Management Agreement and Profit Deed were negotiated. Mr Robert Miles of Bartier Perry, solicitors, represented Tyneside, and Mr Mark Lamb of Corrs Chambers Westgarth represented Hammersmith. Several drafts of each of the Profit Deed and the Management Agreement passed between the parties.
On 4 June 1999, at a meeting at Roche Group's premises, between Mr Hall and Mr Damian Roche for Hammersmith/Roche Group, and Mr Haggis and Mr Oliver for Tyneside, after some negotiations (the subject matter of which included clause 12.1(f) of the Profit Deed), the Profit Deed and the Management Agreement were executed, in a form that included clause 12.1(f) in the Profit Deed unaltered. In or about late June 1999, copies of the executed Profit Deed and Management Agreement were provided to Mr Haggis. Pursuant to the Management Agreement, Hammersmith advanced $100,000 to Tyneside, and commenced payment of monthly management fees of $22,500.
The Management Agreement contemplated that, with Hammersmith's consent, Tyneside might undertake a "best practice" study in relation to the development. During the latter part of 1999, a "best practice" study was undertaken. This resulted in a change of direction for the project, from a conventional subdivision to one using community title, and to proceeding by way of a Local Environment Plan rather than only a Development Application.
The Report contemplated that other land (in addition to lots 102, 103, 104 and 105) owned by BHP in the vicinity might be added in the project. At a meeting of the Hammersmith board on 24 June 1999, Mr Haggis recommended that Hammersmith seek to acquire lot 107/1000408, and Hammersmith subsequently did so.
In September 1999, Lake Macquarie City Council placed on public exhibition their subsequently adopted Lifestyle 2020 Strategy document, which included provision for a district business centre on Lot 104, and urban rezoning of Lot 107.
On 8 December 1999, Mr Haggis and Mr Oliver discussed with Mr Hall the terms on which Namlot and Bluegrass might be entitled to a profit share in respect of Lot 107. There is an issue as to whether, as a result, Lot 107 was added to or incorporated in the project, so as to entitle Namlot to a profit share in respect of it.
According to the Report, construction was to commence in February 2000.
On 7 April 2000, Asquith & de Witt, surveyors, wrote to Tyneside advising that there were potential difficulties with community title, which could be resolved by a reasonably detailed Master Plan. On 27 March 2001, Asquith & de Witt again wrote to Mr Haggis, recommending that at least an indicative Master Plan be prepared.
On 23 July 2001, the council resolved that the proposed amendment to the Lake Macquarie Local Environment Plan be forwarded to the Minister with a recommendation that it be made, and approved draft Development Control Plan 42 - Pambulong Forest, to become effective from the date of gazettal of the amendment to the Local Environment Plan. The amendment was gazetted on 12 October 2001.
A Development Application and Statement of Environmental Effects for Precinct 1 was lodged with the council on 18 October 2001.
On 26 October 2001, Hammersmith lodged objections to the council's draft s 94 contributions plan.
In November 2001, Tyneside lodged with the Council a development application for community title subdivision, incorporating a community management statement and environmental management plan.
At a Hammersmith board meeting on 30 November 2001, Tyneside put proposals for the construction works to the Hammersmith board. These included a recommendation that Delamere Homes Pty Limited, a company owned and operated by Mr Haggis' daughter Ms Maryann Florence and her husband Mr Wayne Florence, be retained as the contractors for the initial construction works, being the lake and fore bay. Mr Haggis disclosed the interest of his daughter and son-in-law Florence in Delamere, and there was no objection by the board to the appointment of Delamere as the civil works contractor.
In December 2001, the council issued a revised s 94 contributions plan. On 22 March 2002, Hammersmith instituted an appeal to the Land and Environment Court from the council's decision in respect of s 94 contributions. Points of claims were filed on 19 April 2002. Subsequently, on 24 June 2002, Mr Hall asked Mr Haggis to avoid committing to unnecessary expenditure in the meantime "until we know everything is proceeding".
On 26 April 2002, the council issued notice of determination of a construction certificate in respect of Lot 104 for the construction of a water quality treatment facility, including storm water detention, landscaping and associated drainage structures. In early May 2002, Delamere commenced construction work on the lake and fore bay. There was no written contract with Delamere.
In early 2002, the council was considering "back-zoning" parts of lots 105 and 107 to create conservations zones through the municipality as wildlife corridors. This, if implemented, would have affected the extent to which those lots could be developed. This issue appears to have been resolved by about 4 July 2002. Once the zoning issues had been more or less resolved with the Council, Mr Haggis on 10 July 2002 issued an "Urban Design Brief" to advance planning by stages, in which the first stage was to include sufficiently detailed design for preparation of development applications.
In June 2002, the council gave development consent for Precinct 1.
By early July 2002, difficulties had emerged with the administration of the civil works being undertaken by Delamere. By this time, according to the original feasibility study and cash flow model in the Report, a quarter of the lots should have been completed. Mr Haggis commissioned an experienced civil engineer, Mr Simpkins, to undertake a review. He delivered a report on 24 July 2002 ("the Simpkins report"), which identified significant deficiencies in the management and supervision arrangements, and recommended that a project manager be appointed.
Tyneside provided the Simpkins report to Mr Hall. Simultaneously, Mr Oliver, Mr Haggis' co-director, was becoming increasingly concerned about Tyneside's management of the project, and on or about 7 August 2002, Mr Oliver conveyed his concerns to Mr Hall.
On 8 August 2002, there was a meeting at the site including Mr B Roche and Mr Hall (from Roche Group), Mr Haggis and Mr Oliver (Tyneside), Mr Florence (Delamere), and Mr Walsh and Mr Truswell (respectively a construction engineer and a civil and structural engineer, retained as consultants by Roche group). The evidence relating to this occasion is further discussed below. Hammersmith claims to have directed Tyneside not to incur any further costs, and to cease work on the project, save for the completion of the dam and fore bay, until a review of the project by Mr Walsh and Mr Truswell had been completed. Hammersmith alleges that after that date, and contrary to that direction, Mr Haggis instructed Mr Holland of DEM Urban Planning Designers (DEM), and Mr Robinson of Asquith & de Witt Pty Ltd, to undertake various tasks, in connection with preparation of a master plan.
On 15 August 2002, there was a meeting at Roche Group's offices, attended by Mr B Roche, Mr Hall, Mr Haggis, Mr Oliver, Mr Truswell and Mr Walsh. In the course of this meeting, the Roche Group learnt that there was no "master plan" for the project, one consequence of which was that Mr Haggis was unable to inform those present of the anticipated lot yield.
On 26 August 2002, at Mr Haggis' suggestion, Mr B Roche travelled with Mr Haggis and Mr Walsh to Adelaide, to view what Mr Haggis suggested was a comparable development, at Mawson Lake. The plaintiffs say (and the defendants dispute) that in the course of this trip Mr B Roche instructed Mr Haggis to prepare a master plan.
Mr Truswell provided an interim report on 29 August 2002, which was critical of Tyneside's administration of the project, describing it as "terribly flawed".
During the period August to December 2002, there were ongoing disputes relating to progress claims made by Delamere, and payment of them.
In late August and early September 2002, Mr Truswell and Mr Walsh met with various consultants who had been engaged by Tyneside. Mr Walsh and Mr Truswell delivered their final report ("the Walsh/Truswell report") to Hammersmith/Roche Group on 26 September 2002. It summarised the views expressed by the various consultants, and was critical of Tyneside's management of the project.
On 9 October 2002, Mr Hall requested Mr Haggis' and Mr Oliver's availability for a board meeting, inter alia to discuss the Walsh/Truswell report. Mr Oliver arranged for the meeting take place on 31 October, due to the unavailability of Mr Haggis before then.
On 6 November 2002, Mr Holland of DEM prepared a "Summary report to Bob Walsh and John Oliver 6th November 2002", summarising work done by DEM at the request of Tyneside. Following a site meeting on 7 November, at which it appeared that DEM had been engaged, after 8 August 2002, to prepare a master plan and a landscape plan for the project, Mr Walsh on 11 November 2002 sent a facsimile to Mr Hall, and on 11 or 12 November 2002, Mr Hall (on behalf of Hammersmith) directed Mr Oliver (on behalf of Tyneside) to instruct DEM to cease all work it had been directed to do by Tyneside after 8 August 2002, and not to incur any further costs in relation to the development until further notice.
The hearing of the appeal to the Land and Environment Court in respect of the s 94 contributions was on 25 November 2002, when judgment was reserved.
On 29 November 2002, Mr Hall wrote to Mr Haggis and Mr Oliver requesting that Tyneside provide the current status of all aspects of the project, including all matters with consultants and the status of their work, by the following Wednesday, together with a detailed plan and proposal as to the management system and construction procedures to be implemented, "particularly taking into account the recommendations and management system recommended by Gary Trusswell & Associates Pty Limited and discussed at recent Board meetings". Mr Hall emphasised that it was "absolutely essential" that the Hammersmith board have "a very clear understanding of the present day status of all matters relating to the project including those with consultants". Mr Haggis' response, provided on Thursday 5 December 2002, noted that most items were "on hold", and did not explain the stage which the various components of the project had reached. After further correspondence, Mr Hall made arrangements for a board meeting, which was eventually convened for 28 January 2003.
In the meantime, during January 2003, Mr Haggis (on behalf of Tyneside) re-engaged DEM to perform further work.
The defendants contend that, at the meeting of the Hammersmith board on 28 January 2003, Tyneside - by Mr Haggis - resigned as Manager, and that the Management Agreement was thereupon terminated by mutual consent. Between 28 January and 11 March 2003, there were negotiations (which were ultimately unsuccessful) between the parties as to their future relationship and entitlements.
Judgment in the s 94 appeal was delivered on 13 February 2003; it was substantially favourable to Hammersmith. On 14 February 2003, Mr Haggis wrote to Hammersmith that Tyneside was ready, willing and able to perform its obligations under the Management Agreement.
On 6 March 2003, Clayton Utz, for Hammersmith/Roche Group, wrote to Mr Miles, for Tyneside, that unless the draft Management Agreement Termination Deed and New Profit Deed that had been submitted on 27 February were returned executed by 10 March, the offer would be withdrawn and the extant agreements terminated for default. On 11 March 2003, the negotiations having been unsuccessful, Roche Group and Hammersmith gave Tyneside written notice of termination of the Management Agreement, and required delivery up by 14 March 2003 of documents containing the project information, relevantly as follows:
Take notice that Roche Group Pty Limited and Hammersmith Management Pty Limited hereby terminate the Management Agreement dated 4 June 1999 pursuant to clause 12.2 with effect from the date of this letter for default under clause 12.1 ...
On the same day, Roche Group and Hammersmith also gave Namlot and Mr Haggis a notice of termination of the Profit Deed, relevantly as follows:
Roche Group Pty Limited and Hammersmith Management Pty Limited advise that the Management Agreement dated 4 June 1999 has been terminated. Take notice that Roche Group Pty Limited and Hammersmith Management Pty Limited hereby terminate the Profit Deed dated 4 June 1999 pursuant to clause 12.2 with effect from the date of this letter for default under clause 12.1.
Also on the same day, Hammersmith demanded repayment, by 8 April 2003, of the advance of $100,000 made to Tyneside under the Management Agreement.
Mr Kalyk, solicitor, who was acting for Tyneside, immediately responded to Clayton Utz on the same day, disputing the entitlement of Roche Group and Hammersmith to terminate. Clayton Utz extended, to 17 March, time for return of the executed new profit deed, but negotiations appear to have collapsed by 7 April 2003, following which Tyneside instituted these proceedings, initially for specific performance; on 6 March 2009 however, Tyneside gave notice of termination of the Management Agreement and Profit Deed, asserting repudiation on the part of Hammersmith and Roche Group.
THE CONTRACTUAL DOCUMENTATION
Each of the Profit Deed and Management Agreement was expressed to be for a 12-year term expiring 1 March 2011. The Management Agreement was a schedule to the Profit Deed. The Report was included in a schedule to the Management Agreement.
By the Management Agreement:
(1) Tyneside agreed to perform certain obligations (clause 7), including using its best endeavours to procure completion of the Development in the most timely and efficient manner and in accordance with the Report or as otherwise directed by Hammersmith (clause 7.1(a)), coordinating the development and the performance of specified services (clause 7.1(j)), and providing monthly reports to Hammersmith (clause 7.2); in return for which Hammersmith would pay Tyneside a management fee of $22,500 per month (clause 10). The specified services were defined as follows (clause 1.1):
The services to be provided by [Tyneside] to Hammersmith in relation to the development ... as more particularly described in this Deed and the carrying out of all activities, which are necessary or desirable to enable Hammersmith to complete the Development profitably and in accordance with the Report ...
(2) Roche Group agreed to advance $100,000 to Tyneside on the date of the agreement (clause 9);
(3) Tyneside gave several covenants and warranties in favour of Hammersmith and Roche Group, including that it had the skill, competence, experience and ability necessary to perform the services it was required to perform under the agreement (clauses 4-6). Each warranty was expressed to be continuing (clause 6.1), and to be separate and independent and not limited by reference to any other provision of the Management Agreement (clause 6.2);
(4) if a specified event of default occurred, the party or parties not in default could terminate (clause 12.2). The specified events of default included (a) non-compliance with the directions of Hammersmith (clause 12.1(b)), (b) if any of the covenants and warranties were not true, complete and correct (clause 12.1(c)), and (c) the failure of the Development, at any time, to achieve 90% of the profit stated in the Report (clause 12.1(f)).
By the Profit Deed:
(1) entities associated with Mr Haggis, Mr Oliver and Mr Boswell were entitled to participate in the profits (clauses 10 and 11) and liable to contribute to any losses (clause 11.4) made during the term of the Profit Deed. The profit share to which each was entitled was a base of 8.33% (thus a total of 25%) on profits up to $30 million, increasing to 10% on profits in excess of $30 million and 16.666% on profits exceeding $68.95 million; the liability to contribute to losses was 8.33% each (a total of 25%);
(2) Tyneside gave various covenants and warranties in favour of Hammersmith and Roche Group (clauses 4 and 5). Again, each warranty is expressed to be continuing (clause 7.1), and to be separate and independent and not limited by reference to any other provision of the Profit Deed (clause 7.2);
(3) if a specified event of default occurred, the party or parties not in default could terminate (clause 12.1). The specified events of default included (a) if any of the covenants and warranties were not true, complete and correct (clause 12.1(b)), (b) failure of the Development, at any time, to achieve 90% of the profit stated in the Report, provided that the time periods specified in the Report would be extended for the duration of any delay caused by any matter beyond Tyneside's control (clause 12.1(e)), and (c) termination of the Management Agreement for any reason (clause 12.1(f)).
There was originally an issue about the status of clause 12(1)(f), with Tyneside contending, on various bases, that it ought not be treated as part of the agreement, but this was withdrawn during the hearing.
THE WITNESSES
It is appropriate at this stage to make some observations about several of the principal witnesses, the reliability of whose evidence is material to the outcome.
Mr Haggis
Mr Haggis was the principal witness in the Plaintiffs' case. Initially, he gave the impression of having a good and reasonably precise recollection and understanding of relevant issues and transactions. However, in the course of his cross-examination, it soon appeared that his recollection of many matters - particularly matters that were potentially adverse, such as details of the projects referred to in his resume, and the events of the board meeting of 28 January 2003 - was not good. As the cross-examination proceeded, it became clear that he was determined to make and support his case from the witness box. On reflection, I think he knew his case very well, as distinct from having a very good recollection of the facts; and he was an advocate for his case, rather than a detached historian. His evidence repeatedly showed signs of a lack of objectivity in reluctance to make concessions that were called for (such as the misleading character of his profile, referred to below; or that the Walsh/Truswell report contained material critical of the management of the project), and in seeking to resile or escape from concessions when their consequences became apparent (such as that the directions of 8 August and 20 November 2002 were given).
A number of particular matters affecting his credit must be mentioned.
Mr Haggis provided to Roche Group a seriously misleading resume (called a "profile") that he must have known would be relied upon, and when its deficiencies were exposed gave spurious excuses. The profile overstated his experience, conveyed the impression of far greater involvement in property development and project management than transpired to be the case, and suggested that he had a history of extensive involvement in a wide range of high value projects, including three over $10 million. He suggested that his profile was given to Roche Group not by him but by Mr Oliver, but he knew they had it, and he must have been its author. Ultimately, when compelled to concede that it was misleading, he sought to explain it on the basis that it was intended to refer to having undertaken feasibility studies, not the projects themselves. The resume did not disclose that in 1991-2 his companies had gone into liquidation and he had become a bankrupt. He suggested that it was for Roche Group to ascertain what experience he was bringing to the table, and they did not ask about his profile or background - yet at the time, he had queried whether the warranty of competence was too broad, and commented that Roche Group had his profile.
Mr Haggis gave false evidence that he was not under commercial pressure to conclude a deal with Roche Group, and manipulated the minutes of a meeting with Fay & Cannon to falsely assert that they had underwritten the purchase. BHP had imposed a deadline for exchange of contracts of 2 March 1999, the date on which Mr Haggis and Mr Oliver met with Mr B Roche and Mr Hall in Charlestown. Mr Haggis gave evidence to the effect that it was not a commercial imperative for him to deal with Roche Group, and that other options were available to him. (This was important in the context of the case, originally advanced though later abandoned, that he relied on certain representations of Roche Group in executing the documentation). Mr Haggis deposed that Fay & Cannon had agreed to fund the purchase if they had not found an equity partner or other source of funds. In cross-examination he denied that completing the deal was a matter of commercial survival. However, even while the contracts with Roche Group were still being negotiated, he wrote "In the March 2 negotiations, commercial survival took precedence over legal niceties ... We had few options when negotiating a commercial solution". He and Mr Oliver were not then in a position to fund the deposit. His evidence that he could have sourced the purchase moneys from other sources, within 24 hours, and that he could access sufficient funds to pay the deposit, is quite contrary to the position he adopted in his contemporaneous communications Ms Peta Boswell and Mr D Roche.
Mr Haggis annexed to his affidavit minutes of a meeting with Fay & Cannon to corroborate the assertion that they had agreed to underwrite the purchase, which he said he typed immediately after that meeting. However, I am unable to accept his affidavit evidence that these minutes were written up immediately, at least in the form in which they were annexed to his affidavit; the inescapable inference from the provenance of the different versions that emerged is that they must have been altered after 7 April 2009, when an earlier version, not containing the assertion that Fay & Cannon had agreed to provide bridging finance, was sent by Mr Haggis to Mr Roche. Rather, they appear to have been deliberately reconstructed later, to answer Mr Oliver's affidavit evidence that he and Mr Haggis were unable to fund the deposit. Thus these minutes were materially altered after their initial creation, and utilized by Mr Haggis in his affidavit to justify the false position that he had sufficient money to enter into the contracts and was not desperate for Roche Group's support at the date of the contract.
Mr Haggis gave false evidence that representations were made at the 4 June 1999 meeting that the Profit Deed would be treated as a stand-alone document, and that he would not have executed the documentation but for those representations. This arose in the context that originally, the plaintiffs contended that the defendants were precluded - by misrepresentation or estoppel - from relying on clause 12.1(f) of the Profit Deed, a result that was said to arise from representations that the Management Agreement and the Profit Deed were separate "stand-alone" agreements, and that default under the Management Agreement would not be relied upon to trigger determination of the Profit Deed - on which the plaintiffs claimed to have relied in committing themselves full time to a very large project, thus foregoing opportunity to undertake other ventures, when the management fee under the Management Agreement had been negotiated at a low level because of the profit share incentive. A claim for rectification to omit cl 12.1(f) of the Profit Deed was abandoned at an early stage, and at the commencement of the third week of the hearing, the plaintiffs abandoned any case - whether founded in estoppel or misrepresentation or under the Trade Practices Act - that the defendants were precluded from relying upon termination of the Management Agreement, on whatsoever ground, as a ground justifying termination of the Profit Deed. However, the contentions gave rise to significant issues of credit, which remain relevant to resolution of other issues in the case.
The terms of the Profit Deed and Management Agreement were negotiated between 2 March and 4 June 1999. Each side was legally represented, and several drafts of the documents were exchanged. On 22 April, Tyneside received the first version of the drafts. On 20 May 1999, Mr Haggis, Mr Oliver and Mr Miles (for Tyneside) met with Mr Hall, Mr D Roche and Mr Lamb (for Roche Group). On or about 25 May, but before 31 May, Mr Haggis received a draft Profit Deed, which did not contain a clause corresponding to what became clause 12.1(f). On 1 June 1999, for the first time, Roche Group proposed that clause 12.1(f) be inserted into the Profit Deed. This first came to Mr Haggis' attention on 2 June, and he did not agree to it. It was contrary to previous discussions. Nonetheless, on 1 June 1999, and again on 2 June 1999, a draft of the Profit Deed, which included the controversial 12.1(f), was provided to Tyneside's solicitor, Mr Haggis and Mr Oliver. Between 1 and 4 June, Mr Haggis had discussions with Tyneside's solicitor Mr Miles, and with Mr Oliver, and agreed on a course to be taken on 4 June. Mr Haggis claims that his solicitor told him that Roche Group had agreed to the deletion of clause 12.1(f), but there must (as he conceded) have been some remaining doubt. His evidence that Mr Oliver and Mr Miles told him that Roche Group had agreed to the deletion of clause 12.1(f) from the Profit Deed became increasingly diffident, as his recollection in other respects was undermined.
The meeting on 4 June 1999, at Roche Group's premises, was attended by Mr Hall and Mr Damian Roche on behalf of Hammersmith and the Roche Group, and Mr Haggis and Mr Oliver on behalf of Tyneside. No solicitors were present. Mr Haggis recalled only discussion about clause 12.1(f), and that it was agreed that it would be deleted. However, no other participant shares that view. There was undoubtedly discussion as to the terms of the Profit Deed, including clauses 12.1(e) and (f). Roche Group and Hammersmith agreed to amend 12.1(e), but not 12.1(f). Amendments were made to the draft Profit Deed on a computer at Roche Group's premises, and a final version was printed, which contained cl 12.1(f), and it was executed in a form that contained that clause.
Mr Haggis said that the Profit Deed was executed in a form in which clause 12.1(f) had been struck through by Mr Oliver, and initialled by all present, but there is no documentary or other support for that view. Notwithstanding that Mr Haggis said that he would not have signed if clause 12.1(f) were retained, the Profit Deed, as executed, contained clause 12.1(f). (In cross-examination, Mr Haggis' evidence became "That is not my recollection", rather than absolute denial). Within a few weeks after 4 June 1999, Mr Haggis was provided with a copy of the Profit Deed and Management Agreement as executed.
I am unable to accept Mr Haggis' version of these events. First, all of the other witnesses to the execution contradict his evidence. Secondly, the contemporaneous documents also contradict his evidence. Thirdly, the allegation that clause 12.1(f) had been ruled through by Mr Oliver and initialled by those present, only to be replaced by a version with clause 12.1(f) intact, is preposterous - it is propounded only by Mr Haggis, and denied by all others present, including Mr Oliver - especially given that Roche Group/Hammersmith provided a copy of the executed Management Agreement and the Profit Deed, containing clause 12.1(f), to Tyneside's solicitors shortly after 4 June 1999. Fourthly, it is inherently commercially unlikely that the alleged representations were made: in circumstances where the only contribution of Mr Haggis and Mr Oliver to the development was their represented management expertise, it made commercial sense for their entitlement to a profit share to be tied to their management performance; otherwise, the profit share was no more than a gift, or some kind of "spotter's fee". Fifthly, each of the Management Agreement and the Profit Deed contains a "No Representations" clause (clause 16.16), by which the parties agreed that all prior representations were of no force or effect and gave rise to no liability.
In my view, Mr Haggis and Mr Oliver sought the deletion of clause 12.1(f), but Hammersmith and Roche Group would not agree. Thereafter, Mr Haggis and Mr Oliver signed the contracts because they were eager to start receiving management fees, and the initial advance of $100,000, and would receive a profit share provided they performed as they had contracted (which they were confident that they could). The alleged representations were not made.
Moreover, cross-examination of Mr Haggis demonstrated that his claim to have relied on any such representation was constructed. Mr Haggis' evidence of reliance was detailed and comprehensive (paragraphs 27 to 44 of his 1 September 2005 affidavit). He claimed that Mr Oliver asked four pre-arranged questions at the meeting on 4 June 1999. The first question was whether the Profit Deed was "stand alone"; the second was whether the Report was a definitive statement or just a guide; the third was whether the Report was accurate as at 2 March 1999 and whether the Manager could be held responsible for changes afterwards; and the fourth was whether the guarantee and indemnity clause would be operative if the project failed to make the projected profit. In cross examination, however, Mr Haggis said that the questions were asked after execution of the documentation, and conceded that he could not have signed the documents in reliance on a representation made that day that they were "stand-alone" documents.
Mr Haggis reluctantly admitted that his elaborate affidavit evidence supporting the claim of reliance was "wrong" and "accidentally misleading", but even if so it demonstrates, at the least, that he would carelessly assent to elaborate propositions perceived to be necessary or advantageous to his case, when they could not have been correct. This was no mere oversight - he knew that he had to establish reliance, and he supplied detailed and comprehensive evidence in an elaborate attempt to do so, which could not conceivably have been true. He was more concerned with proving essential aspects of his case, than with the need for accuracy.
Other matters that impact adversely on Mr Haggis' credit include his repeated incorrect assertion to Hammersmith in October 2002 that the lake and fore bay works by Delamere were 90% complete when Delamere claimed that they were only 80% complete a month later; and his false assertion to Hammersmith in July 2002 that he and Ms Florence had lent $200,000 to a consortium of three plant owners that Delamere was said to be co-ordinating. His denials or non-recollections concerning the events of the 28 January 2003 meeting were not credible. He prevaricated when asked about his diary entry for 28 January, initially denying that Mr Oliver had said to him immediately after the meeting "I'm surprised you did that. You resigned, Tyneside didn't", until confronted with his own note to that effect.
These matters compel me to regard Mr Haggis as an unreliable witness.
Maryann Florence
Ms Florence is Mr Haggis' daughter and a principal of Delamere, the contractor for the civil works in the development. She has funded the litigation to the extent of hundreds of thousands of dollars, which would be repaid out of any judgment. For these reasons, she cannot be regarded as independent or impartial. She appeared reluctant to give direct answers to adverse questions.
The evidence of a computer expert, Mr Garnett, who analysed the diary notes of 28 January 2003 prepared by Ms Florence, established that what were eventually three documents (MF Diary Notes 31.1.03, Diary notes 31.1.03 in DX24, and Diary notes 31.1.03 in PX25) had a common origin, which was created by "Florence" on 31 January 2003 (therefore, not contemporaneously with the conversation of 28 January). Sometime before 19 February 2003, that document was sent to "Roy Haggis", in the form of "MF Diary Notes 31.1.03", and on 19 February saved by him in that form. After that transmission to "Roy Haggis", the original was edited by "Florence", and by 20 March 2003, was in the form of "Diary notes 31.1.03" in PX25. Subsequently, it was further edited by "Florence" until it was in the form of "Diary notes 31.1.03" in DX24. The changes to the date and time of the conversation with Mr Oliver, the insertion of an additional paragraph, and changes to amounts in the first conversation reported, must have been made after 20 March 2003. This seriously affects the reliability of the notes as contemporaneous, and undermines Ms Florence's denials of editing them after the event.
Mr David Hall
Mr Hall was, at the time of the relevant events in the early 2000s, a chief protagonist on behalf of Roche Group and Hammersmith. He has since retired from Roche Group. However, he remained determined to make his points critical of Tyneside, and of Delamere. He was initially reluctant to accept that Hammersmith was responsible for payment of Delamere as and when due, and his justifications for withholding of payments from Delamere appears to have been dissembling at times. He consistently endeavoured to avoid making concessions by giving indirect answers; his non-responsive answers when asked about the discussions between him, Mr Haggis and Mr Oliver concerning their prospective profit share in respect of Lot 107 was one instance of this. He was always seeking to add qualifications and avoid direct commitments. Concessions, when given, were reluctant and begrudging; of this, his reluctance to concede that, on his version of the discussions concerning Lot 107, Tyneside was working on that lot for nothing, was a paramount example. He was a partisan and unreliable witness.
Mr Damian Roche
Mr Damian Roche had a limited recollection of many events, and his evidence often involved considerable reconstruction. However, he did not appear to be affected to the same degree as Mr Hall by partiality.
Mr Oliver
Mr Oliver seemed basically careful, to have a reasonable recollection, and to be consistent. However, he struggled when cross-examined about his knowledge of the direction to DEM to produce a master plan, and betrayed some signs of having formulated his evidence to suit his belief and the defendants' case, rather than to give his actual recollection, which was demonstrated (and at least in one respect conceded) to be faulty - in a manner that favoured Roche Group.
He changed his evidence, as recorded in paragraph 95 of his affidavit, to omit "will" from the statement he attributed to Mr Haggis at the 28 January 2003 board meeting, "I will resign". This was potentially very significant and material. He says that he had discussed the change with counsel beforehand, but given the invariable practice during the trial of Mr Williams SC to ask every witness, in chief, whether there was anything in their affidavit that they wished to correct, this seems highly improbable.
He dissembled over the statement he attributed to Mr Haggis in paragraph 96 of his affidavit, after that meeting, "They were not happy with my management style so I resigned". He says that he was trying his best with events that took place a long time ago, but this would have been more convincing if he had said he could not now be sure, rather than revert to his affidavit. At times, he became evasive and non-responsive. Parts of his affidavit - for example paragraph 65, in which he effectively sets out particulars of perceived shortcomings of Tyneside's performance of its project manager functions, seem extraordinarily closely aligned with Roche Group's case. I think it very likely that those opinions are ex post facto conclusions reached after proceedings were commenced.
Mr Oliver was determined to put his version and have "his" case heard, so that his evidence assumed an aspect of advocacy. His evidence must be treated with caution.
Mr Walsh
Mr Walsh's recollection was poor. Instances of this include his confused account of the sequence and location of the 8 August 2002 site meeting, and his fluctuating evidence as to when John Holland said that he had been instructed to prepare a master plan. His poor recollection of these matters, in combination with his inability to recount conversations orally, also casts grave doubt on his detailed affidavit recounts of conversations.
On matters of expert opinion, he was not closely familiar with the material on which his opinions were based. His calculations of costs were seriously flawed, for example using (at least twice) incorrect rates for compaction in his analysis of Delamere's costs. The gradient rules he adopted when opining as to the viability of driveways on proposed lots appeared unduly conservative. Other assumptions he made, concerning side verandas, and the asserted location of garages at highest points of 10 lots, were erroneous. In all, he afforded a good illustration of why the Court usually requires expert witnesses to be independent.
Mr Truswell
Mr Truswell's evidence was essentially reasonable and objective, although he was clearly conscious when preparing his report that his client was Roche Group.
Mr Incoll
The defendants called Mr Gregory James Incoll as an expert project manager. It emerged that he had limited experience with broad acre green field subdivisions, but he had been a project director or equivalent for perhaps three. He had very limited if any experience with community title, but this does not seriously affect his qualifications to opine on development project management practices.
I did, nonetheless, find some of his evidence very difficult to accept, in particular his insistence that it would be preferable to pursue the original (low density) model before looking at "best practice" options; and - given his concessions that he understood that the house designs lodged with the development application were indicative only and not binding on purchasers, his conclusion that they were inflexible and lacked strategic vision.
CONCLUSION
It follows that I cannot generally prefer the evidence of one particular witness to another, and it would be difficult to accept the version of a single witness, except where it was against interest. However, there are few critical incidents in which the evidence is "one on one"; there are usually multiple witnesses to most controversial meetings, and often though not invariably notes or other contemporaneous records. Where it matters, the manner in which I have resolved particular factual controversies is explained below.
TERMINATION AT OR FOLLOWING 28 JANUARY 2003 MEETING
The defendants contend that at the meeting of the Hammersmith board on 28 January 2003, after Mr Haggis was questioned critically about Tyneside's performance as manager, he - on behalf of Tyneside - resigned, and that Hammersmith and Tyneside thereupon agreed that the Management Agreement was terminated. Alternatively, the defendants contend that the resignation was an act of repudiation, which Hammersmith accepted on 11 March 2003, by its notices of termination of the Management Agreement and the Profit Deed.
At the 28 January 2003 meeting, Mr B Roche, Mr D Roche, Mr Hall and Mr Haggis were in attendance as directors of Hammersmith, and Mr Walsh (for the first part of the meeting) and Mr Oliver were also present by invitation. On any view, the first part of the meeting comprised a discussion of criticisms, issues and queries raised by the Roche parties with Mr Haggis concerning the progress and management of the project; and this was followed by a statement by Mr Haggis to the effect that he would or did resign (though whether this was immediate or prospective and qualified or not is in dispute), and discussion about the actual or potential consequences of that course.
Mr D Roche took comprehensive notes of the meeting, by hand, as it progressed; they record, chronologically, the events of the meeting. He explained that he had his head down writing throughout the meeting, and was struggling to keep up, and thus made little verbal contribution. Later, he had his notes typed up by a secretary, Lena Gyftopolous, and checked the typescript against the handwritten notes; he then discarded the handwritten notes. The typescript notes record extensive discussion of issues relating to the project, including the criticisms and queries, and Mr Haggis' responses, which occupied the first part of the meeting. They then conclude as follows:
Management
RH - looks like you need a new manager
DH - yes that's where we are at
- raised loan repayments
WR - we take it back ourselves with BW to run it with most existing consultants + RH + JO to help with introductions to consultants/Council
DH - terminating Management Agreement will cause Profit Deed to terminate
RH - thought Management Agreement was stand alone
WR - we do not intend to cancel your profit shares
RH/JO Suggestions
RH - keep Community Title
- build shareways + keep design plan at least for Precinct 1 - going to torrens title may be financially unpalatable?
- Wayne do RTA fill + finish lake + noise mounds
WR - RH/JP to make suggestions about way forward + then get together again eg JO - sewer easements
- copy of rough masterplan to be sent (3 copies) + practical statement on Community Title
However, Mr D Roche says that there is a gap in his notes, after "yes that's where we are at" and before "raised loan repayments". He says that at that point Mr Haggis said "Then I resign", and this so stunned him that he put down his pen and looked up, in absolute astonishment, and so did not record that part of the conversation, in which Mr Hall said, "It's not you. It's Tyneside that has to resign", and Mr Haggis responded, "Yes. We accept that". He has no recollection of Mr Oliver saying anything to the contrary - he said that Mr Oliver remained silent. However, he also says that no one said "We are moving to terminate the Management Agreement", or anything to that effect.
Mr Hall's evidence is that Mr Haggis said, "It looks like you need a new manager", to which Mr Hall answered "Yes that's where we're coming from". Mr Haggis replied "There's no point in us continuing on if you are not happy with us as the success of the venture is most important. I resign". Mr Hall responded, "It's not you who has to resign. It's Tyneside, what we want is your approval for the Management Agreement to be terminated", and Mr Haggis and Mr Oliver said, "We agree". (In cross-examination, Mr Hall accepted that Mr Haggis said something to the effect, "It looks like you need a new project manager. I'll find you one. I'll resign". Mr Hall says that he then said, "The Management Agreement is with Tyneside and is to be terminated", that Mr Haggis responded, "I agree", and that Mr Oliver also said, "Agreed", or words to that effect). Mr Hall then said, "Whilst we can now terminate the Management Agreement, termination will mean that the Profit Deed can be terminated. It was not our intent that you would lose your profit, provided there is a spirit of goodwill, we will confirm an offer to you in writing that your profit share will continue on the existing basis and that the loan could continue for the month of February. Roche will take over the management of the project and all records should be provided to us". Mr Haggis and Mr Oliver again said, "We agree", and Mr Hall said, "The proposal will be confirmed in writing". Mr Haggis then made a number of suggestions as to the best way forward for the project, as recorded in Mr D Roche's notes.
Mr Hall - who had not made notes during the meeting - subsequently dictated formal minutes of the meeting. He did so, he says, within 24 hours or so after the meeting, and in Mr D Roche's presence, although without the benefit of Mr Roche's notes; the accuracy of what he dictated was not disputed by Mr Roche. Mr Hall's secretary subsequently typed these minutes. They attribute to Mr Haggis a statement "that it looked like a new manager was needed, that the long term interests of the project were most important and as it was apparent that there was overall dissatisfaction with his performance he resigned". They then record a unanimous resolution that Tyneside's Management Agreement be terminated forthwith; that Roche Group be forthwith appointed manager of the project; and that - subject to and conditional upon Messrs Haggis and Oliver's goodwill and co-operation together with a smooth handover of the project management and records, introductions to consultants and council officers and future assistance where required - Hammersmith would prepare and forward to them terms for their ongoing involvement in the project and renewal of their profit share entitlements under the Profit Deed.
Mr Oliver's affidavit evidence was that Mr Haggis said "You're obviously unhappy with my work, I will resign". (In cross-examination, Mr Oliver maintained that Mr Haggis said "I resign", not "I will resign"). Mr Hall replied "Are you sure Roy?". Mr Haggis responded "Yes, I'll apply for the dole tomorrow", and Mr Hall said "In that case Tyneside does not have the capability of performing its duties under the Management Agreement so the Management Agreement should be terminated, is that agreed?", to which Mr Haggis answered "Agreed". Then, Mr Hall said "Regardless of this termination we do not intend to remove your profits". Mr Haggis said "I didn't think they were linked", and Mr Hall replied "Well they are". Mr Oliver says that he was in shock, and though he can recall Mr B Roche saying something about asking Mr Oliver and Mr Haggis to make suggestions about the way forward at the end of the meeting, he was no longer focusing on what was happening. Mr Oliver denies that he expressed agreement with the statement that the Management Agreement should be terminated or that Tyneside resigned.
Mr Haggis says that the meeting was disjointed and shambolic, that he felt that he was being ambushed, and that a number of criticisms of Tyneside's performance - which he believed unwarranted - were made by Roche Group, and in particular by Mr Walsh. Amongst the complaints that he could recall - there were many that he could not - were that many house designs were inappropriate; that Tyneside had not commissioned a master plan; that construction of the dam and fore bay had been poorly managed; and that Tyneside had engaged DEM in contravention of Hammersmith's direction, said to have been given on 8 August 2002, to cease work and incur no further commitments until a review had been completed. Mr Haggis disputed these complaints. He says that some resulted from misunderstandings; that he produced (albeit for the first time) a precinct plan, which he had received only about a week before the meeting; and that construction of the dam and fore bay had progressed particularly well. Mr Walsh suggested that the way forward was to get rid of the urban design and traffic consultants, and engage a new surveyor.
Mr Haggis does not recall, but does not deny, saying, "It looks like you need a new manager". Nor does he deny, though he does not recall, Mr Hall's response, "That's where were coming from". In his affidavit evidence, he claimed to have said, "If you are not happy with what I have done, I will find you another project manager. I will resign", and that he also said that he would respond in writing to the issues that had been raised by Bob Walsh. In cross-examination, he said that he forecast that he would resign "if they could prove that I had been negligent". He denied that he and Mr Oliver agreed that Tyneside would resign and the Management Agreement be terminated. He denies that there was a conversation about the Profit Deed not being terminated, and does not recall there being any reference to a proposed offer to permit Tyneside to retain entitlement to a profit share. However, he recalls Mr Hall observing that the Management Agreement and Profit Deed were linked, although professing no recollection of the context in which that arose.
According to Mr Oliver, immediately after the 28 January meeting, he had a conversation with Mr Boswell, to whom he said "Roy has just resigned at a Board meeting", to which Mr Boswell responded "Well don't forget Roy resigned not Tyneside". Then, in the car park outside the meeting, Mr Haggis had a conversation with Mr Oliver, of which he made the following note in his diary:
John Oliver - Car Park discussion
1. Surprised I did that - you resigned Tyneside didn't
2. The solution to this is for you to get out of Tyneside. It's you they don't want
According to a diary note made by Maryann Florence, at 2.00pm on 28 January she received a telephone call from Mr Oliver, who said that Mr Haggis had resigned, and that Roche Group had asked Mr Oliver to proceed with project management works and organize the landscaping, but were happy with Delamere's work and, no matter what was the dispute with Mr Haggis, wished Delamere to continue. Although, as I have mentioned, there is controversy as to the contemporaneity of this record, it at least tends to confirm that Mr Oliver was then asserting that there had been an immediately effective resignation on the part of Mr Haggis.
Later that day, Mr Haggis had a telephone conversation with Mr Hall, of which he made the following diary record:
David Hall - telephone discussion (Home)
1. We are going to have work together for a long time, we want all this to be amicable.
2. We are not going to cut your fees off - We will pay next months fee to a new agreement is sorted out.
On 29 January, Mr Haggis made computer diary notes of the meeting, which refer to a number of complaints or criticisms, and attribute to himself the following:
RH said if the Board had lost confidence in his management style and the direction I had taken the project then I will find another project manager.
These notes also record:
WR said that Bob (Walsh) was happy with Delamere's work and they could carry on.
...
Roche Group may think RH wants to be out.
Again, there is controversy as to the contemporaneity of these notes. While Mr Haggis originally claimed that they were prepared on 28 January, from notes taken by him at the meeting, it emerged (from Mr Garnett's examination of the metadata) that the note was first created on 29 January and was subject to six revisions; moreover, no-one else remembers Mr Haggis taking notes at the meeting.
On 31 January 2003, the first and second defendants paid the first plaintiff's management fee for the month of February 2003.
On 1 February, Mr Haggis sent an email to Mr Oliver:
You seem to be passing on the message that I have resigned, though resigned from what is unclear.
Tyneside has a current project Management Agreement with Hammersmith and I am co-ordinating all construction and planning work for Pambulong Forest, always have done and still are.
I am also a director of both Hammersmith and Tyneside and have a responsibility to do everything possible for the proper management of both companies, and that I am doing.
The Hammersmith Board have expressed concern with my management style and the direction I have taken the project, an issue that I am obliged to respond to. If however the Board has lost confidence in my work then I will stand down subject to satisfactory management arrangements being put in place. I also have a substantial investment in Pambulong and that investment need to be protected, as do you.
I am continuing to manage those parts of the project that are in my domain until this matter is settled. I am however referring all decisions to David Hall for verification.
On 3 February, Mr Haggis sent an email to Mr Hall:
I will be responding to the criticism of the Pambulong strategy and my management style that arose out of last Tuesday's (January 28) Board meeting and other recent assessments. While some points may be valid others have arisen through a misunderstanding of the process and direction. The objective has always been to achieve the highest and best use (and profit) for the property assets using industry best practice and working within planning and statutory constraints. This I believe we have achieved.
...
I will attempt to complete my responses quickly, however they do need to be thorough.
In a facsimile of 3 February 2003, Mr Hall sought advice from Messrs Haggis and Oliver as to why a memorandum and fee proposal from DEM had been confirmed by Tyneside, without recommendation to or approval of the Board, and "after the onsite meeting at Pambulong Forest where it was agreed by the Board that no further instructions were to be given or new work to be commenced or undertaken until the project review was finalized and addressed by the Board which occurred only at last week's meeting when it was unanimously agreed that this Company would promptly take over the project management" [emphasis added].
On 4 February, Mr Oliver had a conversation with Mr Holland of DEM on the subject of instructions allegedly given by Mr Haggis in breach of the stop work direction. He told Mr Holland that he was not to commence any new work without instructions from himself or David Hall.
On 5 February, Mr Hall (on behalf of Roche Group) wrote to Messrs Haggis and Oliver (on behalf of Tyneside) "Further to our meeting on 28 February 2003 ..." setting out on a without prejudice basis "the proposed new arrangements to implement the agreed decision that the Roche Group Pty Limited will undertake the future project management" [emphasis added]. This proposal, which was expressed to be "based on your acceptance, goodwill and ongoing support", included that the Management Agreement be terminated with effect from 28 January 2003; that the entitlements of Namlot and Bluegrass under the Profit Deed be unaffected; that the existing advances of $75,000 to each of Namlot and Bluegrass continue to accrue interest and be repayable out of profit distributions; that the existing advance of $100,000 to Tyneside accrue interest from 1 March 2003 and be repayable out of profit distributions; that Tyneside receive an ongoing but reduced consultancy fee until 1 December 2003; and (implicitly) that Mr Haggis would remain a member of the Hammersmith board. It concluded:
Roy and John, we look forward to your prompt agreement to this proposal in the best ongoing interests of the project and with this aim advise that Bob Walsh and Gary Truswell will attend for a handover and explanation of the current status of all relevant files next Monday and Tuesday at your offices in Wollongong.
On 6 February, Mr Haggis wrote to Mr Oliver:
As these proposed changes affect Tyneside's only revenue earning asset it will be necessary to call a Directors meeting and possibly a shareholders meeting to ensure that all parties affected by the proposed changes are properly notified. ...
As for any handover - I do not have any Hammersmith files in my possession. ... If Tyneside agrees to amend it's Management Agreement then it will be necessary to prepare full briefing statements on each aspect of the Pambulong development program. ...
With everything proceeding so smoothly I intend taking next week off to consider my future having regard to the current position with Hammersmith. ...
On 7 February, Mr Hall (on behalf of Roche Group) wrote to Messrs Haggis and Oliver (on behalf of Tyneside):
We understand that Tyneside ... is unwilling to hand over all relevant files next Monday and Tuesday and advise that unless we receive a satisfactory response to our proposal as set out in our facsimile of 5 February 2003 by 14 February 2003 we intend to explore other avenues to conclude this matter promptly.
In response, in a letter dated 10 February, Mr Oliver expressed to Mr Haggis the view that they should endeavour to achieve a commercial settlement with Roche Group along the lines of their letter of 5 February "which would involve, of course, handing over all files".
Also on 10 February, Mr Oliver wrote to Maryann Florence at Delamere, advising that Tyneside was the Project Manager, not Mr Hall or Mr Walsh, and that all correspondence or enquiries should be directed to the principals of Tyneside. And on the same day, in response to a proposal from Mr Haggis, Roche Group requested Tyneside to proceed with certain works in connection with the lake and fore bay.
On 12 February 2003, Mr Hall wrote to Maryann Florence, stating that "unless you are advised to the contrary" Delamere's line of engagement and communication remained with Tyneside, who would make recommendations to Hammersmith.
As has been noted, on 13 February 2003, the Land and Environment Court delivered judgment in the s 94 appeal, substantially in favour of Hammersmith.
On 14 February 2003, Mr Haggis wrote to Mr Hall, asserting that Tyneside had at all times complied with its obligations under the Management Agreement and the directions given by Hammersmith, and that he did not understand Mr Hall to suggest otherwise; maintaining that Tyneside remained ready, willing and able to perform its obligations under the Management Agreement; but observing that "for reasons which I do not quite understand" it appeared that Roche wished to terminate the Management Agreement and:
I am prepared to take part in discussions designed to meet the Roche Group's objectives whilst as the same time protecting the investment and interest, which the Participant companies and the Manager have in the development.
Mr Hall said he did not recall receiving this letter but would not have regarded it as of concern, as it did not apparently advance a position inconsistent with Roche's ends. But I agree with the plaintiffs' submission that its effect was to assert (on the plaintiffs' part) that there was still a binding Management Agreement, while acknowledging that Tyneside was prepared to negotiate.
On 20 February 2003, solicitors for Tyneside wrote to Roche Group, without prejudice, confirming that Tyneside and its principals were prepared in good faith to proceed with the implementation of the proposals in Roche Group's 5 February letter - which "will of course involve the orderly handover of all files and documents with appropriate briefing sessions" - and anticipating receipt of documentation to implement them.
On 26 February, Mr Winterbottom - the town planning consultant engaged by Tyneside who had played a significant role in the management of the development - wrote to Mr Haggis:
Thank you for your call this morning. I was very distressed to hear that you no longer wish to be involved in the Pambulong Forest project and that there is considerable doubt about the future role of Tyneside.
I understand that our arrangement ... for the retention of my services is now at an end.
...
On 27 February 2003, Clayton Utz (for Roche Group) submitted to Macquarie Legal (for Tyneside) for execution drafts of a New Profit Deed and a Management Agreement Termination Deed. The draft Management Agreement Termination Deed included, as Recital B:
The parties have terminated the Management Agreement with effect from 28 January 2003.
Operative clause 2(a) was as follows:
Subject to clause 2(b), the parties terminate the Management Agreement effective on 28 January 2003.
During February, Mr Haggis had on several occasions sought the minutes of the 28 January meeting. On 7 February, Mr D Roche informed him, by email:
The notes taken are messy and have not been typed. I will now have them typed and sent to you hopefully early next week.
On 6 March, Clayton Utz wrote to Macquarie Legal that they had not received the executed deeds, nor any comments, more than a week after their submission, proposing some alterations, and indicating that unless executed documents were received by 10 March, Roche would withdraw its offer, terminate the Management Agreement under clause 12.2, terminate the Profit Deed under clause 12.2, and require repayment of the advances. On 10 March, Mr Kalyk, solicitor, now acting for Mr Haggis and Tyneside, responded that the deadline could not be met for practical reasons, proposed a meeting, and stated that his client had no objection in principle to accommodating Roche Group's wishes to terminate the Management Agreement and amend the Profit Deed: "It is only a matter of properly recording an agreement in that regard".
The notices of termination issued the following day, 11 March.
The first issue is what happened at the 28 January meeting. This is a question of fact, requiring resolution of the competing versions of events. It is undisputed that Mr Haggis said something at the meeting about resigning. The crucial areas of dispute are whether Mr Haggis' resignation statement was immediate or prospective, whether it was qualified or unqualified, whether it was expressed to be a resignation by Tyneside (and if so whether Mr Oliver assented to it), and what if anything was said about termination of the Management Agreement. It is unsurprising that there are differences in detail between the accounts given by the witnesses of the meeting. Not all those differences require resolution; the essential questions are whether what was said conveyed immediate or prospective resignation, and whether reference was made to termination of Tyneside as manager.
Generally, Mr Haggis did not have a good recollection of what was said at the meeting. Of it, he said "I don't remember too much. Just a few odd little comments that I recall". To the question "Can you remember anything that you said in the course of that meeting?", he responded "Not specifically, no". Moreover, there were significant internal inconsistencies in his evidence. The first was that, in respect of his resignation statement, his affidavit version was to the effect "If you are not happy with what I have done, I will find you another project manager. I will resign"; whereas in cross-examination emerged a version to the effect "If you can prove I was negligent, I will resign". The second was that whereas he maintains that the meeting ended abruptly after his resignation statement, he concedes that there was some discussion about the relationship between the Management Agreement and the Profit Deed. Other reasons for caution in the treatment of Mr Haggis' evidence are discussed elsewhere in these reasons.
Mr D Roche's notes of the meeting bear the ring of contemporaneity, accuracy and detail, and they record its events in apparently impartial terms. That they may well not have been typed until after 7 February does not detract from their reliability, as the typescript merely transcribes the contemporaneous handwritten record. Although it was submitted, for the plaintiffs, that his explanation for the omission of any reference to Mr Haggis' resignation statement was improbable, I do not agree. It must be born in mind that on Mr Haggis' own version, he at least said "I will resign" - though in one version it was qualified by the statement "if you can show I've been negligent", and in another by a statement to the effect "if you're not happy with what I've done". Thus on any view, Mr Haggis made a statement, qualified or not, to the effect that he would resign, which does not appear in Mr Roche's notes. This confirms that such a statement was made, though not recorded by Mr Roche, and reinforces the credibility of his explanation.
While much attention was directed to whether Mr Haggis said "I will resign" or "I resign", this is not determinative: the words "Then I'll resign" are capable, in context, of conveying immediate resignation. It is the effect of what was said, and not the precise words used, that is decisive; and the effect of words is influenced by their context, and the manner in which they are expressed. For that reason, the impression they make on those present is important; this is an area in which "lay opinion" evidence, which was given without objection, can be informative, though it must be treated with care. In this case, the impression created on the three witnesses (other than Mr Haggis, who had little recollection) was consistent. One of them, Mr Oliver, was by no means wholly aligned with the Roche Group interests. I do not accept that in circumstances where those three witnesses were called, and Mr Haggis' recollection of the meeting was admittedly poor, any adverse inference should be drawn from the circumstance that the Defendants did not call yet another witness, Mr B Roche.
Mr Haggis' note of his "car park conversation" with Mr Oliver immediately after the 28 January meeting ("Surprised I did that - you resigned Tyneside didn't"), strongly suggests that what he had said at the meeting conveyed an immediate resignation, rather than indicating that he might or would do so in the future. Other contemporaneous statements of Mr Oliver - to Mr Boswell and Ms Florence - are to the same effect. Moreover, each of Mr D Roche and Mr Hall understood what Mr Haggis said as conveying an immediate resignation. The Delphic reference in Mr Haggis' diary note "Roche Group may think RH wants to be out" bespeaks awareness that his statements conveyed more than he now wished to concede.
The plaintiffs submitted that it told against this view that during the meeting, Mr Haggis sought an opportunity to reply to Mr Walsh's criticism, after the minutes were produced - an exercise that would have been futile had he intended that he personally, or Tyneside, resign on the spot. However, I am unpersuaded that Mr Haggis sought such an opportunity at the meeting (as distinct from in subsequent correspondence); it was denied by Mr D Roche, Mr Hall and Mr Oliver; it was not recorded in any contemporaneous documentary record of the meeting; and it is not assisted by Mr Hall's acceptance that he believed that Mr Haggis was going to provide "some further information", as that is entirely consistent with Mr Haggis providing further information to facilitate the handover and progress of the project. And if he did seek such an opportunity, it would not necessarily have been inconsistent with resignation: it might have been sought before he decided to resign, or - despite his decision to resign - because he nonetheless wanted to answer the criticisms made of him.
In short, all three witnesses (other than Mr Haggis, who had no real recollection) were left with the impression of an immediate resignation. Documents and statements made immediately after the meeting are to the same effect. I am therefore satisfied that what Mr Haggis said, in context, were words that conveyed immediate resignation, rather than an offer or proposal to resign in the future. I am also satisfied that he did not merely forecast that he would resign if he were shown to be negligent (as he asserted in cross-examination), nor merely offer to find another project manager if the Board had lost confidence in his management style and the direction in which he had taken the project (as suggested in his diary note). This conclusion is confirmed by the conclusions reached below in respect of the subsequent events at the meeting.
Each of Mr D Roche, Mr Hall and Mr Oliver say that following Mr Haggis' resignation statement, reference was made to the position of Tyneside as distinct from Mr Haggis - Mr Hall and Mr Roche say that it was pointed out that it was Tyneside, not Mr Haggis, that had to resign; while Mr Oliver says that Mr Hall said that, Mr Haggis having resigned, Tyneside did not have the capability of performing its duties and the Management Agreement should be terminated. All three say that Mr Haggis expressed agreement; Mr Hall alone says that Mr Oliver also did so.
Mr Haggis denies that there was reference to Tyneside's position. While this derives some support from his note of the car park conversation, in which Mr Oliver emphasized that Mr Haggis and not Tyneside had resigned, this must be seen in the light that this was a point that Mr Oliver had by then been instructed by Mr Boswell to emphasise - in the light of Mr Haggis' unilateral conduct in resigning without prior consultation - apparently with a view to retrieving the position if they could.
While it is clear that there was no formal resolution to terminate the Management Agreement, as Mr Hall's minutes would suggest, Mr D Roche's notes record that, after the resignation discussion, Mr B Roche said "we take it back ourselves with BW to run it with most existing consultants + RH + JO to help with introductions to consultants/Council". Moreover, that the relationship between the Management Agreement and the Profit Deed was discussed after the resignation statement, as it unquestionably was (even on Mr Haggis' version), is inexplicable unless there was discussion about the termination of the Management Agreement, and its potential consequences for the Profit Deed. Two contemporaneous documents - the letter from Mr Hall to Messrs Haggis and Oliver of 3 February 2003, and the letter from Mr Hall to Mr Haggis of 5 February 2003 - refer to an agreed decision that Roche Group would take over the project management. That Mr Haggis was asked to make suggestions about the way forward, to meet again with the Board, and to provide copies of the "rough master plan" and a "practical statement on Community Title" is not only not inconsistent with this, but tends to reinforce it: these were steps to implement what had been agreed by facilitating the handover of the project management to Roche Group, not enabling Tyneside to continue in that role. I am therefore satisfied that at the meeting, following his resignation statement, Mr Haggis assented to the proposition that Tyneside's Management Agreement be terminated and that Roche Group assume management of the project.
However, I am unpersuaded that Mr Oliver overtly expressed assent to that proposition. Only Mr Hall said that he did so; Mr Oliver denied it, and Mr D Roche said that Mr Oliver remained silent. I find that Mr Oliver remained silent, and expressed neither assent nor dissent. The consequences of this will require further consideration.
It is next necessary to consider what were the legal consequences of what transpired at the meeting, as I have found the facts to be. Despite the form of Mr Hall's minutes of 28 February, the defendants do not contend that Hammersmith then exercised a right of termination arising from inability on the part of Tyneside to perform its contractual obligations; rather, the defendants' case is that the Management Agreement was there and then terminated consensually. While articulated in terms of Hammersmith accepting Tyneside's resignation, the legal characterization of what the defendants contend for is discharge by agreement. For there to be discharge by agreement, the ordinary requirements of a contract, including consideration, apply; where, as here, the agreement remains executory on both sides, that usually presents little difficulty, as the consideration is to be found in mutual releases of the outstanding obligations of each party.
Whether there was a discharge by agreement made on 28 January 2003 involves whether Mr Haggis' resignation statement bound Tyneside, and whether the parties intended to be immediately bound by what took place.
It is true that Tyneside proceeded to do some work in respect of Lot 107; but it had already done some before 8 December 2009, when on no view was there any contract in place. Again, that work is explicable on the basis that Tyneside anticipated reaching an agreement with Hammersmith on terms that would provide them with a profit share from Lot 107; but they had not yet done so.
It is also true that at a meeting between Mr Hall, Mr D Roche and Mr Oliver on 19 July 2001, Mr Oliver referred to the need to allocate costs "bearing in mind the different lots having a different agreement with both Roy, John & Fred (104) also Roy & John (107)". But it would be reading too much into this to treat it as an assertion that there was a concluded agreement; rather, it recognised that, on any view, the interests in Lot 107 differed from those in the original lots in that Mr Boswell was not involved in Lot 107; and it reflected the anticipation that they would conclude an agreement in respect of Lot 107, but as yet had not done so.
Finally, inclusion of a reference to Lot 107 in the "New Profit Deed" offered to Namlot and Bluegrass on 27 February 2003, for an 8.33% base share in common with the other lots, does not amount to evidence that there was previously a separate agreement in respect of Lot 107 for a 10% (or any) profit share.
In my view, in and following December 1999, it was anticipated that there would, in due course, be an agreement addressing Lot 107 and making some provision for Mr Haggis and Mr Oliver, through their companies, to have a profit share, but the terms of that agreement remained unresolved. Because of the absence of consensus as to the terms, there is no room for an estoppel of the type referred to in Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387.
THE CONSTRUCTION QUESTION
The plaintiffs' claim for damages includes profits derived from sales of lots occurring after the expiry of the term of the Profit Deed, on 1 March 2011. The defendants submit that, as a matter of the proper construction of the Profit Deed, the participants - relevantly Namlot - had no entitlement to profits generated after the expiry of the term.
By clause 3.1 of the Profit Deed, the parties acknowledged and agreed relevantly as follows:
(b)Hammersmith has appointed the Manager as the manager of the development, pursuant to the provisions and for the duration of the term of the Management Agreement, for the purpose of assisting Hammersmith in relation to the Development;
(c)...
(d)Subject to their due and punctual compliance with their obligations under this Deed, the Participants are entitled to receive a Profit Share in accordance with clause 11 of this Deed.
The participants were Namlot, Bluegrass and Mr Boswell's company, Tasmanian Prosperity Investments Pty Ltd.
Clause 11.1 of the Profit Deed provided that if a profit was achieved in respect of the development, the participants were each entitled to a specified profit share, payable in accordance with that clause. The profit share escalated according to the amount of the profit, commencing at 8.33% each of profit up to but not exceeding $30,000,000; 10% each of profit exceeding $30,000,000 but not exceeding $68,950,000; and 16.666% of profit exceeding $68,950,000. By clause 11.2:
The Profit Share shall become payable only after such time as all debt, borrowings and capital costs of the Development are repaid and then the Profit Share shall be payable only to the extent of the surplus cash funds then remaining in excess of funds required for the ongoing completion and finalisation of the Development.
Clause 11.3 provided:
Any Profit Share payable shall be paid within twenty (20) Business Days of the issue by the auditors of Hammersmith of the audited annual accounts of Hammersmith relating to the Development and the surplus cash funds of the Development.
Clause 11.4 provided for any losses suffered in respect of the development to be shared on a like basis.
Clause 10.1 provided for the method of calculation of the profit, which broadly involved deducting from the gross proceeds of the completed sale of any lots subdivided from the land of the costs of acquisition, development, management and interest. Clause 10.2 provided:
The Profit is to be reduced by a sum equal to any losses incurred by Hammersmith in relation to the Development in any year during the Term, before calculating the fee payable to each Participant in accordance with clause 11.
Clause 2 of the Profit Deed provided:
The Deed shall remain in force for the Term unless it is terminated by any party pursuant to the provisions of clause 12.
Clause 1.1, contained the following relevant definitions:
"Profit" means the net audited before tax profit of Hammersmith arising out of the Development before the deduction of all fees and amounts payable by Hammersmith to the Participants pursuant to the provisions of clause 11 and calculated in accordance with clause 10.
"Profit Share" means a portion of the Profit calculated in accordance with clause 11.1
"Term" means, subject to the provisions of this Deed, twelve (12) years commencing on the Purchase Date and expiring on 1 March 2011.
As has been mentioned, the Report formed a schedule to the Management Agreement, which was in turn a schedule to the Profit Deed. Schedule 8 to the Report was a cash flow model, which provided for the project to commence in the first quarter of 1999, to become cash flow positive in the second quarter of 2003, and to be completed in the fourth quarter of 2011 with accumulated profits of $68,946,669; the correlation of this amount with the upper tier of Profit Share is noteworthy. The cash flow model also envisaged construction of the development in twelve stages, each taking six months, one per year from 2000 until 2011; the final stage of construction was envisaged to occupy the first two quarters of 2011, and on that basis would not be complete - let alone sales realised - before the term expired on 1 March 2011. Thus, according to the cash flow model, the third tier of profit share would not be achieved until the end of 2011, after the expiry of the term. It is not likely that the parties intended that profit in that tier, generated by sales after expiry of the term, be beyond the reach of the participants.
Moreover, as has already been noted, clause 12.1 made it an event of default if the development failed, at any time, to achieve ninety percent of the profit stated in the Report, subject to the proviso that the time periods in the Report would be extended for the duration of any delay caused by any matter beyond the manager's control. In the light of that proviso, it is improbable that the parties intended that, notwithstanding that delay was caused by a matter beyond Tyneside's control, expiry of the term would deny the participants an entitlement to profit share derived from subsequent sales.
The "Term" as defined coincided with the period of Tyneside's appointment as Manager. The term of the Management Agreement was defined in identical terms. The principal function of the concept of the "Term" was to define the period of Tyneside's appointment as manager. In the Profit Deed, where it was intended that obligations or rights be dependent on the term, express reference was made to it. Thus a number of provisions of the Profit Deed limit obligations of ongoing performance by reference to the term: clauses 8.1 (Vendors and Participants to Assist), 8.5 (Parties to Co-operate), 9.1 (Participants may nominate a board Member), 9.2 (Owners may nominate three board members), and 9.3 (No more than four directors of Hammersmith). However, the entitlement to and obligation to pay profit share is not so limited. As the plaintiffs submit, nothing in clauses 3.1(d), 10 and 11 limits the participants' entitlement to profit share to profit derived from sales made during the term.
In particular, clause 11.1 speaks of a "Profit ... in respect of the Development" - not limited to the term. While the scheme of clauses 10 and 11 involved the progressive annual distribution of profit share as it accrued (after the recoupment of costs, including prior year losses, and subject to retention of funds required for the ongoing completion and finalisation of the development), ultimately the concept of profit share was an overall one for the development as a whole, not an annual one. That this is so is illustrated by clause 11.1, in which the references to the various tiers of profit are explicable only on the basis of total project profit. True it is that the references to "net audited before tax profit" in the definition of profit, and "audited annual accounts" in clause 11.3, suggest an annual calculation, but this relates to annual calculation each year of an interim distribution on account of the ultimate entitlement to profit share.
In my view, therefore, the preferable construction therefore is that, by performing their obligations during the term, the participants became entitled to their profit share in respect of the total profits achieved in respect of the development, regardless whether they were derived from sales made during of after the term. The strongest indicator to the contrary is clause 10.2, which provides for losses incurred "in any year during the Term" to be deducted before calculating the fee payable to each participant. I accept that if profit share was payable in respect of profits derived from sales after the expiry of the term, it would be curious if only losses incurred during the term, but not after, were to be deducted. However, on reflection, the formula in clause 10.1 ensures that the ultimate calculation takes into account all relevant expenditure as well as income, so that prior year losses will be taken into account. Clause 10.2 merely ensures that for the purpose of the annual calculations and payment required by clause 11, prior year losses be covered before a profit share becomes payable.
HAMMERSMITH'S CROSS-CLAIM
By its cross claim, Hammersmith claims against Tyneside as principal and Mr Haggis as guarantor, first, repayment of the advance of $100,000 paid in June 1999 and interest under the terms of the Management Agreement; and secondly, damages for breaches of the various warranties alleged to support the 2003 alleged termination, calculated as comprising the whole of the management fees paid to Tyneside ($1,057,500), on the footing that Tyneside did not provide the services it contracted to provide.
Under clause 9.2 of the Management Agreement, the advance was repayable by Tyneside in monthly instalments of $2,000 from the second anniversary of the date of the agreement (which in the events that happened was June 2001). Further, by clause 9.3 provision was made that "in the event that this Deed is validly terminated by Hammersmith ... at any time prior to the repayment by the Manager to Hammersmith of the Advance, the Manager shall, within twenty (20) Business Days of the date of termination, repay to Hammersmith any part of the Advance which has not, as at the date hereof, been repaid by the Manager to Hammersmith". Under clause 9.4, "In the event that the Manager defaults in payment to Hammersmith of any monthly instalment and such monthly instalment remains unpaid following the expiration of a period of ten (10) Business Days from the date of issue of a notice from Hammersmith to the Manager to pay the said monthly instalment or instalments', Hammersmith shall be entitled to demand repayment of the unpaid balance of the Advance, and charge interest.
The basis for the first claim is that the sum became payable under the terms of the Management Agreement in the event that the agreement was validly terminated by Hammersmith. This requires the exercise by Hammersmith of a power to terminate. As I have found that there was a consensual discharge of the agreement, this basis for the claim is not established.
The second basis for the claim is that that Tyneside failed to make monthly instalment payments from June 2001. The Plaintiffs submitted that as the Management Agreement, by clause 9.2, provided for these to be offset against the monthly management fee, and Hammersmith made no deduction from the management fee in respect of them, it waived the requirement for the instalment payments, so that there was no default. However, the entitlement to offset is expressed to be in Hammersmith's "sole discretion at any time after the date being the second anniversary of the date of this Deed and from time to time". Failure to exercise the discretion to offset in those circumstances could not be a waiver of the obligation to make the payment. Hammersmith served notice to pay the unpaid instalments on 10 November 2004; however, in that notice it asserted that the unpaid instalments amounted to $100,000, when at that stage they did not. The fifty instalments of $2,000 required to repay the advance in full would have expired only in July 2005. However, on any view, the full $100,000 has been due and payable since that date, and Hammersmith is entitled to judgment against Tyneside for that sum.
Mr Haggis is a guarantor of Tyneside's obligation. The guarantee was given jointly by him and Mr Oliver, and there is nothing in its terms to indicate that it was intended to bind them severally as well as jointly; in those circumstances, they were joint obligors. Although the plaintiffs complained that Mr Oliver had not been sued, that is no obstacle: there is no legal imperative to proceed against all the joint obligors, and nowadays, judgment against one does not extinguish the claim against the others [(NSW) Civil Procedure Act, s 95]. Hammersmith is entitled to judgment also against Mr Haggis.
As a matter of discretion, having regard to the notice given on 10 November 2004, the formal demand of 26 November 2004, the proportion of the advance that was already repayable as at 10 November 2004 (84%) and the terms of the contract, I would be inclined to allow interest at court rates from 1 January 2005. However, as this question was not argued, I will afford the parties an opportunity to address it
The second claim is for the return of the management fees paid (amounting to a total of $1,057,500) as damages for breach of contract, on the footing that Tyneside failed to provide the services that it contracted to provide. There are at least two reasons why that claim must fail. The first is that it was implicit in the consensual termination of the agreement that each party released the other from all outstanding claims and obligations. The second is that the Management Agreement provided, by clause 12.3, that termination did not affect accrued rights. The management fees earned and paid up to the alleged termination were accrued entitlements. The claim to recover those fees as damages would depend upon a contention that there was a total failure of consideration for the management fees, which on no view could be sustained.
THE S 459G APPLICATIONS
On 29 April 2003, Hammersmith issued and served on Tyneside a creditor's statutory demand, claiming $100,000 said to be owing pursuant to the Management Agreement. By interlocutory process filed on 20 May 2003, Tyneside applied pursuant to Corporations Act, s 459G, to have it set aside.
On 2 December 2004, Hammersmith issued and served on Tyneside a further creditor's statutory demand, claiming $100,000 said to be owing pursuant to the Management Agreement, and relying on the notice of default of 10 November 2004 as having made the total advance repayable. By originating process filed on 23 December 2004 in proceedings 2004/181624 (formerly 6947/04), Tyneside applied pursuant to Corporations Act, s 459G, to have that notice also set aside.
Determination of the s 459G application made by interlocutory process in respect of the first notice was adjourned to the final hearing of the substantive proceedings. On 1 March 2005, an order was made in proceedings 2003/ 83732 (formerly 2631/03) that they be heard together with proceedings 6947/04, the s 459G application in respect of the second notice. However, that order does not appear to have been noted on the file in the 2004 proceedings, as a result of which they were, in the absence of the parties, dismissed on 26 April 2005. Given the circumstances in which those proceedings in respect of the second notice were dismissed in the absence of the parties, I would be inclined to set aside the order of dismissal to enable the application to be disposed of on the merits.
It follows from my above conclusions that, as at the date of the first notice, Tyneside was indebted to Hammersmith for only $46,000 (being 23 instalments of $2,000 each), and as at the date of the second notice, for only $84,000 (being 42 instalments). In principle, it would seem open to vary the first notice to $46,000; however, in light of the second notice there would appear to be no utility in doing so, and I would therefore be inclined to set aside the first notice. As to the second notice, although there was a genuine dispute (or an offsetting demand) as at the date of the notice in respect of the whole amount claimed, there can now no longer be a dispute to the extent of $84,000, and it would seem that the notice should be varied pursuant to Corporations Act, s 459H(4), to that effect.
However, as these matters were not covered in submissions, I will afford the parties an opportunity to address them.
CONCLUSION
The events the subject of these proceedings took place in the period 1999 to 2003. Proceedings were instituted in 2003 but, for whatever reason, did not come to trial until eight years later, when they were heard over a period of four weeks in February to March 2011, following which they were adjourned part-heard for a further week's hearing in early May 2011, and, after the exchange of written submissions, concluded with three days' oral submissions on 27 May 2011. The time taken since then has been my responsibility, and for that I apologise to the parties; however, the time I have taken needs to be seen in the context of what preceded it, and while judgment could have been given earlier had I confined my consideration to one issue that proved dispositive, that would not have done justice to the arguments of counsel, nor to the investment of the parties in the litigation.
For the reasons set out above, I have reached the following conclusions.
I accept that there was a consensual termination of the Management Agreement on 28 January 2003, when it was discharged by agreement. I would not accept the defendants' alternative case that they terminated the Management Agreement on 11 March 2003 for repudiation by the resignation statement made on 28 January 2003. However, the conclusion that there was a consensual discharge of the Management Agreement on 28 January is dispositive. The plaintiffs' case fails on that basis.
As to the first alleged event of default, that Tyneside did not comply with the directions of Hammersmith, Tyneside did not comply with directions given on 8 August 2002, and on 12 November 2002, to the effect that no new work was to be undertaken or commissioned. Accordingly, had the Management Agreement not already been consensually discharged Hammersmith would have been entitled to terminate it pursuant to clause 12.1(b), which in turn would have entitled Hammersmith to terminate the Profit Deed under clause 12.1(f) of that Deed.
The second alleged event of default, that the development failed, at any time, to achieve 90% of the profit stated in the Report, was not available to justify termination as at 11 March 2003.
As to the third alleged event of default, that covenants and warranties made by Tyneside were not true, complete or correct, I accept that clause 12.1(c) of the Management Agreement, and its equivalent in the Profit Deed, does not apply to a failure to fulfill a promissory warranty. With the exception of the complaint concerning the warranty of competence, the alleged breaches of warranty relied on by the defendants concern promissory warranties and cannot found an event of default under clause 12.1(c) of the Management Agreement or clause 12.1(b) of the Profit Deed.
I am unconvinced that proceeding by way of master plan, at least until the time when Mr Haggis took steps towards having one prepared in the latter part of 2002, was the only way in which a competent manager would have proceeded. I am also unable to conclude, from the status of the development project as at January 2003, that Tyneside lacked the requisite qualities as at the date of the Management Agreement. However, the proved absence on the part of Mr Haggis of relevant training, qualifications and experience in project management of developments even vaguely comparable to Pambulong Forest, raises a powerful case that Tyneside did not have the qualities referred to in the warranty of competence, a conclusion that is all the more readily to be drawn in the absence of evidence of possession of the relevant skill, experience, competence and ability. That conclusion is reinforced by Tyneside's failure to ensure that there was a written contract in place with Delamere before works were commenced; its serious deficiencies in the management and co-ordination of the consultants; its necessity to rely on Mr Winterbottom to perform many of the project management services for which Tyneside was responsible; the implicit view of Mr Simpkins - who recommended that a project manager be appointed - that there was no effective management by Tyneside of the Delamere contract; and Mr Haggis' statement on 15 August 2002 to the effect that he was over-stretched, having difficulties coping with the project, and needed help.
I therefore conclude that as at the date of the Management Agreement, Tyneside did not have the skill, experience, competence and ability of a project manager of complex, very large-scale, green fields developments such as Pambulong Forest, and accordingly that the relevant warranty was not true or correct. Accordingly, had the Management Agreement not already been consensually discharged, Hammersmith would have been entitled to terminate it (and the Profit Deed) pursuant to clauses 12.1(c) and 12.1(b) respectively of those agreements.
It follows that, on the plaintiffs' claim, there should be judgment for the defendants.
On its cross-claim, Hammersmith is entitled to recover the advance of $100,000 from Tyneside, and from Mr Haggis as guarantor. I will hear the parties on the question of interest, but prima facie am inclined to allow interest at court rates from 1 January 2005 (see paragraph 335). The claim for return of the management fees fails.
It follows that, on Hammersmith's cross-claim, there should be judgment that the cross-defendants Tyneside and Mr Haggis pay the cross-claimant the sum of $100,000 and interest;
Prima facie, the plaintiffs should pay the defendants' costs.
It seems that the creditor's statutory demand issued and served by Hammersmith on Tyneside on 29 April 2003 should be set aside; that the order dismissing Tyneside's application to set aside the creditor's statutory demand issued and served by Hammersmith on Tyneside on 2 December 2004 should be set aside, and that that notice should be varied pursuant to Corporations Act, s 459H(4), by substituting for the amount of the claim the sum of $84,000 (see paragraphs 339 and 340). However, as these questions were not covered in submissions, I shall afford the parties an opportunity of addressing them.
I direct that the defendants bring in short minutes to give effect to this judgment, at a time to be fixed. At that time I will deal with any submissions that the parties may wish to make concerning interest, the s 459 notices, and costs.
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Decision last updated: 30 May 2013