Bennett v Minister for Community W

Supreme Court of NSW|2019-04-17|Before: Rees J, Black J, Mr P

act Law in Australia (7th ed. LexisNexis, 2018) Category: Principal judgment Parties: Amrollah Aghili (First Plaintiff) Zoran Sever (Second Plaintiff) Andrea Stodulka (Third Plaintiff)

ACT Land Pty Ltd (in liquidation) (ACN 611 931 509) (First Defendant) Behzad Kashan (Second Defendant) Spiros Brendas (Third Defendant) Omega Projects (ACT) Pty Ltd (ACN 604 182 050) (Fourth Defendant) Representation: The First Plaintiff appeared in person.

Solicitors: Mr P Johannessen of Johannessen Legal (Liquidator of First Defendant)

No appearance for the Second and Third Plaintiffs or the Second, Third and Fourth Defendants. File Number(s): 2017/242353

Judgment

This is a claim by the plaintiff, Amrollah (also known as "Roland") Aghili, a builder, for damages, equitable compensation and costs against the second to fourth defendants, Behzad (also known as "Ben") Kashan, Spiros Brendas and Omega Projects (ACT) Pty Ltd, arising out of a joint venture to develop land in Batemans Bay through a corporate vehicle, ACT Land Pty Ltd. Mr Kashan is a real estate agent, Mr Brendas is an earthworks contractor and Omega Projects is Mr Brendas' company. Mr Kashan and Omega Projects are the remaining shareholders in ACT Land, in which Mr Aghili originally held 20% of the shares and which shares he says have been transferred without his consent.
Mr Aghili had been joined in his claim by two other plaintiffs, Zoran Sever (builder) and Andrea Stodulka (civil engineer), but they decided not to pursue their claims shortly before the hearing. The Court record evinces some confusion about the identity of the second plaintiff, since the Originating Process names Zoran Sever's son Petar, but both versions of the Statement of Claim name Zoran, and the parties appear to have proceeded on the basis that he was a party thereafter. It does not much matter where neither pressed their claim at the final hearing. The claim was also originally brought against ACT Land but, as a liquidator was appointed to the company after proceedings commenced and the debts of the company far exceed its assets with no surplus expected in the winding up, Mr Aghili accepted that there was no utility in proceeding against the company and I formally refused Mr Aghili leave to do so.
Mr Aghili appeared for himself at the hearing. Apart from an initial appearance by the liquidator of ACT Land, there was no appearance for the defendants. Mr Aghili relied on his own affidavit together with affidavits of Mr Sever, Mr Stodulka and Brett Cottam (finance broker) together with documentary tenders including the affidavit of Angela Bozikis (sole director of Omega Projects) and part of the affidavit of Mr Brendas. The affidavits traversed a wide range of subjects referable to other parts of the claim not pursued at the hearing and I will endeavour to focus on facts relevant only to Mr Aghili's remaining claims against the second to fourth defendants. The liquidator tendered some reports to creditors before being excused from further attendance.

Facts

In 2015, Omega Projects was incorporated. It conducts earthworks. Mr Brendas and his wife conduct the day to day operations of Omega Projects. At Mr Brendas' request, his daughter Ms Bozikis became sole director of Omega Projects: Mr Brendas had debts due to a guarantee he had given on a job in 2013 which failed and he did not want to expose Omega Projects to any financial difficulties which he may have.

Joint venture

In April 2016, a Joint Venture Agreement was executed by Mr Aghili, Mr Sever, Mr Kashan, Mr Stodulka and Mr Brendas to engage in property development through a corporate vehicle in which they would each hold 20% of the shares and share equally in the profits. The developments then being discussed were of proposed subdivisions at "Bay Ridge" at Batemans Bay and Beard in the Australian Capital Territory, both properties then owned by Canberra Investment Corporation Ltd (CIC). Mr Aghili drafted the agreement.
In respect of contribution of initial capital, only two of the joint venturers proposed to contribute real property or funds. Clause 2 of the Joint Venture Agreement provided: Initial Capital … 2.6 Spiros [Brendas] agreed to transfer his family member properties at Goulbourn (3 blocks of vacant land) and in Yass (a few blocks vacant land which could be subdivided up to 18 blocks of land) to [ACT Land], in order [ACT Land] could show assets and be able to borrow money to purchase Bay Ridge and Beard subdivisions (these blocks remains Spiros family assets in trust with [ACT Land], this land transfer is only for [ACT Land] financial supports. … 2.8 Ben [Kashan] agreed and confirmed he has spoken to his father in law and borrows $200,000 at 10% interest to pay for the deposit on exchange of contracts for Bay Ridge and Beards projects and in lieu he will sell two blocks at Bay Ridge at discounted price to his father in law by Joint Venturers agreement. …
Under clause 9 of the Joint Venture Agreement, each joint venturer agreed to provide funds in proportion with their share within 30 days of being asked to do so by the Management Committee, failing which other joint venturers could make the required contribution as a loan to the joint venture to be repaid on the sale of the development. More precisely: Funding of the Joint Venture Funding of Joint Venture by Joint Venturers 9.1 The Joint Venturers must, subject to clause 0 [sic], ensure that the Joint Venture has sufficient funds (whether by capital or loan) as the Management Committee determines are necessary for the conduct of the Joint Venture at least 30 days in advance of the estimated date that those funds are required. Each Joint Venturer agrees to provide such funds (either by way of capital or loan as the Management Committee determines) in their Respective Proportions: 9.1.1 within 30 days of receipt of a written notice from the Management Committee; and 9.1.2 provided that such notice is consistent with the requirement for funds as set out in writing in the then current Project Plan and Budget as agreed with management committee. No obligation on Joint Venturers to fund 9.2 Despite any other provision of this document to the contrary, no Joint Venturer is required to: 9.2.1 contribute any capital to the Joint Venture in excess of its Existing Capital Contribution and New Capital Contribution; or 9.2.2 to advance funds to the Joint Venture, in excess of its Existing Loan, except by agreement between the Joint Venturers by majority of vote in writing. 9.2.3 Any Joint Venturer borrows money/fund from a third party for the benefit of Joint Venture other than its own personal money/assets, this money/fund will be considered as a loan of to the Joint Venture [ACT Land] and only interest will paid as per bank current interest rates on this funds/monies with prior agreement of Joint Venturers. Adjustments to Joint Venture Interests 9.3 If a Joint Venturer does not make a capital contribution to the Joint Venture within 30 days of the due date to do so pursuant to a request under clause 0 [sic] then that Joint Venturer (Non-Contributing Joint Venturer) will not be in default under this document but any other Joint Venturer may make the capital contribution to the Joint Venture in lieu of the Non-Contributing Joint Ventures as a loan to Joint Venture Company. Following such capital contribution, the contributing Joint Ventures at the final sale of the blocks, before any profit distributions, he/she shall receive its contribution plus interest at the current bank rates. …
"Existing Capital Contribution", "New Capital Contribution" and "Existing Loan" were not defined but "Respective Proportions" meant: Respective Proportions means the proportional interests of the Joint Venturers in the Joint Venture as represented by the capital accounts of the Joint Venture (being the aggregate of the Capital Contributions) adjusted from time to time in accordance with this document.
The Agreement provided for a joint venturer's interests to be transferred to another in the event of default, but none of the events of default appear to be relevant to this case: clause 14.1.
ACT Land was incorporated (then called CBD 5 Pty Ltd) and 20 shares were issued to each of the joint venturers. Mr Aghili was appointed a director. Mr Sever was appointed a director and secretary. Under the Joint Venture Agreement, these two gentlemen also formed the Management Committee of ACT Land.

Bay Ridge subdivision

In May 2016, the joint venturers continued to investigate the purchase of Bay Ridge. In June 2016, the joint venturers met and discussed how to finance the purchase. Mr Brendas was only prepared to transfer the land which his family owned in Goulburn and Yass if he was given more shares in the company and made sole director; this was to be a short-term measure until external finance was raised. According to Mr Sever and Mr Aghili, this was agreed. Share transfer forms were signed accordingly and Mr Aghili and Mr Sever resigned as directors. On 17 June 2016, Mr Brendas was appointed sole director of ACT Land.
In July 2016, ACT Land obtained a 12 month loan of $1.15 million from Vertex Direct Mortgage Fund and, on 18 July 2016, exchanged contracts to buy Bay Ridge for $990,000 with settlement to take place in 90 days. Mr Kashan paid the deposit of $100,000. Mr Aghili paid $12,100 for the broker's fee to arrange the loan.
Mr Aghili began to talk to engineers to undertake civil works at Bay Ridge. In August 2016, ACT Land obtained a valuation of Bay Ridge on the basis of the land having development approval for 100 residential blocks: the market value was considered to be $5 million. Mr Sever began speaking to LJ Hooker about marketing the subdivision. Mr Aghili also sought funding to buy the property in Beard.

Calls for capital

On 18 August 2016, Mr Brendas, in his capacity as director of ACT Land, sent a letter to Mr Aghili entitled "Request for Capital", advising: As per Directors and shareholders meeting held on 17 August 2016, it was resolved • [ACT Land] will proceed with the purchase of the [Beard] property • In order to achieve this purchase the company has decided to raise capital • It was resolved that every shareholder to contribute $200,000 towards their shareholding All shareholders should provide their funds within 7 days. If the shareholders does not comply with this resolution, the director have no option but to forfeit their shares. … Mr Aghili says that he was not present at the meeting and had no knowledge that it was taking place. Whilst the letter refers to a request for funding being made of all shareholders, it is not clear that the request was sent to all shareholders. Mr Stodulka recalls that Mr Kashan pressed him repeatedly to provide some funding to the project but he was unable to do so given his financial situation. According to Mr Sever, the request for Mr Aghili to contribute $200,000 was a ruse by Mr Kashan to remove him from the joint venture. Certainly, the Joint Venture Agreement did not envisage that failure to provide funding if called upon to do so would result in forfeiture of shares. On the contrary, the Agreement provided a mechanism by which such a failure would be brought to account between the parties.
Also on 18 August 2016, Mr Brendas lodged a Change to Company Details form with the Australian Securities and Investments Commission (ASIC) noting various changes in shareholding of ACT Land. Mr Brendas' shares were transferred to Omega Projects. Mr Stodulka's shares were transferred to Mr Sever (3), Mr Aghili (3), Mr Kashan (3) and Omega Projects (11). Ms Bozikis says that her father told her in August 2016 that he was having trouble getting the other joint venturers to contribute money to ACT Land and he was entitled to some shares because of the difference in what had been contributed. Mr Brendas wanted Omega Projects to hold those shares. It would appear that Mr Brendas was conducting the business of ACT Land in a manner different from that envisaged in the Joint Venture Agreement. As Mr Brendas was proceeding, if a joint venturer did not contribute funds to the project when called upon to do so, their shares in ACT Land were transferred to those who had.

Beard subdivision

On 30 August 2016, ACT Land exchanged contracts to buy the Beard land from CIC for $5.832 million. ACT Land paid a deposit of $100,000, presumably funded by Mr Kashan as envisaged by the Joint Venture Agreement. Completion of the purchase was 90 days from the date of the contract. Tempers between the joint venture partners had already begun to fray, as is evident from a lengthy email sent from Mr Aghili to Mr Brendas that day complaining that the manner in which Mr Brendas and Mr Kashan were conducting the business of ACT Land had strayed substantially from the Joint Venture Agreement.
On 7 September 2016, Mr Brendas wrote to Mr Aghili extending the time to make the additional contribution of $200,000 by seven days to 13 September 2016 failing which ACT Land would refund his contribution or share according to the calculations of the company's accountant as to ACT Land's current assets and liabilities. On 10 September 2016, Mr Aghili called Mr Brendas and asked, "Please let me know if all other partners put $200,000, I will do the same".
Mr Aghili did not provide $200,000. On 14 September 2016, Mr Kashan, Mr Brendas and Mr Sever held a "meeting of directors" and decided that, as Mr Aghili had not paid the additional contribution, his shares should be transferred to Dubrabka Sever (Mr Sever's wife), Mr Kashan and Omega Projects. On 16 September 2016, a Change to Company Details form was lodged with ASIC in respect of shareholdings but is not in evidence: presumably it notified ASIC of changes consistent with the resolution of the "meeting of directors".
On 22 September 2016, Mr Aghili sent an email to Mr Brendas asking what was going on with ACT Land's projects, suggesting that Mr Brendas had 'ganged up' with Mr Kashan and Mr Sever and were ignoring him and his role in the joint venture. During October 2016, Mr Aghili tried to call Mr Brendas and Mr Sever several times to find out what was going on but heard nothing further. He was not involved with ACT Land from October 2016 until March 2017.
Development of the Bay Ridge subdivision appears to have proceeded without Mr Aghili. In September 2016, an engineer rendered an invoice to ACT Land in respect of work done to modify planning approvals. A plan of proposed subdivision was prepared by consultant surveyors and civil engineers. The settlement date for the purchase of the Bay Ridge property also approached. An email from ACT Land's solicitor in preparation for settlement anticipated that $500,000 funding would be provided by a financier with a further $405,000 required from ACT Land. On 4 November 2016, $405,000 was deposited into the bank account of ACT Land's solicitors, and Mr Sever says that Mr Brendas came up with this money.
On 7 November 2016, ACT Land's consultant engineer wrote to the local council proposing to modify the development consent for the Bay Ridge development by reducing the lot size and thus increasing the number of subdivided lots from 100 to 149. On 10 November 2016, ACT Land completed the purchase of the Bay Ridge property. ACT Land began to sell lots in the proposed subdivision using Mr Kashan's son, who was also a real estate agent at Century 21. On 27 February 2017, a tender was submitted to ACT Land for the road works, stormwater drainage, sewer reticulation, water supply and services installation at Bay Ridge totalling some $1.4 million plus GST.

Ejected joint venturers take action

In March 2017, Mr Aghili wrote to Mr Sever after apparently not having heard from him for seven months. By now, Mr Sever had also fallen out with Mr Brendas and Mr Kashan. Mr Sever described heated arguments with Mr Kashan; being asked to sign a guarantee to indemnify Mr Brendas as a director of ACT Land, about which he was reluctant; and an offer by Mr Brendas to buy his shares in the company in return for a 33.3% share in the profits of Stage 1 of the Bay Ridge development. On 17 February 2017, Mr Brendas filed a Change to Company Details form with ASIC notifying that Mrs Sever's shares had been transferred to Mr Sever's son and then filed another Change to Company Details form on 28 February 2017 notifying that those shares were now held by Omega Projects (15 shares) and Mr Kashan (15 shares). Mr Sever says he was not aware of this at the time.
The result of these Change to Company Details forms was that ASIC's records indicated that the shares in the company were held by Omega Projects (55%) and Mr Kashan (45%), which remains the position today. No share transfers are in evidence. Simply effecting a change on the ASIC register does not effect a change in ownership, of course. There is evidence which suggests that the ASIC register does not record the true position, but as no relief by way of rectification of the register was sought, and the shares are likely worthless anyway, little turns on this.
Mr Sever and Mr Aghili agreed to join forces. Mr Aghili wrote to Mr Brendas demanding that his shares in ACT Land be transferred back to him failing which he would take legal action. Mr Aghili filed a complaint with ASIC suggesting that his shares in ACT Land had been unlawfully transferred to Mr Kashan and Mr Brendas contrary to the Joint Venture Agreement. Mr Sever lodged a caveat on the Bay Ridge property claiming to own 30% of the land by virtue of his shares in ACT Land, said to have been stolen. Mr Sever and Mr Stodulka both signed powers of attorney appointing Mr Aghili as their attorney to recover their shares in ACT Land. A letter of demand was issued by Mr Aghili's legal representative.
On 8 March 2017, ACT Land and CIC entered into a deed of variation in respect of the contract to buy the land in Beard, extending the completion date to 1 June 2017, obliging ACT Land to pay the balance of the deposit, being $483,200, by 10 March 2017 and increasing the interest rate payable on the remaining purchase price to 10% until 31 May 2017 and 20% interest thereafter.
In May 2017, ACT Land received an indicative offer of finance of $10.225 million to assist with the acquisition and development of the land at Bay Ridge and Beard. The facility was to be secured over both properties and thus the caveat lodged on the Bay Ridge property posed an immediate problem. A lapsing notice was issued. In June 2017, however, further caveats were lodged on the Bay Ridge property by Mr Aghili and Mr Stodulka, both claiming that their shares in ACT Land had been taken by Mr Brendas and Mr Kashan without their consent.
On 19 June 2017, ACT Land entered into a second deed of variation of the contract to buy the land in Beard, extending the date for completion to 28 June 2017. A third deed of variation was entered into on 12 July 2017, extending the completion date to 11 August 2017, and the deposit was released to CIC. Lapsing notices were issued to Mr Aghili.
On 24 July 2017, Armin Kashan of Century 21 Real Estate, Mr Kashan's son, wrote to Mr Brendas noting that the sale of lots in the Batemans Bay development was progressing well, but customers were becoming concerned that no work was being done on the development and word had spread that caveats had been placed on the land. Presumably, this letter was written to support an application to remove the caveats from the title.

Legal proceedings

On 9 August 2017, these proceedings were commenced.
In September 2017, Mr Cottam swore an affidavit for ACT Land in support of proceedings to be filed in the Real Property List of this Court, presumably to remove the caveats, describing the loan which he had arranged for $10.225 million and problems which had emerged in completing the purchase of the Beard land by reason of the caveats. Mr Cottam deposed that CIC was entitled to terminate the Beard contract and, if it did, ACT Land stood to lose its deposit of $580,000 in addition to some $2 million worth of improvements said to have already been made to the land. In September 2017, Mr Aghili and Mr Stodulka apparently agreed to withdraw their caveats on an irrevocable authority offered by Mr Brendas to pay 60% of the net proceeds of sale of the Bay Ridge subdivision into a solicitor's trust account until these proceedings had been finalised.
Whatever peace may have been brokered was short lived. In November 2017, Mr Aghili requisitioned a meeting of members of ACT Land on the basis that he was a shareholder holding more than 5% of the votes. Mr Aghili proposed resolutions that Mr Brendas be removed as director and Mr Aghili and Mr Sever be appointed instead. Undertakings were also sought not to further encumber the Bay Ridge land, and for financial statements of ACT Land to be provided.
In December 2017, Hargraves Secured Investments lent a further $3 million to ACT Land and a further deed of variation was entered into in respect of the Beard land obliging ACT Land to pay outstanding interest of some $500,000.
On 31 May 2018, Omega Projects rendered invoices to ACT Land for works said to have been conducted at Bay Ridge and Beard totalling $3,720,000, of which $500,000 had been paid.
On 25 June 2018, on the usual undertaking as to damages given by the plaintiffs, the Court restrained ACT Land from dealing with the Bay Ridge land other than in the ordinary course of ACT Land's business as a developer of the land by subdivision for sale as land parcels or house and land packages. ACT Land was restrained from incurring expenses other than in ordinary course of business unless it gave the plaintiffs seven days' notice. ACT Land was also ordered to produce its financial statements and bank accounts.

Liquidator appointed

In September 2018, an application to wind up ACT Land was filed with the Federal Court of Australia by Christopher Brown following the failure of the company to comply with a creditor's statutory demand. Mr Brown had exchanged contracts to buy a lot in the Bay Ridge subdivision and paid a deposit. The contract was rescinded and demand was made for repayment of monies paid under the contract of sale. According to Mr Brown, a cash deposit made by him and his wife had not been banked at ACT Land's bank account nor was it held by the real estate agent. On 23 November 2018, a liquidator was appointed to ACT Land.
According to the liquidator's Report to Creditors of December 2018, contracts had been exchanged for 23 lots in the Bay Ridge subdivision of which the deposits for seven contracts were held in the real estate agent's trust account and the remainder had been released as a contribution to the development of the land. Those who had agreed to release their deposits for that purpose were said to have bought their lots at substantially discounted prices. A condition of each of the contracts was that ACT Land was obliged to obtain all relevant approvals and register the subdivision by 30 December 2018, previously extended from 31 December 2017. There had been issues with the development site: the Department of Planning and Environment had inspected the site and identified possible non-compliances relating to the failure to implement adequate erosion and sediment control measures. The Department had required ACT Land to take action and implement measures on the site as part of the conditions of development approval.
The liquidator noted that ACT Land did not appear to have complied with its obligation under section 286 of the Corporations Act 2001 (Cth) to maintain books and records and there were a number of transactions that lacked supporting documentation, for example, the liquidator had not sighted any contracts with Omega Projects.
According to the liquidator's Report to Creditors of February 2019, Hargraves had taken possession of the land as mortgagee and engaged LJ Hooker to market the land for sale. Proofs of debt had been received totalling $4,784,453, including $3.72 million from Omega Projects.

Relief sought

By an Amended Statement of Claim, Mr Aghili sought damages or equitable damages against Mr Kashan and Mr Brendas, and an order that they and Omega Projects pay his costs of the proceedings. I will use the plaintiff's language of "equitable damages" in this judgment to refer to what is conventionally named "equitable compensation", since it appears that is what the drafter of the document had that in mind. While an entitlement to injunctive relief was pleaded, no relief of this kind was ultimately pressed and there is no pleading which corresponds to a claim for Lord Cairns' Act damages in lieu of such an injunction, as is provided for in section 68 of the Supreme Court Act 1970 (NSW). Similarly, although relief in the nature of specific performance of the agreement had originally been sought, it was not pressed, and no pleading was made for equitable damages in lieu of that relief.
In respect of the claim for equitable compensation, entitlement to such compensation is ordinarily premised upon a breach of trust or fiduciary duty. No trust or fiduciary obligation was pleaded, nor would one necessarily arise from a joint venture. The plaintiff did plead the existence of a partnership between the joint venturers, although it is not clear that the claim for equitable damages was referable to such a partnership, the existence of which was pleaded as a precursor to seeking the winding up of the partnership and the appointment of a receiver.
In the context of corporations law, while there is no doubt that Mr Brendas, as sole director of ACT Land, owed fiduciary obligations to the company, directors do not ordinarily owe fiduciary duties to shareholders: Brunninghausen v Glavanics (1999) 46 NSWLR 538; [1999] NSWCA 199, Handley JA, with whom Priestly and Stein JJA agreed, at [57].
In United Dominions Corp Limited v Brian Pty Limited (1985) 157 CLR 1; [1985] HCA 49, Mason, Brennan and Deane JJ considered the nature of a joint venture at 10: The term "joint venture" … connotes an association of persons for the purposes of a particular trading, commercial, mining or other financial undertaking or endeavour with a view to mutual profit, with each participant usually (but not necessarily) contributing money, property or skill. … The term is, however, apposite to refer to a joint undertaking or activity carried out through a medium other than a partnership: such as a company, a trust, an agency or joint ownership. The borderline between what can properly be described as a "joint venture" and what should more properly be seen as no more than a simple contractual relationship may, on occasion, be blurred. Their Honours also noted that whether the relationship between joint venturers is fiduciary will depend upon the form which the particular joint venture takes and upon the content of the obligations which the parties to it have undertaken: at 11.
No pleading or submission addressed how the fiduciary obligation was said to arise in this joint venture. Beyond Mr Brendas' fiduciary obligation as director, I do not think that the relationship between the joint venturers was fiduciary. United Dominions Corporation makes clear that the form and content of the agreement, and the obligations which the parties undertake, will determine whether any particular joint venture involves fiduciary obligations. The fact that the parties chose to conduct business through a corporate vehicle (which already has attached different fiduciary obligations), and regulated this structure with what is effectively a shareholders' agreement, tells against any implication that fiduciary obligations arose between the parties akin to a partnership. Rather, I consider that the joint venturers simply agreed to do business with one another on the terms of the Joint Venture Agreement.
In the absence of Mr Aghili addressing, either in the Amended Statement of Claim or his submissions, how it was said that a fiduciary obligation arose, how it was said to have been breached, and what damages flowed from such breach, I will not consider the claim for equitable damages (or equitable compensation) further.

damages

What does emerge from the Amended Statement of Claim is a claim for damages for breach of contract, being the Joint Venture Agreement. It is pleaded that: The conduct of the second, third and fourth defendants has caused the plaintiffs loss and damage. Particulars (a) The second and fourth defendants have purported to hold all of the shareholdings of the plaintiffs thereby depriving them of the value of the said shareholding. (b) The second, third and fourth defendants have undertaken works upon the Batemans Bay land and have caused [ACT Land] to incur costs and expenses on behalf of the venture in regard to the land in excess of the reasonable costs and expenses for development of the land.
The Joint Venture Agreement was breached in September 2016 when Mr Aghili's shares in ACT Land were transferred to other joint venturers on his failure to make a capital contribution of $200,000. Clause 9 of the Joint Venture Agreement provided, in the event that he was asked to contribute further capital and did not do so, then other joint venturers could make the capital contribution for him and be repaid from the proceeds of the development. That is not, in fact, how the contributing joint venturers proceeded.
So far as the claim for damages for breach of contract is made against Omega Projects, that company was not a party to the Joint Venture Agreement. The doctrine of privity of contract has the result that Omega Projects is not liable for damages for breach of a contract to which it was not a party: Tweddle v Atkinson (1861) 1 B&S 393; (1861) 121 ER 762; Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] AC 847; Coulls v Bagot's Executor and Trustee Co Ltd (1967) 119 CLR 460; Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107; [1988] HCA 44. The exceptions to this fundamental proposition are few, and presently irrelevant.
So far as the claim for damages for breach of contract is made against Mr Kashan and Mr Brendas, the general measure of damages for breach of contract is the amount, so far as money can provide, necessary to put the plaintiff in the position they would have been if the contract had been performed: Koufos v C Czarnikow Ltd ("The Heron II") [1969] 1 AC 350; Wenham v Ella (1972) 127 CLR 454; Burns v MAN Automotive (Aust) Pty Ltd (1986) 161 CLR 653; [1986] HCA 81. Any loss alleged to be suffered must have been caused by the breach of contract: Monarch SS Co Ltd v A/B Karlshamns Oljefabriker [1949] AC 196; Reg Glass Pty Ltd v Rivers Locking Systems Pty Ltd (1968) 120 CLR 516; Bennett v Minister for Community Welfare (1992) 176 CLR 408. Whilst damages are assessed at the date of breach, subsequent events may be taken into account so that the damages awarded are as accurate as possible: Wenham v Ella; Smith New Court Securities Ltd v Citibank NA [1997] AC 254; Golden Strait Corp v Nippon Yusen Kubishika Kaisha ("The Golden Victory") [2007] 2 AC 353; [2007] UKHL 12. See, generally, JW Carter, Contract Law in Australia (7th ed. LexisNexis, 2018) at [36-17]. Where a loss of chance is alleged, there must be some basis to say that the chance had some value for more than nominal damages to be awarded: Fink v Fink (1946) 74 CLR 127; McRae v Commonwealth Disposals Commission (1951) 84 CLR 377.
In respect of the first particularised head of loss, the Mr Aghili's shares in ACT Land are now worthless and so there is no such loss. As to the second particularised head of loss, this was not sought to be advanced at the hearing. There was little evidence of the costs and expenses incurred by Mr Kashan, Mr Brendas and Omega Projects at Bay Ridge beyond the invoices mentioned in this judgment, nor is there any evidence of what the reasonable costs and expenses for developing the land were. In any case, it is not clear to me that this loss was that of Mr Aghili: when he made a capital contribution to the company, those funds became funds of the company, so any such claim would be properly brought by the company.
Rather, at the hearing, Mr Aghili put his loss on a different basis: if his shares in ACT Land had not been transferred, he would have enjoyed 20% of the profits of the Bay Ridge subdivision. Mr Aghili put his losses at $3 million. In support of his quantification of loss, Mr Aghili relied on: 1. a cash flow projection for construction from November 2016 to March 2017, apparently prepared by ACT Land and Omega Projects; 2. "Sub Division Costings", apparently prepared by ACT Land, listing an estimated sale price, construction cost and council contribution for each block, less costs of the whole development - land, marketing and bank - totalling $20,546,590 estimated gross profit on the project. 3. An engineer's invoice issued in September 2016 for $18,000 plus GST and a tender submitted in February 2017 to provide roadworks, stormwater drainage and services for $1.4 million plus GST.
Who prepared these documents, when, how and for what purpose is not in evidence. It is not apparent whether the cash flow projection or "Subdivision Costings" were prepared for the purpose of raising finance, for marketing purposes, or following detailed and careful consideration by qualified persons by reference to reliable assumptions as to what it might reasonably have been expected to cost to complete the Bay Ridge development in a reasonably estimated timeframe to thereby secure a reasonably estimated sale price and enjoy a profit thereby predicted. The cash flow projection and "Subdivision Costings" contain little detail and are very brief. This suggests that the documents are more likely to have been prepared for the purposes of raising finance or marketing than as a result of a careful and detailed analysis based on reasonable assumptions and data.
In any event, having regard to these materials, Mr Sever deposed: I have estimated construction cost to be $16,400,000. I believe that the expected realisation for the project is $30,200,000. Based on that, the estimated profit is $13,800,000. I have not summarised Mr Sever's evidence but set it out in full. As the defendants chose not to appear at the hearing, this evidence was not challenged. Nonetheless, any award of damages for breach of the Joint Venture Agreement must be soundly based on reliable evidence.
The question for the Court is to determine, on the balance of probabilities, what would have happened if, notwithstanding Mr Aghili's failure to provide $200,000, he had nonetheless remained a shareholder in ACT Land. This seems to me to depend upon four events occurring in the 'counter factual'. First, would Mr Kashan and Mr Brendas have been prepared, notwithstanding the non-contribution of Mr Aghili and, it would appear, Mr Stodulka and Mr Sever, to continue to inject substantial funds themselves beyond what they were themselves obliged to contribute under the Joint Venture Agreement? Based on the evidence, I consider it possible but unlikely that Mr Kashan and Mr Brendas would have been prepared to do so.
Second, if Mr Kashan and Mr Brendas had not been prepared to continue to make additional contributions of capital themselves, would ACT Land have proceeded to acquire the Bay Ridge and Beard land? Contracts to buy both properties has been exchanged before Mr Aghili was asked to contribute $200,000 and so this is likely, although as I understand the evidence, Mr Stodulka had already made plain that he was unable to provide further capital contributions and Mr Brendas had already taken steps to transfer Mr Stodulka's shares to others before doing so.
For the Bay Ridge land, Mr Kashan provided the $100,000 deposit and, after obtaining external short term finance, Mr Brendas provided the balance of the purchase price of $400,000 which is broadly consistent with which they agreed to contribute under the Joint Venture Agreement and thus, in the counter factual, it is likely that the Bay Ridge property would be have purchased.
For the Beard land, Mr Kashan provided a partial deposit of $100,000. A balance of the deposit was ultimately provided but the source of those funds is not known, that is, whether it was from Mr Kashan, Mr Brendas or external finance. The contract to buy the Beard land was not completed as external finance could not be drawn down due to caveats. So I think there was a chance that the Beard land would have been purchased notwithstanding the non-contribution of Mr Aghili and others, and he may be awarded damages for a loss of that chance.
Third, would the Bay Ridge development have been completed, and possibly also the Beard development. Substantial finance was needed to complete the developments. Such finance was arranged. Would the same or similar finance have been raised if Mr Kashan and Mr Brendas were not themselves prepared to make further contributions of capital in the absence of contributions by their joint venturers? I think it is likely that such finance would have been raised in respect of the Bay Ridge development and there is a chance that it would have been raised in respect of the Beard development. Similarly, with such finance, it is likely that the Bay Ridge development would have been completed and possible that the Beard development may have been completed. I say this simply because, having raised finance, the joint venturers would have been keen to complete the development using those funds in order to repay the debt and enjoy the fruits of their labour.
Fourth, and most importantly, would the completed Bay Ridge development and, possibly, the completed Beard development have returned a profit to the joint venturers after repaying external financiers, contributions of capital by Mr Kashan and Mr Beard, and associated costs of the developments. And this is where the damages claim fails. Even assuming everything else in Mr Aghili's favour, the documents and evidence to which I have referred at [47] to [52] do not give me any confidence that the profit of the Bay Ridge development which Mr Aghili would have enjoyed had his shares in ACT Land not been transferred to the defendants would be $3 million or indeed any figure at all. There is no sound basis on which I can estimate what monies, if any, would have been paid to Mr Aghili as there is no evidence on which I can safely rely to conclude on the balance of probabilities that, if Bay Ridge had been developed in accordance with the Joint Venture Agreement, the profit calculated by Mr Sever based on scant documents prepared on an unknown basis would have been achieved or that any monies would have been payable to Mr Aghili. Likewise, there is no evidence as to what profit or loss may have been the result of the Beard development which would need to be taken into account as well. In McCrohon v Harith [2010] NSWCA 67 where McColl JA, with whom Campbell JA and Handley AJA agreed, noted at [122]-[123]: 122 In Troulis v Vamvoukakis [1998] NSWCA 237 (at 13) Gleeson CJ (Mason P and Stein JA agreeing) … held … there were "limits to the lengths to which a court may properly go in 'doing the best it can' to assess damages". His Honour observed that the case did not involve damages which were "inherently difficult to quantify, or which involve[d] estimating a risk, or measuring a chance, or predicting future uncertain events." … his Honour said (at 13) that it was necessary for them "to provide some evidence upon which a rational assessment of value could be made." 123 Gleeson CJ concluded (at 14) in substance, that where the damages were susceptible of evidentiary proof, and there was "an absence of the raw material to which good sense may be applied … [j]ustice does not dictate that … a figure should be plucked out of the air."
What is known is that ACT Land obtained short term, relatively expensive, finance to acquire Bay Ridge and exchange contracts to buy Beard. A valuation suggests that Bay Ridge was worth $5 million with development approval, and thus there was room for a healthy profit to be made. Efforts were made to modify the development approval in respect of the Bay Ridge land to substantially increase the number of lots. The engineer who undertook this work rendered an invoice but the fate of the application to modify the development approval is not known. A tender was received to perform the civil works required to complete the subdivision, comprising some $1.4 million plus GST but there is no evidence that the tender was accepted or that the tenderer began work. There are some invoices from Omega Projects which appear questionable both by reason of the absence of any contract between ACT Land and Omega Projects and the improbable suggestion that Omega Projects effected some $2 million worth of improvements to the Beard land before completion of the purchase. The Bay Ridge subdivision does not appear to have proceeded with great success as some lots were sold but the deposits paid by purchasers had been released to fund the construction; ACT Land had not been able to register the subdivision and it appears that there were some problems on site in complying with the conditions of the development approval. Even less is known about the Beard development.
Mr Aghili submitted that the Bay Ridge development would have been profitable if he had remained a shareholder as he would have managed it better; he would not have purchased the property at Beard and would not have borrowed money from Hargraves Secured Investments. However, Mr Aghili's affidavit evidence does not say what he would have done, either in relation to the Bay Ridge or Beard developments or in developments generally, if he had remained a shareholder in ACT Land.
In circumstances where Mr Aghili gives evidence that he agreed to be removed as a director, it is not clear that the management of the company would have been conducted differently if the Joint Venture Agreement had not been breached. But assuming for the moment that, if Mr Aghili had remained part of the joint venture, he would have managed the development better, the evidence is not otherwise necessarily supportive of Mr Aghili's submission. The Joint Venture Agreement envisaged that the Beard land would be acquired by ACT Land and Mr Aghili was involved in attempting to obtain finance to acquire the property before he was ejected from the joint venture. There is no reason to think that, if Mr Aghili had remained part of the joint venture, he would have proceeded otherwise than to acquire the Beard land. I agree that ACT Land may well not have borrowed $3 million from Hargraves Secured Investments. That loan appears to have been necessitated by the fact that ACT Land was unable to draw down the $10.225 million loan by reason of the caveats placed on the Bay Ridge and Beard properties by Mr Sever, Mr Aghili and Mr Stodulka. If the Joint Venture Agreement had been observed then there would have been no caveats nor the need to obtain finance from Hargraves Secured Investments. This lends support to Mr Aghili's claim for damages, in this respect at least, but there seems to me to be several steps in establishing loss of which this was but one.
So for these reasons, Mr Aghili has failed to establish any loss or damage. A plaintiff who proves breach of contract, but fails to prove that any loss or damage was caused by that breach is nevertheless entitled to nominal damages to vindicate the infringement of their legal rights: The Owners of the Steamship "Mediana" v The Owners, Master and Crew of the Lightship "Comet" ("The Mediana") [1900] AC 113 at 116; Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd (1938) 61 CLR 286; Chappel v Hart (1998) 195 CLR 232; [1998] HCA 55. While the amount to be ordered is discretionary, it is not unconfined, and the customary amount was recently decided to be $100: State of New South Wales v Stevens (2012) 82 NSWLR 106; [2012] NSWCA 415 at [36]-[37] (McColl JA); [79] (Sackville AJA) (Ward JA agreeing with both other judgments). I see no reason to depart from that sum in this case, and will so order.

Orders

For these reasons, I make the following orders: 1. Judgment for the first plaintiff against the second and third defendants in the amount of $100. 2. Otherwise dismiss the first plaintiff's claim against the second, third and fourth defendants for damages, equitable damages and costs. 3. Otherwise dismiss the Originating Process filed on 9 August 2017. 4. Discharge Order 3 made by Black J on 25 June 2018, being an interlocutory injunction against the first defendant.

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