Blashki v Utara

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

4686/99 PHILLIP SYDNEY BLASHKI v IDA BAGUS UTARA JUDGMENT 1 HIS HONOUR: This is another unfortunate case of close friends who engaged in a property transaction together and then fell out. The property involved is the house property at 19 Courland Street, Five Dock. The plaintiff is an Australian who for some years with his then wife conducted an English language computer studies school which established offices in various parts of the world including Jakarta and Denpasar. The defendant is a man of Balinese origin who now lives in Australia. The plaintiff met the defendant when on holiday in Bali and they became closely friendly, to the extent that the plaintiff was the best man at the defendant's wedding. In the mid 1990s both men had money available from divorce settlements, although it would seem the defendant's money was tied up in a term deposit. 2 There are some clear and undisputed facts in the matter. There is no doubt that in late 1995 or early 1996 the two discussed buying a property together (using that word in its loosest sense). They located a property at Marrickville ("the Marrickville property"). In February 1996 they consulted a solicitor, Ms Daniele, who had previously acted for the defendant, concerning their proposed transaction. Ms Daniele saw them together and discussed the transaction. She then said that she could not act for both of them and sent the plaintiff for advice to a Ms Falloon, whom the plaintiff then consulted. That transaction proceeded to the stage where a contract and deposit (provided out of the defendant's funds) were sent to the vendor's solicitor for exchange. But exchange did not take place and the purchase of the Marrickville property did not proceed. The reasons for that have been variously stated and are not entirely clear. 3 Subsequently the subject property was purchased in the defendant's name alone. A ten per cent deposit was paid in respect of the property on 8 May 1996 and I infer that it was on that day or shortly that contracts were exchanged for the purchase. The defendant subsequently became the registered proprietor of the property subject to a mortgage to "Perpetual Trustees Australia Limited". There is no doubt that the plaintiff contributed moneys towards the purchase as follows: 8 May 1996 Deposit $ 22,600.00 24 May 1996 Application fee Aussie Home Loans 250.00 30 May 1996 GIO Home Insurance premium 221.00 3 June 1996 Stamp Duty 6,865.00 13 June 1996 Balance purchase moneys 54,991.65 Total $ 84,927.65

Ms Daniele was not employed in relation to that transaction and the conveyancing was done by Van Dimitri, solicitor. The purchase was no doubt settled about 13 June 1996, when the contribution was made by the plaintiff to the balance of purchase moneys. The rest of the moneys necessary for settlement in the sum of about $125,000 were raised under the mortgage, which was given by the defendant. Those matters are clear. The terms on which the moneys were provided by the plaintiff are hotly contested. 4 In his original statement of claim the plaintiff alleged as follows: "2 The Plaintiff and Defendant entered into an oral agreement in late 1995 and early 1996, whereby they agreed to buy a property, subsequently identified as the house, renovate it and sell it for a profit.

3 It was a term of the agreement, that: (a) the Defendant would use his credit rating to obtain a loan to purchase the house and consequently it would be registered in the Defendant's name, but would be owned 50 per cent by each party, (b) the house would be purchased with such funds as were able to be contributed by each party, (c) the house would be renovated by the Plaintiff (who was then unemployed) using his own labour wherever possible, (d) the Defendant would make all mortgage payments, (e) the house would be occupied by the parties jointly, (f) the house would be sold at the highest price reasonably obtained within a reasonable time after the renovation, (g) the parties would be refunded the value of their respective contributions to the purchase costs, mortgage payments and renovation costs, including the value of the Plaintiff's labour, and share in the profit on resale in proportion to the value of such contributions."

The statement of claim contained the following prayers: "(a) A declaration, that the Defendant holds his interest in the house on an express or resulting trust for himself and the Plaintiff, subject to the terms of the agreement between them and in such shares as may be determined by such agreement or alternatively in such shares as reflect their respective contributions to the acquisition and improvement of the house as may be determined by the Court. …… (e) Alternatively or in addition, damages for breach of the agreement between the parties concerning the house and/or for conversion of his possessions." 5 The defendant's answer in the original form of his defence was as follows: "2 The Defendant admits that the Plaintiff and defendant entered into an agreement in 1995 whereby the Plaintiff agreed to lend the Defendant $75,000.00 upon certain terms and conditions, but otherwise denies the allegations made in paragraph 2 of the Statement of Claim. 3 The Defendant denies paragraph 3 of the Statement of Claim." 6 That was the state of the pleadings when the plaintiff on 14 July 2000 made a summary judgment application which was dealt with by Master McLaughlin on 14 August 2000. The Master noted that the relevant relief sought was judgment "for the plaintiff in part on his alternatively pleaded claim for damages in the sum of $75,000, pursuant to Part 13 rule 2 and Part 18 rule 3". Part 18 r 3 provides that where there are admissions on a pleading the Court may "give any judgment or make any order to which the applicant is entitled on the admissions". The learned Master was not, of course, unaware of the inconsistencies in the parties' cases. In his judgment he said: "19 It will be appreciated that the cause of action sued upon by the plaintiff is one concerning an agreement in terms different from those admitted in paragraph 2 of the defence. Nevertheless it is quite clear from the letter of 27 January 1998 that the plaintiff, through his solicitors, was claiming repayment from the defendant of an amount in excess of $155,000, that amount including at least various amounts totalling in excess of $75,000 which the defendant in his affidavit of 9 August 2000 admits was loaned to him by the plaintiff.

20 More than two years has expired since the plaintiff was seeking repayment of at least the amounts which the defendant admits were loaned to him by the plaintiff.

21 It seems to me that it is appropriate in those circumstances that the plaintiff should have judgment against the defendant for the amount of $75,000, that being an amount which has been admitted upon the pleadings. Further, that amount could, in my view, properly also be the subject of summary judgment since there is evidence of the facts upon which the claim for that amount is based and there is evidence given by the plaintiff that there is no defence to the claim for that amount; and the evidence of the defendant himself does not, in my view, establish a defence to a claim for that amount.

22 Accordingly, therefore, I propose to order that there be judgment for the plaintiff in the sum of $75,000. That judgement [sic], however, will not in any way prevent the plaintiff from proceeding with the balance of his claim against the defendant, both in respect to the agreement asserted by the plaintiff against the defendant concerning the house and in respect to the agreements concerning investment in business enterprises in Bali."

The defendant did not seek leave to appeal against this order and the defendant paid and the plaintiff accepted $75,000 in satisfaction of the judgment given by the Master. 7 During the trial the plaintiff obtained an amendment of the statement of claim to propound a legally different version of the transaction relating to the property. That is alleged as follows in par 3A: "3A Alternatively, the terms of the agreement were:

(a) The Plaintiff would lend to the Defendant to assist him to purchase a house repayable on 3 months' notice, 31 December 2000 or the sale of house, whichever is earlier. (b) The Plaintiff would perform renovation work on the house, for which he would be remunerated and reimbursed on termination of the loan at the usual market rates for such work by professional tradesmen. (c) The Plaintiff would be entitled to reside in the house rent-free for the term of the loan. (d) On termination and in consideration of the loan, the Plaintiff would, instead of interest, be entitled to payment of 50 per centum of the net proceeds of sale of the house." 8 The form of this claim is no doubt inspired by the contemporaneous notes of both Ms Daniele and Ms Falloon which were by this time in evidence. For reasons which appear below they suggest a transaction along the lines of par 3A. Of this more will be said below. Despite the inclusion of par 3A in the amended statement of claim, the plaintiff himself continues to deny vigorously in evidence that there was at any time any mention of a loan. The version he continues to put forward is of a transaction of joint investment, as alleged in the original statement of claim. It may have been prudent in the circumstances to apply for a dispensation with verification of the amended statement of claim, or at least of par 3A, in view of the fact that the plaintiff continues to assert that he does not believe there was a loan and that a loan was not mentioned. In the absence of dispensation, his affidavit of verification of the amended statement of claim is incorrect, as he conceded in cross examination, to the extent that in it he asserts that he has no belief that there was a transaction of loan. 9 The defendant concedes an obligation to return to the plaintiff the $84,927.65 "advanced". He has undoubtedly returned $75,000 of it pursuant to Master McLaughlin's judgment. As to the balance of $9,927.65, he claims to have repaid this amount in cash to the plaintiff in July 1996 shortly after the settlement of the purchase of the property. His case on this is that the agreement was for a loan of $75,000 and the additional moneys advanced were provided by the plaintiff for the settlement on a temporary basis only and refunded by the defendant as soon as possible. The plaintiff denies that $9,927.65 was paid to him by the defendant in July 1996 or at all. The defendant has no receipt for it. 10 The plaintiff makes a claim against the defendant on a totally separate cause of action arising from a guarantee alleged to have been given by the defendant. This was in respect of moneys provided by the plaintiff to brothers of the defendant for a business transaction in Bali. The allegation in par 9 of the statement of claim is that, if the plaintiff invested in a land development in Bali with the defendant's brothers, "the defendant would guarantee repayment of his moneys". Moneys were provided by the plaintiff, some were subsequently repaid but others have never been repaid. The terms of the principal transaction are far from clear. Whatever the terms of the principal transaction, the defendant denies that anything he said amounted to a legally binding guarantee to the plaintiff and says that the terms of the alleged promise were in any event so vague that they could not create an obligation which can now be sued on. 11 There is no doubt in relation to the subject property the evidence of both parties was piecemeal and inchoate. However, there is equally no doubt that the thrust of the plaintiff's version is that he would provide the moneys as he did, that he would live in the property with the defendant and his wife for at least some period, that during that time he would do work on the property, that he would arrange tradesmen to do work which he could not do and that he would contribute further moneys towards materials for the renovation of the property. In return he would be entitled to a 50 per cent interest in the property as well as being able to live there for a period. He did live in the property from July 1996 until late 1997, when he left after tension arose between him on the one hand and the defendant and his wife on the other. During a large part of that time he was unemployed, but for some months he did have a full time job as a courier. He claims to have devoted a large amount of time to working on the property. He later claimed an entitlement to 18 months full time wages as a fair remuneration for his labour. 12 The defendant's version is that what was promised was a $75,000 loan. It is conceded that the plaintiff was to be able to live in the property with the defendant and his wife for some time, but the defendant denies any entitlement to any equity in or share of profit from the property. He admits that the plaintiff did some work on the property but says that this was done on a totally voluntary basis and was not to be paid for at any time. He also disputes the amount of work and the quality of work done in the face of any claim for remuneration under a contract or by way of an equitable charge over the property. 13 This trial has proceeded on the basis that it is agreed that the plaintiff undoubtedly did do some work on the property. Whether there is any entitlement in the plaintiff for reimbursement for that will be determined in this trial, but all questions as to the amount of work done or moneys paid by the plaintiff in improvement of the property and the value of that work will be dealt with in a later inquiry or by some other mechanism. 14 There is no doubt that there were discussions in late 1995 as to the possibility of the plaintiff providing moneys towards the purchase by the defendant of a property. It must be remembered that in 1995 and throughout 1996 the parties remained closely friendly and their dealings at that time must be viewed against that background. The falling out does not seem to have come until some time in 1997. 15 In February 1996 the parties went together to see Ms Daniele, who had previously acted for the defendant. She did not give evidence but her note of the interview is in evidence ("the Daniele diary note"). It indicates that the interview took place on 23 February 1996 and that both were present. The property then under contemplation was the Marrickville property, which was to be bought for $215,000. The note includes the following: "Phillip lending $50,000 Deed only - no mtge, no caveat

MD explained to Phillip he has no security- & Utara can sell ppty and refuse to refund the money - no interest payable.

Phillip to be able to reside in the ppty - Repayment - 31/12/2000 If need funds before Phillip to give 3 months notices

In lieu of interest at the time of repayment ppty to be appraised by 3 agents - & average of them to be the value of the ppty - any profit to be divided equally." 16 Whilst it is not referred to in the Daniele diary note, there is no doubt that, at that time or shortly after, Ms Daniele indicated she could not act for both parties and arranged for the plaintiff to see a solicitor known to her, Ms Falloon. Again, Ms Falloon did not give evidence, but her diary note of her original interview with the plaintiff for an hour on 29 February 1996 is in evidence ("the Falloon diary note"). In the note Ms Falloon recorded the names and addresses of the parties under the heading "Loan agreement" and described them respectively as "Lender" and "Borrower". The note includes the following: "Friend and he buying house. Maria Daniel [sic]

Objective : agreet on paper which is record of loan/PB's interest.

P. Price: $215K - $50K - + renos = $75. - $50 IBU - $125 - m'gage Aussie Home Loans. Cl. also will contribute to renovation costs.

Loan expires: 31.12.2000 or upon sale of propy w'ever is the earliest. Date of repayt of all monies owed pursuant to this agreet.

Repayt on 31.12.2000 - pro-rate age (sic) of cmv of propy as assessed by a licensed valuer, to be chosen from one of three valuers.

Provision to terminate on 3 mths notice by the lender.

Occupn : - Right of occupn to lender (No right of terminatn in borrower).

No liability in the lender for rent or occupn fee or for outgoings or for m'gage payments, any taxes or duties, any imposts arising out of the operation of statute or any taxn inclg for capital gains.

In addn to $54K, cl's contn will consist of time/money at rate for professional renovators." 17 Thereafter Ms Falloon drafted a deed, based on her discussion with the plaintiff. She sent the draft deed, in two somewhat different versions, to Ms Daniele as the defendant's solicitor and to the plaintiff for their approval. Both versions of the deed differed from the terms of what was said at the meeting with Ms Daniele in a number of regards. One was that they made some provision for the lodgment of a caveat, contrary to the specific note by Ms Daniele there was to be no caveat. There was reference to the doing of work by the plaintiff and his reimbursement for the cost of materials and reimbursement for the value of his labour, whereas this was not mentioned in the Daniele diary note. Equally, the mechanism for the assessment of market value was in accordance with what was said by the plaintiff to Ms Falloon, which differed from the mechanism mentioned to Ms Daniele. There was disparate evidence given by the parties as to discussions between them relating to the draft deeds, to the possibility of the defendant himself preparing an agreement protecting the plaintiff's position and as to the defendant agreeing to make a will in the plaintiff's favour. But I do not think that the terms of any of those discussions are clearly established. What is quite clear is that no deed was executed, in a form prepared by Ms Falloon or at all. 18 Pest and building reports were obtained in respect of the Marrickville property and some attempt was made to bargain down the price by reference to the building report. The vendors, however, held firm. On 21 March 1996 Ms Daniele forwarded a contract signed by the defendant to the vendors' solicitors together with a bank cheque for $21,500 for the deposit and invited exchange. The bank cheque was provided by the defendant. However, before exchange took place the plaintiff and the defendant repented of proceeding with this transaction. Ms Daniele indicated to the vendors' solicitors that the defendant did not intend to proceed with the purchase and the $21,500 was in fact returned. 19 The parties were together in Bali in April 1996 but upon their return search for a property to be bought was recommenced. They both participated in the search. On 8 May 1996 a contract was exchanged in respect of the subject property. On this occasion the deposit of $22,600 was provided by the plaintiff. Completion of the purchase took place on 13 June 1996. Ms Daniele was not employed to do the conveyancing. As I have said, this was done by Van Dimitri. The parties' evidence differs as to how Mr Dimitri was selected. The plaintiff says that he chose Mr Dimitri from the phone book at the defendant's request. The defendant says that he selected Mr Dimitri because he frequently passed his office at Marrickville. The defendant claims that he repaid the plaintiff $9,900-odd on 12 July 1996 to reduce the loan to the $75,000 which he says the plaintiff was to lend; the excess of that he says was lent for a short time only. The plaintiff denies that he received that sum of money on that day or at all. 20 Early in 1998 the plaintiff caused a solicitor's letter to be sent to the defendant demanding his money back. The letter was dated 27 January 1998. The money demanded back included a large claim in respect of work allegedly done by him. Indeed, he claimed $52,500, being calculated as 18 months full time wages. This is despite the fact that, as I have noted, there is no doubt on the evidence before me that he worked full time as a courier for some months during the relevant 18 month period. The claim made by this letter is on the basis that the transaction was one of joint investment and not of loan, consistently with what the plaintiff himself has subsequently maintained. The defendant had by this time returned to Ms Daniele as his solicitor. On 13 May 1998 she replied that the transaction was of a loan of $75,000 only. No mention was made that a total of more than $84,000 was in fact advanced to the defendant or that the defendant claimed that in mid-July 1996 he had repaid some $9,900 to the plaintiff, reducing the total amount advanced to the $75,000 the subject of the agreement. 21 The plaintiff and the defendant were the only witnesses who gave oral evidence. Neither was a satisfactory witness. The plaintiff's demeanour was not wholly convincing. However, the greatest difficulty with his evidence was his complete denial of any transaction of loan or any discussion of a loan, in the face of Ms Daniele's record that both parties put the matter to her as involving a transaction of loan on 23 February 1996, Ms Falloon's record that the plaintiff himself put the matter to her as one of loan on 28 March 1996 and the recording of a transaction of loan in the draft deed circulated to the parties, without any objection on the plaintiff's part that his contribution of funds was not to be a loan. His total denial of any mention of a loan, when the contemporaneous documentary evidence leads to the conclusion that, whomever the mention of a loan emanated from, it was the subject of discussion at those meetings, makes it impossible on the probabilities to accept the plaintiff's evidence in this regard. I do not conclude that the plaintiff is telling a deliberate lie. It seems to me rather that he has himself thoroughly convinced of the accuracy of his account. But, in my view, the account is simply incorrect. The incorrectness of his recollection and belief as to this central matter must colour the accuracy of all of his evidence. I do not necessarily reject the whole of the plaintiff's evidence, but that evidence must in all instances be approached with the greatest of caution and bearing in mind the fixed belief that the plaintiff has and has for a long time had that a transaction of loan was never mentioned. 22 The defendant, however, was an even less satisfactory witness, taking into account his demeanour, inconsistencies in his answers and his frequent evasions. He repeatedly claimed not to recall matters in relation to times when he recalled other matters that it suited him to recall. I concluded that he was a witness of virtually no credit at all. In general terms I am not prepared to accept his evidence except insofar as it is corroborated or contains admissions contrary to his interest. 23 It does seem clear on the evidence that both parties made contributions to the renovation of the subject property. As I have said, the defendant concedes that the plaintiff made some contribution, while contesting its quantum and satisfactoriness. On the other hand, there is no doubt on the evidence that the defendant paid about $6,000 for re roofing the property immediately after the settlement of the purchase and may well have made other contributions to its renovation. 24 The primary contentions of the parties are as follows. The plaintiff himself still believes the transaction to have been one of investment and not to include any element of loan. On this basis the claim is for an express, resulting or constructive trust. His counsel contends that on the material there is established a contract in terms of par 3A of the statement of claim as set out in [7] above. If it does not arise under that contract, his entitlement to reimbursement for expenditure in money and labour on the property may be enforced by the imposition of a Morris v Morris trust. The defendant contends that the contract was solely for a loan of $75,000. There was, it is contended on his behalf, a further short term loan of some $9,900 which was repaid as alleged by him. Any work done on the property by or at the expense of the plaintiff was done on a purely voluntary basis. The $75,000 has been repaid pursuant to the order of Master McLaughlin. Any expenditure of money or effort on the property, insofar as it is shown by the evidence, was voluntary and made in circumstances not sufficient to establish either a constructive trust or a Morris v Morris charge in favour of the plaintiff. 25 So far as the guarantee claim is concerned, the plaintiff claims that there was a guarantee by the defendant of the moneys invested by the plaintiff with the defendant's brother or brothers in Bali; that the transaction of investment with them has not been carried out; that an occasion for repayment by them has therefore arisen; and that repayment, not having been made by them pursuant to their obligations, the defendant is liable to repay the sums pursuant to the guarantee. The defendant denies that there was any legally effective guarantee and that any occasion has arisen for payment by the defendant under any such guarantee. 26 Before proceeding to deal with the transaction relating to the subject property, I shall make a finding in relation to the defendant's assertion that he repaid the plaintiff some $9,900 in cash in July 1996. His evidence is that he had at that time only one bank account, with the St George Bank. Statements for the relevant period of that account are in evidence. Those statements, incidentally, show the withdrawal of $21,500 for the deposit paid on the Marrickville property and its re deposit into that account after its return by the proposed vendors of that property. They show during July 1996 two withdrawals of more than $1,000, being $10,000 on 11 July and $4,000 on 17 July 1996. There is also in evidence a quotation from about that time for some $6,000 for the re roofing of the subject property. The defendant swears that he paid the roofer $6,000 in July 1996 and that that money came from the St George account. That simple fact alone makes it unlikely that he repaid the plaintiff $9,900-odd in cash during that month, since there was not sufficient in the two large drawings from the account to pay the plaintiff almost $10,000 as well as $6,000 to the roofer. Furthermore, there was the following cross examination on this subject matter: "Q. Now, you agree, don't you, that there is no withdrawal of $6,000 or any amount including 6,000 apart from the entry on 11 July?

Q. Isn't it more likely, Mr Utara, that the roof was paid for out of the $10,000 that you withdraw on 11 July 1996? A. No, for this matter I remember it very well where Mr Blashki produced to me a piece of note saying he wanted his money back so that the balance will come up to $75,000.

Q. He gave you a note, did he? A. Yes, a piece of paper.

Q. Where is that piece of paper? A. That will be with my Maria Daniel (sic), the solicitor that I used.

HIS HONOUR: Q. Why would it be with Maria Daniel (sic)? A. Because I've been hiring Maria Daniel (sic) from the beginning of the matter.

Q. When did you give her the note? A. January '98 once I got the letter of this matter.

Q. So you kept the note from July of 1996 until you gave it to Maria Daniel (sic) in 1998? A. Yes." 27 In all the circumstances, I find quite unbelievable the defendant's evidence that he was handed a note by the plaintiff at the time setting out the amount to be repaid and that he handed that note to Maria Daniele in early 1998. There is no doubt that he had returned to Ms Daniele as his solicitor at that time. She wrote on his behalf in May 1998 the letter referred to in [20] above. She also filed on his behalf on 8 December 1999 the original defence referred to in [5]. There was no mention in either of those documents of the additional loan, or its repayment, although the defendant on his story had by then delivered the relevant piece of paper to Ms Daniele. There was no mention of it in his written evidence. There was an adjournment for some days between the cross examination in which the "note" was heard of for the first time and the day on which the defendant's cross examination was concluded and submissions made. There was no evidence that any attempt was made to recover the note from Ms Daniele. Ms Daniele's file from the 1996 conveyancing transaction was in evidence. Her file from 1998, when she again acted for the defendant, was not put into evidence nor was there any evidence as to any inquiry being made of Ms Daniele as to whether she had the note or corroborated the defendant's story. These matters, combined with the lack of reference to this repayment in Ms Daniele's letter of 13 May 1998, the defence which she filed for the defendant in December 1999 or the written evidence, as well as my general observations about the defendant's demeanour and credibility, lead me to reject his evidence that he made a cash payment to the plaintiff in July 1996 in the sum of $9,900-odd or any sum. 28 The contentions relating to the formation of a contract in terms of par 3A of the statement of claim are as follows. It is contended on behalf of the plaintiff that a contract in those terms is established by the Daniele diary note viewed in the light of the Falloon diary note and the forms of draft deed which Ms Falloon thereafter circulated. The plaintiff also seeks to rely on evidence of the defendant which is said to be to the effect that he assented to the draft deed, although he did not execute it, and evidence that Ms Daniele in 1998 said to Ms Falloon (as indicated by a 1998 diary note of the latter) that the defendant ought have signed the deed. I may say at once that I do not regard it to be sufficiently established that the defendant assented to the draft deed to be taken into account in coming to a conclusion as to whether or not there was a contract. Similarly, I do not think that, in view, apart from anything else, of the generality of its terms, Ms Daniele's remark recorded in Ms Falloon's 1998 diary note is useful for that purpose. Turning back to 1996, the defendant argues that the Falloon diary note should be taken merely as the plaintiff's version of what he desired in an agreement which had not yet been come to and that Ms Falloon's draft deeds should be regarded as her client's desires plus provisions that she thought it prudent to include in his interests in the deed that was to be entered into. It is said that her despatch of the drafts indicates that there was no agreement in force at that time. Furthermore, it is said that what is recorded in the Daniele diary note should be regarded merely as instructions given to Ms Daniele for the preparation of an agreement rather than as recording an oral agreement already in force between the parties, but of which subsequent documentation was at that time anticipated. The defendant contends that that material does not show by reference to the principles relating to offer and acceptance that an agreement had been come to. Furthermore, it is contended that I should infer that the talking at that meeting must have been done by the plaintiff and that, for all that can be known from the material in evidence, the defendant may have been looking out the window and paying no attention at all to what was occurring. 29 So far as the legal objection on the ground that the principles relating to offer and acceptance preclude the finding of a concluded contract is concerned, it is now clear that analysis in terms of offer and acceptance is not necessary in every case to the finding that a contract exists: Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 per Heydon JA at [74]. His Honour posed the relevant questions to be asked in the same case at [81] as follows: "In the light of the above cases, it is relevant to ask: in all the circumstances can an agreement be inferred? Has mutual assent been manifested? What would a reasonable person in the position of the Council and a reasonable person in the position of the defendant think as to whether there was a concluded bargain?"

Cf Wong v Mura [2001] NSWCA 366 at [25], [26]. A recent case in which contractual terms were inferred in circumstances not dissimilar from the present is the decision of Young CJ in Eq in Callahan v O'Neill [2002] NSWSC 877, where His Honour said: "45 I do not consider that the present case is analogous to the Masters v Cameron situation. That situation is one where the court needs to consider whether or not the parties have entered into contractual relations. In the present case, there is clearly a contract between the parties whereby they purchased the property and there was clearly a contract between them as to how the property was to be financed and who would live in what unit. The parties had set up a contractual regime. What is unclear is what other terms they agreed upon.

46 In such cases, there is no reason why the parties cannot make a vague or fuzzy contract on the basis that they will in mutual trust and goodwill fill in the uncertainties in their arrangement as the contract is played out. Indeed, even in cases where the courts might have held the arrangement void for uncertainty in its initial stages, the conduct of the parties may fill in the gaps and make the contract good and certain. However, where there is an established contractual regime, particularly if the contract has been partly executed, a court is less inclined to say that there is voidness for uncertainty.

47 Indeed, this principle applies even if there is in law no contract initially because of uncertainty. Examples are Macaulay v Greater Paramount Theatres Ltd (1921) 22 SR (NSW) 66, 73 (where until plans and specifications were supplied, the contract might have been unenforceable, but once they were supplied, the deficiency was overcome); Bradford v Zahra [1977] Qd R 24 (where a 'subject to finance' provision was saved by satisfactory finance actually being obtained).

48 It must be remembered that, in this twenty-first century, it is recognized that it is not unusual for parties to have entered into a contract even though there has not been formal offer and acceptance of a complete bargain. This is discussed in Brambles Holdings Ltd v Bathurst CC (2001) 53 NSWLR 153, 177 et seq. It is an adaptation of the American 'Implied-in-Fact' contract; see eg Fincke v United States 675 F (2d) 289, 295 (1982).

49 As Bingham J said in Pagnan SpA v Feed Products Ltd [1987] 2 Ll Rep 601, 611, 'Parties are to be masters of their contractual fate'. One looks at the situation of the parties at the time of the hearing and asks whether they have at that time placed themselves within a contractual regime. This approach is another example of the concept of contractual creep referred to in Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11,110, 11,117.

50 In my view, there was a contract between the parties which dealt not only with the acquisition of the property, but also with its development. The next consideration is whether that contract expressly or impliedly excluded a party's right to make an application under s 66G."

The similarities in that case to the present extend to the fact that, here as there, it is agreed that there was some contract, but dispute as to its terms or ambit. 30 The defendant also relies on the principles enunciated by Heydon JA in the Bathurst City Council case as demonstrating that, although the existence of a contract may be inferred from subsequent conduct, the terms of a contract cannot be inferred from subsequent conduct. This is not an accurate statement of what Heydon JA said, or of the law. The third principle stated by Heydon JA (at [26]) (and which is the law) is that, where there is ambiguity, the contract may not be construed by reference to subsequent conduct. As I have said, this is a case in which there is no argument that there was some contract between the parties (even the defendant contends that there was a contract for a loan of $75,000 for the purpose of his purchase of a house and providing for the circumstances in which that loan was to be repaid). That there was some contract is not disputed. The question is what were its terms. I do not think that it is correct that it is from subsequent conduct that the terms are to be determined in this case, but to state that subsequent conduct cannot as a matter of law be taken into account in their determination is not correct, although it is true that the meaning of ambiguous terms cannot be determined by reference to subsequent conduct. 31 In view of some lack of precision in the evidence available in the solicitors' diary notes and to the utter conflict between the parties as to what had been said or agreed between them, the terms of the concluded contract are not easy to determine. The defendant's contention is not without some force that Ms Daniele does not clearly indicate in her diary note that what she noted down was what had already been agreed between the parties, so as to be the terms of a contract already in force, but still to be documented, rather than discussion by them with her of the terms of a contract that they proposed to enter into. However, it is common ground that there was a contract between the parties. As will appear hereafter, I do not think that it can be concluded that any of the parties' dealings subsequent to the interview with Ms Daniele had contractual effect between them. But I infer that the subsequent endeavours to purchase a property, at first unsuccessful, but then successful, proceeded on the basis of some arrangement between them. Ms Daniele's mode of recording what passed is entirely consistent with the material being the terms of an agreement already reached between them. I regard as fanciful the contention that this was simply a recording of intercourse between Ms Daniele and the plaintiff with the defendant gazing out the window. English is not the defendant's first language. He was not sufficiently confident in it to give his evidence without an interpreter. But he answered a number of the questions asked of him without the interposition of the interpreter, as marked in the transcript. Furthermore, Ms Daniele had acted for him previously and acted for him subsequently without there being the faintest suggestion that she could speak Indonesian or the interposition of any interpreter between them. I draw inferences that both parties were speaking to Ms Daniele, who was making notes of what was being said and that, whoever made various of the statements, the other was paying attention and made no dissent. Those inferences are supported by the fact that Ms Daniele apparently proceeded with care and, when it seemed to her that there were aspects of the transaction as to which the plaintiff was not adequately protected, she was swift to send him elsewhere for independent advice. 32 Bearing all those things in mind I find that the Daniele diary note was a record of what was asserted by the plaintiff and the defendant at the time as being the terms of an agreement between them. I find that that agreement was already in force as an oral agreement at the time and that its operation did not depend upon the reduction to writing which Ms Daniele was being asked to undertake. I find that what agreement there actually was between the parties is wholly contained in the Daniele diary note. I have already foreshadowed in [17] the reasons why I do not think that the material in the Falloon diary note or in the draft deeds or in subsequent conversations between the parties can be regarded as contractual in nature. The defendant was not present at the Falloon interview. He did not assent to what was said there. Ms Falloon seems to have made suggestions better to protect the plaintiff for incorporation in the deed, but, as I have said, they were never agreed to. Although I do not regard the Falloon diary note as a contractual document, it does provide corroboration that the plaintiff was talking about a loan when he saw Ms Falloon, including indications as to the time at which the loan might be terminated, as to the plaintiff's entitlement to 50 per cent of the "profit" and as to the market value of the house being assessed at the time of the termination of the loan in order to determine that "profit". The evidence of all subsequent conversations between the plaintiff and the defendant is inchoate and confused and the credit of both participants is compromised. No part of that evidence permits a conclusion of the agreement of any further or different contractual term between the parties. 33 The defendant also contends that, whatever agreement there was concerning the Marrickville property, it came to an end with the abandonment of the purchase of that property and did not extend to the purchase of the subject property, as to which there was a fresh agreement for the loan of $75,000. I do not accept that submission. It seems clear enough to me, taking into account that the search for a property was almost immediately resumed and consummated; that a run down property was again sought; and the lack of the establishment of any fresh contractual arrangement, that the parties continued under the same contractual terms. More than that, the defendant acknowledged in evidence that there was no conversation in which the contractual terms were changed before the purchase of the subject property, which evidence of his I accept. 34 It follows from the above that I find that there was and is in force an oral contract between the parties in respect of moneys lent by the plaintiff to the defendant in connection with the acquisition of the subject property. As I have come to that conclusion on my own view of the facts, I do not need to deal with the argument that any other conclusion is precluded by the summary judgment given by Master McLaughlin. It does seem to me that that judgment and the fact that the plaintiff accepted its satisfaction by payment would preclude the plaintiff from arguing otherwise. More importantly in the present circumstances, it appears to lay to rest any question as to whether the loan was repayable at the commencement of these proceedings. It is pleaded and seems to have been contended before the Master that the loan had not fallen due. The defendant did not make this contention before me and, as he did not appeal from, but rather satisfied, the Master's judgment by payment, he could not have so contended. 35 I pass to the question of what were the terms of the contract. 36 As to the term alleged in par 3A(a) of the statement of claim, namely, "The Plaintiff would lend to the Defendant to assist him to purchase a house repayable on 3 months' notice, 31 December 2000 or the sale of house, whichever is earlier",

it flows from my acceptance of the Daniele diary note that I find there was such a term. 37 Equally, in relation to par 3A(c), I find that it was a term of the agreement that the plaintiff would be entitled to reside in the house rent free. It is not necessary to find the agreed duration of that right. The residence has ceased. In my view the evidence as to the circumstances in which the plaintiff left the subject property is inconclusive. It is not possible to conclude that he was ejected, rather that in the face of domestic tension he gave up his right of residence by agreement between the parties. Thus, no breach of obligation is established in this regard. In any event, there is no evidence that the defendant derived any financial benefit from his exclusive occupation of the property for which he could be liable to account to the plaintiff nor sufficient evidence of damage to the plaintiff to found an inquiry as to damages for any breach of contract. 38 By par 3A(d) of the statement of claim it is alleged that there was a term of the contract as follows: "On termination and in consideration of the loan, the Plaintiff would, instead of interest, be entitled to payment of 50 per centum of the net proceeds of sale of the house."

I do not find that there was a term of the contract in precisely those terms. The term as recorded in the Daniele diary note was in "lieu of interest at the time of repayment …. any profit to be divided equally" (my italics). Furthermore, it was anticipated that the loan might terminate without a sale of the property; sale was only one of the three events of termination. A term proceeding by reference to "the net proceeds of sale" would also risk double counting in favour of the plaintiff, at least if the net proceeds of sale were calculated without making allowance for the repayment of the plaintiff's loan. It would hardly be likely that the parties would agree on a double counting. I find that what was agreed was that the plaintiff would be entitled to payment of 50 per cent of the net profit on the property. That this was not necessarily to be a profit realised on sale was indicated by the attempt to provide a mechanism for the determination of the "profit" without a sale. The term that I find established is that the plaintiff would upon repayment of the loan be entitled to payment of 50 per cent of the net profit arising from the purchase of the property. 39 In my view, the mechanism of determination of the value as recorded in the Daniele diary note ("ppty to be appraised by 3 agents - & average of them to be the value"), as opposed to the version in the Falloon diary note, that the quantification should be by valuation by a valuer selected from a list of three, is not sufficiently certain to be regarded as matter of legally binding agreement. There is no provision as to how the real estate agents were to be nominated, agreed on or selected or what was to be done in the absence of agreement as to their identity. But, in my view, whilst this absence of certainty means that the mechanism is not part of the contract, that does not render the entire provision for the distribution of profit void, since there is certainty as to the intention that the profit be divided and the time at which that is to occur: cf Caltex Oil (Aust) Pty Limited v Alderton (1964) 81 WN (Pt 1) (NSW) 297. There is no difficulty in ascertaining the value at the relevant time, namely, "at the time of repayment", by valuation evidence, given in enforcement proceedings if necessary. The time of repayment I find was intended to be the time repayment of the loan was actually effected, not the time the loan was "terminated". This flows from the fact that the profit division stands in lieu of interest. 40 I do not find that there was a term of the loan as alleged in par 3A(b), to the effect that: "The Plaintiff would perform renovation work on the house, for which he would be remunerated and reimbursed on termination of the loan at the usual market rates for such work by professional tradesmen."

There is no reference to such a term in the Daniele diary note. And I have already said I find that note to record a binding agreement, but no evidence establishing subsequent contractual provision. Furthermore, a term in the form alleged would not make any provision for repayment of contributions to the renovations by the defendant, which were, indeed, made. I find that it was always contemplated that the property purchased would be renovated. That is confirmed by the selection, on each occasion, of a run down property requiring immediate repairs, although it was to be used as a dwelling by both parties and the defendant's wife. The subject property required immediate re roofing. I find that it was contemplated that both parties would contribute to the renovations. The defendant paid for re roofing immediately after completion of the purchase. The parties were agreed that the anticipated profit from the property would be divided no later than the end of 2000. From these matters, combined with the absence of any provision in the contractual terms recorded in the Daniele diary note, I infer that the parties intended that they should be recompensed for their contributions to renovations by their shares of the profit. 41 Thus, the effect of the agreement was that, for his assistance with the purchase and contributions to the property, the plaintiff would receive a share of the "profit" in lieu of both interest on the loan and any interest in the property. This means that no resulting trust could arise: see Meagher, Gummow & Lehane, Equity Doctrines and Remedies (3rd Ed, 1996) [1210]. Equally, there is no room for the imposition of either a constructive trust or a Morris v Morris charge in respect of the contributions to the renovations. In the case of the charge, this is because there is no room to find or infer "an assurance or promise that part of the land will be made over to the person" making the expenditure: see Chalmers v Pardoe [1963] 1 WLR 677 at 681 - 682; Morris v Morris [1982] 1 NSWLR 61 at 64; Cumming v Sands [2001] NSWSC 2; (2001) NSW ConvR 55-989 at [11] - [16]. It is hardly necessary to say that nothing in the evidence justifies the declaration of any express trust. 42 So far as the guarantee is concerned, the law relating to contracts void for uncertainty applies to guarantees: Mercantile Credits Ltd v Harry [1969] 2 NSWR 248; and see generally O'Donovan and Phillips, The Modern Contract of Guarantee (2nd Ed, 1996) 62. But a guarantee in informal language will be held binding if the intention of the parties is clear from the language used, with adversion where appropriate to the surrounding circumstances: Gordon v Norton (1887) 8 NSWLR 479; Pearson v Goldsborough, Mort & Company Limited [1931] SASR 320; A A Davison Pty Ltd v Seabrook (1931) 37 ALR 150. As Jordan CJ said in Jowitt v Callaghan (1938) 38 SR (NSW) 512 at 516 - 517: "A contract of guarantee or suretyship is a contract between two persons which is intended by them to secure the performance of the obligation of a third person to one of them. The existence, present or future, of the obligation of a third person, and an intention in the parties to the contract to secure the performance of that obligation, are essential features of a contract of guarantee."

On the evidence, I find that there was no legally binding guarantee given. The terms in which the plaintiff deposed by affidavit that the defendant gave was a guarantee were, "I will guarantee your investment." In cross examination he said that the defendant's words were that he would guarantee his brother's honesty. I find that it was more probable that it was the latter words that were used and that what the plaintiff was given was a "guarantee" in the form of an assurance that the brother was an honest and trustworthy person with whom to enter into a contract involving investment in Indonesia, not a legally binding promise to pay anything. But even if it had been said that a guarantee "of the investment" was given, in my view there would not have been a sufficient specification of the principal obligation guaranteed or the event upon which or time at which any sum was to become payable for there to be a binding contract of guarantee. In relation to the guarantee claim there will therefore be judgment for the defendant. 43 Thus, I find:

(1) That the relevant terms of the contract were as follows: (a) That the plaintiff was to advance moneys to be used by the defendant in the acquisition of a property. (b) That the loan was to terminate on the earliest of the sale of the property; the expiry of three months' notice by the plaintiff that the contract should terminate; or 31 December 2000. (c) That upon termination of the loan the amount lent should be repaid to the plaintiff and that he should at that time be entitled to be paid a 50 per cent share of the "profit" being the difference between the purchase price and the net sale price or, if a sale had not been effected, the market value of the property at the time of repayment of the loan.

(2) That there is no express, resulting or constructive trust nor any charge in the plaintiff's favour in respect of the property.

(3) That there should be judgment for the plaintiff for the outstanding balance of the loan and for the defendant on the plaintiff's claim on the guarantee. 44 Short minutes should be brought in to encompass my decision and any ancillary orders sought. Costs may be debated at that time, if necessary.

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