Cheryl Drinkwater as trustee for the Cheryl Drinkwater Trust v Nadinic

The Dealings between Ms Drinkwater and Andrew Nadinic

1. Brooks was acquired by Andrew Nadinic as a special purpose vehicle to develop the Property under the Project. Brooks at no relevant time engaged in any business activity other than the Project. As at the time of the Joint Venture Agreement, Andrew Nadinic was the sole shareholder and director of Brooks.
2. Clause 5 of the Joint Venture Agreement relevantly provided that Ms Drinkwater and Brooks were to undertake activities and contribute capital and other items to complete the Project as set out in Schedule A to the Joint Venture Agreement. By cl 6 of the Joint Venture Agreement, the proceeds from the joint venture were to be applied in the manner set out in Schedule B to the Joint Venture Agreement. Schedule B relevantly provided that the "net proceeds, (e.g. gross proceeds less sales commissions, taxes, conveyancing costs, etc.) from sales" of completed apartments under the Project would be applied in the following order of priority: 1. to discharge "the construction loan" provided by "the Project Financier"; 2. to pay the sum of $430,000 to Brooks; 3. to pay the sum of $1,570,000 to Ms Drinkwater; 4. to pay the total sum of $2 million in equal shares to Ms Drinkwater and Brooks; 5. to reimburse "the Project Costs" to Ms Drinkwater and Brooks, to the extent that they had not been previously reimbursed, proportionate to the contribution made by each of them to the total "Project Costs"; and 6. any balance to Brooks. The term "Project Costs" was defined in the Joint Venture Agreement as the direct cost of carrying out the activities that were identified in Schedule A as project costs. The term "Project Financier" was not defined. In the events that occurred, the Project Financier was Australia and New Zealand Banking Group Ltd (ANZ).
3. The reference in paragraph (b) of Schedule B to payment of the sum of $430,000 to Brooks from the net proceeds is explained by cl 18 of the Joint Venture Agreement. Clause 18 relevantly provided that, once pre-sales sufficient to obtain project finance for the construction phase of the Project had been made and prior to, or concurrent with construction finance being obtained, Brooks was to pay to Ms Drinkwater the sum of $430,000. Ms Drinkwater was to apply the payment of $430,000 to discharge a mortgage over the Property. Ms Drinkwater was to grant to Brooks a second ranking security over the Property, subject to the approval of the Project Financier.
4. On 4 April 2013, Ms Drinkwater and Brooks entered into an addendum to the Joint Venture Agreement (the Addendum). The Addendum relevantly provided that, in addition to the obligations of the parties to make further payments under the Joint Venture Agreement, Brooks was to pay to Ms Drinkwater a further sum of $150,000 by way of 10 monthly instalments of $15,000 commencing seven days after receipt of the second progress claim by the builder engaged by Brooks and within seven days of receipt of each subsequent progress claim.
5. In pursuance of the Joint Venture Agreement, Brooks and Maxstra entered into the Construction Contract on 17 May 2013. The copy of the Construction Contract that is in evidence provides for a contract sum of $6,398,542 (the Contract Sum) and for practical completion within 14 calendar months. Australian Standard AS 4000-1997 General Conditions of Contract was adopted as forming part of the Construction Contract.
6. On 22 July 2013, Ms Drinkwater, Mr Nadinic, Brooks and AFN entered into a Share Sale and Shareholders Agreement (the Share Sale Agreement). The Share Sale Agreement recited that Ms Drinkwater and Brooks were seeking construction finance "from [insert details] (the Financier)". It appears that the parties omitted to insert the name of "the Financier". In the events that occurred it appears that ANZ became the Financier. The Share Sale Agreement also recited that the Joint Venture Agreement required Ms Drinkwater and Brooks to seek construction finance once sufficient presales had been achieved and that, as a condition of providing finance, "the Financier" required Ms Drinkwater or her representative to have an interest in Brooks.
7. Under the Share Sale Agreement, Ms Drinkwater was to be appointed as a director of Brooks and AFN agreed to sell to Ms Drinkwater 50% of the issued shares in the capital of Brooks for $2.00. The Share Sale Agreement also provided that, upon the earlier of "repayment to the Financier in full" or termination of the Joint Venture Agreement, Ms Drinkwater was to be removed as director of Brooks and she was to transfer her interest in Brooks to AFN for $2.00. The Share Sale Agreement was completed in due course and Ms Drinkwater became a shareholder and director of Brooks.
8. On 3 April 2014, ANZ offered Brooks a "progress draw facility" with a limit of $6,350,000 (the Facility), with sub-limits as follows:

• construction funding: $5,420,000;
• project contingency: $639,561; and
• interest on senior debt: $290,439. The termination date of the Facility was 31 July 2015 and its purpose was stated to be to assist with the development of the Project, including interest capitalisation. Repayment was to be made from 100% of net settlement proceeds received from the sale of developed apartments under the Project. The unpaid balance was to be paid in full on 31 July 2015.

1. Under the Facility, Andrew Nadinic and Ms Drinkwater were to give a guarantee and indemnity to ANZ on account of Brooks and Ms Drinkwater was to give a first registered mortgage over the Property to ANZ. ANZ's obligation to provide any drawing under the Facility was conditional upon ANZ receiving, in form and substance satisfactory to ANZ, evidence that equity of at least $2,368,542 had been, or would be, applied to the Project. As is explained below, Andrew Nadinic relies on that provision as giving rise to an inference that he provided funding for the Project. I shall return to that question below.
2. The Facility also provided that Brooks was to provide ANZ with unaudited annual financial statements as soon as they were available, but not later than 270 days after the end of each financial year, as well as a current signed statement of the financial position of Mr Nadinic and Ms Drinkwater. Brooks was also required to provide ANZ with a copy of its most recent taxation return and a report each quarter in a form acceptable to ANZ outlining particulars of the sale and settlement of apartments under the Project. In addition, a "tripartite agreement" was to be entered into by ANZ, Maxstra and Brooks in relation to the Property.
3. The Facility was accepted by Brooks. Thereafter, ANZ, Brooks, Maxstra and Ms Drinkwater entered into an undated instrument entitled "Building Contract Side Deed" (the Side Deed), which appears to be the "tripartite agreement" contemplated by the Facility. The Side Deed provided for priorities in respect of the mortgages over the Property given by Ms Drinkwater. It is common ground that, when the Facility and Side Deed were entered into, sufficient presales of apartments in the Project had been made for the purposes of cl 18 of the Joint Venture Agreement.

Development of the Dispute

1. In December 2014, Ms Drinkwater observed that work on the Project appeared to have slowed down. She arranged to meet Mr Ben Isenhood, who was the construction manager for the Project. She was told by Mr Isenhood that Maxstra was not paying subcontractors. He said that he did not have a cheque book and had "to send it all to Melbourne and they don't pay". Ms Drinkwater then spoke to Mr Stephen McKenzie at the Newcastle branch of ANZ, saying that she had heard "that work has ground to a halt and no one is being paid so the subbies won't turn up". She told Mr McKenzie that she did not have a copy of the Construction Contract and Mr McKenzie said he would get her a copy.
2. Shortly after the conversation, Ms Drinkwater received, for the first time, a copy of the Construction Contract. The copy of the Construction Contract that was provided to Ms Drinkwater by Mr McKenzie of ANZ simply specifies: "2. The contract sum is $6,398,542." There is no mention of GST in that copy. The significance of that fact will become apparent below.
3. In early 2015, Mr Frank Nadinic, Andrew Nadinic's father, told Ms Drinkwater that talking to subcontractors and to ANZ was causing trouble and that it was none of her business or her concern. Subsequent to that conversation, Ms Drinkwater met with Andrew Nadinic who told her "It's all under control. It's just subcontractors stuffing us around". Andrew Nadinic told Ms Drinkwater that they needed to present a united front to ANZ and that, if ANZ took over the Project, none of them would get anything.
4. In early March, Ms Drinkwater, together with her husband, Mr Peter Drinkwater (Peter Drinkwater), Andrew Nadinic and representatives of ANZ, including Mr McKenzie, inspected the progress of the Project. Mr Martin Langen, whom ANZ had requested to attend, said that the Project was not far from completion, that the work that had been done was good work and that "we should be able to get it finished".
5. On 23 March 2015, Ms Drinkwater and Peter Drinkwater met Andrew Nadinic and a solicitor, Mr Peter Kilpatrick. Mr Nadinic said that they were "$880,000 in the red" and that, if Ms Drinkwater did not assist, ANZ would put in a receiver and she would get nothing. He said that Maxstra had outstanding invoices from subcontractors for about $880,000 that needed to be paid immediately and that Brooks owed Maxstra $1.1 million under the Construction Contract. He said that he had paid $550,000 and that Ms Drinkwater needed to do the same. He asserted that, if Maxstra suspended work, ANZ would step in with a receiver, may sell the Property as mortgagee, and Ms Drinkwater would get nothing.
6. Ms Drinkwater said that they, presumably she and Peter Drinkwater, would see what they could do. She said that, if they were to put any money in, it had to go to pay the subcontractors and suggested that a joint account with ANZ be opened, to be used to pay subcontractors. She said that she wanted a statutory declaration from subcontractors acknowledging payment and wanted all drawdowns from the Facility to be deposited into the new account so that she could keep track of payments.
7. On 24 March 2015, Ms Drinkwater and Peter Drinkwater sent an email to Andrew Nadinic saying that they believed that, under the Joint Venture Agreement and Addendum, Mr Nadinic was to be the developer and Ms Drinkwater, as a director of Brooks, was not to be responsible for any development costs. The email went on to say that it was nevertheless necessary to complete the Project efficiently and that their understanding of the meeting of the previous day was that:

• a joint account with ANZ would be opened;
• all drawdowns under the Facility would go into that account;
• Ms Drinkwater and Peter Drinkwater would lend funds to the Project, which would go into the same account;
• all subcontractors and suppliers were to be paid from the account; and
• a statutory declaration would be signed by each subcontractor or supplier on receipt of payment.

1. On 25 March 2015, Andrew Nadinic responded to the email of 24 March 2015. The email relevantly said as follows: "The Joint Venture Agreement between us explicitly states that the joint venturers are both liable for the costs of the joint venture. A substantial reason for the major shortfall in funding for this project was the fact that the land was only valued at $800,000 as against the $2 million anticipated by each of us at the outset. This has left a significant shortfall in the construction funding for the project. … In all of the circumstances the position set out in your email does not reflect the written agreement between us and we do not accept those claims. Significant and substantial contributions to the amount of $863,076.65 have been made by or on behalf of Brooks and the builder is currently due approximately $1,200,000 under the building contract. As we understand your position [Brooks] and [Maxstra] are required to fund every amount payable on the project. This is simply wrong. Technically Maxstra is entitled to suspend works under the building contract until it is paid. This would evidently not benefit any of us. However, Maxstra is faced with the burden of managing contractors where amounts payable under the building contract have not been paid to it. Notwithstanding these matters it is readily apparent that the best outcome for all parties is to have the project completed as soon as possible as the project is evidently profitable. So far as the proposal is concerned we agree with point 1 to 4. If payments are to be made direct to subcontractors it is unclear as to the benefits of a declaration confirming receipt of the funds from each subcontractor but are otherwise satisfied with that proposal. Maxstra to will also need to be paid for its ongoing and overdue costs of managing the project. …" The email set out a list of subcontractors to be paid directly by Ms Drinkwater, totalling $478,777.83.
2. An account was subsequently established in the name of Brooks with ANZ (the New Account). The authorised signatories were Ms Drinkwater, Frank Nadinic and Andrew Nadinic. Money drawn down from the Facility was thereafter deposited into the New Account. On 25 and 26 March 2015, Ms Drinkwater deposited the sum of $400,000 into the New Account and deposited into the New Account further sums totalling $150,000 over the next several months. She arranged to pay subcontractors directly from the New Account. Thus, she would receive from Maxstra's project manager a list of outstanding invoices and would then make payments electronically from the New Account and send receipts for payment to the project manager.
3. In May 2015, Ms Drinkwater was preparing to pay a sum of $32,000 from the New Account to LJ Concrete, a subcontractor on the Project. At that stage, the balance of the New Account was $66,807.92. Frank Nadinic telephoned her and told her not to pay LJ Concrete. After the conversation, and without her knowledge, the sum of $66,500 was transferred from the New Account into an account of Maxstra. Ms Drinkwater then spoke to Frank Nadinic, who asserted that the money belonged to Maxstra. Ms Drinkwater said that, in future, any costs would have to be paid by cheque signed by her and either Frank Nadinic or Andrew Nadinic.

Thus, Andrew Nadinic adopted the figure of $440,000 set out in Peter Drinkwater's handwritten attachment to the first email of 8 November 2015 and made no attempt to correct the false indication that $440,000 was available from "GST margin scheme".

1. In the trial before Pembroke J, Andrew Nadinic accepted that, if Ms Drinkwater had not been aware of that the amount of the input tax credits had been refunded to Brooks and distributed to Maxstra Constructions, the figures in the table in his email of 8 November 2015 "would have been significantly affected". That indicates that he was aware of the misleading nature of the table. I would draw the inference that he understood that there was a misapprehension on the part of Ms Drinkwater and Peter Drinkwater. He took no steps to disabuse them of their misapprehension.

The Settlement Deed

1. On 24 November 2015, Ms Drinkwater, Brooks, Mr Nadinic and Maxstra entered into the Settlement Deed. Under the Settlement Deed:

• Ms Drinkwater agreed to grant to Andrew Nadinic a mortgage over the Property in the form of the document attached to the Settlement Deed;
• Andrew Nadinic agreed to resign as a director of Brooks and transfer his one share in Brooks to Ms Drinkwater;
• Brooks, Ms Drinkwater and Andrew Nadinic agreed to release each other from any claims arising out of or in connection with the Joint Venture Agreement, the Addendum or the Project;
• Maxstra agreed to withdraw progress claims under the Construction Contract and to release Brooks from any further claims for payment under the Construction Contract and to deliver a notice of termination of the Construction Contract to Brooks; and
• Brooks released Maxstra from all claims it has or may have against Maxstra under the Construction Contract.

1. The Mortgage, which is in the form attached to the Settlement Deed, was duly executed and registered under the Real Property Act 1900 (NSW). The Mortgage secured payment of the sum of $2,050,050 by Ms Drinkwater to Andrew Nadinic and ranked after the mortgage over the Property granted by Ms Drinkwater to ANZ to secure advances made by ANZ under the Facility.
2. The effect of the Settlement Deed was that the joint venture constituted by the Joint Venture Agreement was brought to an end and Brooks was to complete the Project without any further involvement of Maxstra or Andrew Nadinic. The sum of $2,050,000 was, in effect, the price to be paid by Ms Drinkwater to acquire the interest of Mr Nadinic, as a 50% shareholder of Brooks, in the outcome of the Project under the joint venture.

Ms Drinkwater's Claims

1. Ms Drinkwater alleges that she was induced to enter into the Settlement Deed and to grant the Mortgage to Mr Nadinic because of conduct on the part of Mr Nadinic that was misleading or deceptive or likely to mislead or deceive, in contravention of s 18 of the Consumer Law. The essence of the complaint is that Andrew Nadinic failed to inform her that the ATO had paid to Brooks sums totalling $883,675.59 as refunds of GST input tax credits and that Brooks had paid those sums to Maxstra Constructions, in circumstances where he was aware that she was under a misapprehension as to those facts. She complains that she was induced to enter into the Settlement Deed on the basis of that misapprehension and asserts that, in circumstances where that misapprehension was known to Mr Nadinic, his failure to correct her misapprehension constituted conduct that was misleading or deceptive or likely to mislead or deceive in contravention of s 18. She alleges that, had she known of those facts, she would not have entered into the Settlement Deed, pursuant to which she granted the Mortgage, and that she suffered loss because of that conduct.
2. Section 18 relevantly provides that a person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive. Section 236 of the Consumer Law relevantly provides that if a person suffers loss or damage because of the conduct of another and the conduct contravened s 18, the first person may recover the amount of the loss or damage by action against that other person.
3. Section 237 of the Consumer Law also relevantly provides that a court may, on application of a person who has suffered or is likely to suffer loss or damage because of the conduct of another person that was engaged in, in contravention of s 18, make such order or orders as the court thinks appropriate against the person who engaged in the conduct. Under s 243, the orders that a court may make under s 237 include an order varying a contract made between a person who has suffered or is likely to suffer loss or damage because of contravening conduct and the person who engaged in such conduct.
4. It is not disputed by Mr Nadinic that Ms Drinkwater laboured under a misapprehension. Nor is it disputed that Mr Nadinic was aware of that misapprehension at the time when the parties entered into the Settlement Deed. However, he denies that, in all of the circumstances, the failure on his part to inform Ms Drinkwater that Brooks had been paid the sum of $883,675.59 in refunds for GST input tax credits by the ATO amounted to conduct that was misleading or deceptive within the meaning of s 18 of the Consumer Law. He asserts that s 18 does not require a party to commercial negotiations to volunteer information that will be of assistance to the decision making by the other party and does not impose on a party an obligation to volunteer information in order to avoid the consequences of the careless disregard by another party of equal bargaining power of that other party's own interests [7] .
5. Andrew Nadinic contends that, had Ms Drinkwater observed her "surrounds" she would have seen that about which she now complains. Thus, by August 2015, she had been told by Maxstra that Brooks was in default in the payment of GST. Having been made a director of Brooks in 2013, she made no enquiries as to the GST position of Brooks until April 2016. As early as May 2011, Ms Drinkwater understood or assumed that Brooks would accumulate GST input tax credits in respect of development costs and that those credits would be available to offset against GST payable by Brooks on the sale of apartments under the Project. Despite being a director of Brooks from July 2013, Ms Drinkwater did not obtain a copy of the Construction Contract until December 2014.
6. Andrew Nadinic contends that the summary set out in Appendix 1 should have shown under "Cash Position" an item as an asset "GST ITC", indicating that the input tax credit should be included as an asset in the sum of $774,301.81, giving a balance of $6,884,301.81 rather than $6,110,000. Thus, he says, the table was defective in so far as it deducted the sum of $774,301.81 as an expense for "GST payable from input credit" without a corresponding ITC as an asset. The amount of "Balance of Cash" is amended from $735,154.71 to $1,509,456.52. Straight under the heading "Summary" the sum of $485,698.19 for "ATO Cash Payable" is substituted for the sum of $1,260,000. That adjustment is made to reflect that there was a failure to allow for ITC. The figure $485,698.19 is the GST payable plus GST payable from input credit less GST ITC. The chain is said to make the figure for "ATO Cash Payable" consistent with "Total GST Payable" under "Tax Position". Thus, Andrew Nadinic contends, the amount for "Total GST Payable", of $485,698.19, equals the net GST amount, minus other ITCs for GST on project costs, plus the margin scheme. Andrew Nadinic contends that, on the basis of that analysis, the "Summary", properly understood, demonstrates that there was a liability for GST. Set out in Appendix 2 is a copy of the summary in Appendix 1, amended with notations, made on behalf of Andrew Nadinic, as shown in italics.
7. However, be that as it may, the summary attached to the letter of 16 September 2015 does not in fact contain those adjustments. The summary fails to disclose that the GST input tax credits had in fact been refunded by the ATO to Brooks and that Brooks had paid that amount to Maxstra Constructions to discharge an alleged obligation to pay GST in respect of the contract sum under the Construction Contract.
8. Andrew Nadinic points to the fact that Ms Drinkwater was a director of Brooks. As such, she was under an obligation to be involved in the management of Brooks and diligently to take steps to place herself in a position to guide and monitor the management of Brooks. In those circumstances, he says, it is not open to her to complain that she was not aware of the GST position of Brooks.
9. In addition, Andrew Nadinic points to the fact that, on 21 May 2015, ANZ sent a letter to Andrew Nadinic and Ms Drinkwater offering to extend the term of the Facility to 30 November 2015. ANZ said that it required a copy of the ATO running balance statement for Brooks, together with other information. Ms Drinkwater accepted that she herself made no effort to obtain a copy of the ATO running balance statement, although it is clear that she was informed of the existence of such records.
10. In June 2015, Ms Drinkwater was informed by Maxstra that it was going to claim unpaid GST. In July 2015, she was informed that Brooks had taken responsibility for GST and that the profit would increase dramatically if she, as a landowner, used the margin scheme. Documents provided to Ms Drinkwater's solicitor by Andrew Nadinic's solicitor in September 2015 referred to GST payable and to GST from input tax credits. In October 2015, Ms Drinkwater's solicitor referred to the need for her to remain a director of Brooks "given the conduct of the Nadinics previously in making payments to themselves through Brooks without any authority to do so."
11. Thus, Andrew Nadinic asserts, the information about which the allegation of misleading conduct by non-disclosure is made was always available to Ms Drinkwater. He asserts that it was never withheld or clandestinely hidden away but that Ms Drinkwater simply never asked a single question about it either personally or through her legal advisers. It follows, he says, that Ms Drinkwater gave no analysis, careful or otherwise, to the GST position of Brooks at any time before executing the Settlement Deed and the Mortgage. She never indicated that any GST information was critical for the Settlement Deed to proceed. He asserts that, in the light of all the circumstances surrounding the Settlement Deed, there was no basis for a reasonable expectation on the part of Ms Drinkwater that she would be informed of the GST position of Brooks. Accordingly, he says, her case must fail.
12. Andrew Nadinic also points out that an entitlement to GST input tax credits arises only where an equivalent GST obligation has already been incurred by a GST registered entity. Therefore, regardless of whether the obligation is incurred on a cash or accruals basis, GST is revenue neutral from an asset point of view. That is to say, the thrust of the GST legislation is that it is the ultimate taxpayer who bears the brunt of the GST whilst "intermediary" taxpayers, along the route by which the relevant goods or services are provided, are indemnified by virtue of being registered for GST purposes as well as receiving an entitlement to an input tax credit against the additional impost of the tax. Thus, he asserts, whether Ms Drinkwater assumed, believed, understood or expected that an additional asset of Brooks would be available is irrelevant since any such additional asset was always equally balanced by an obligation to remit any such input tax credit to Maxstra, as builder, which had indicated that it would take steps to wind up Brooks if the amount remained unpaid.
13. A short answer to that contention is that, under the Settlement Deed, Brooks was to be released from any further claim by Maxstra. Accordingly, following implementation of the Settlement Deed, GST would no longer be "revenue neutral" from an asset point of view, in that the input credit would still be available to Brooks to set off against the GST that would be payable on the sale of apartments in the Project.
14. A corollary of the proposition that people will make reasonable inquiries in their own interests is that, in some circumstances, a person will be entitled to assume that a relevant matter affecting that person adversely will be communicated [8] . That is to say, if the circumstances are such that a person is entitled reasonably to expect that the person will be told something is the case, failure to make other inquiries may well be entirely reasonable. In such circumstances, the failure to communicate the relevant matter may constitute conduct that is misleading or deceptive and properly described as having caused the relevant misapprehension.
15. Failure to make inquiries is but one of the circumstances to be taken into account in determining whether particular conduct is misleading or deceptive. The fact that, in particular circumstances, a person may have the opportunity to take steps that might have corrected a misapprehension or wrong assumption, but failed to take such steps, is relevant to an inquiry as to whether conduct that includes nondisclosure or silence should be characterised as misleading or deceptive. It may also be relevant to an inquiry as to whether loss or damage has been suffered because of the conduct. However, the outcome of such enquiry is dependent on the particular circumstances. It does not follow, if a person does not make an inquiry that that person could or might otherwise have made, that the conduct should automatically not be characterised as misleading or deceptive or that any damage or loss was not suffered because of such conduct. [9]
16. Certainly, it was open to Ms Drinkwater, as a director of Brooks, to obtain, from the accountants who were acting for Brooks, a copy of the ATO's running account in relation to GST. That would have revealed to her that the ATO had remitted GST input tax credit to Brooks. However, the question is why Ms Drinkwater would seek such information, in circumstances where she did not believe that Brooks owed anything to Maxstra in respect of GST and Maxstra had expressly asserted that GST had not been paid by Brooks and was a debt owing by Brooks to Maxstra. Andrew Nadinic knew that Ms Drinkwater was under a misapprehension. Further, the summary attached to the solicitor's letter of 16 September 2015 had expressly represented that GST of $1.2 million was payable on the sales of apartments in the Project and that GST input tax credits of $734,301.81 could be offset against that GST. Andrew Nadinic knew that representation was false.
17. It might be one thing for Ms Drinkwater to have made an assumption that there were GST input tax credits available to Brooks in the absence of any communication between her and Andrew Nadinic on that question. However, that is not this case. Rather, the conduct of Andrew Nadinic helped to give rise to the misapprehension on the part of Ms Drinkwater. More importantly, Andrew Nadinic was aware of the misapprehension under which Ms Drinkwater was labouring as a consequence of the conduct to which he was a party, starting with the summary attached to the letter of 16 September 2015. It is in those circumstances, where there was no reason for Ms Drinkwater to doubt the reliability of the information furnished to her, that the question of misleading or deceptive conduct and loss or damage must be assessed.
18. Thus, Andrew Nadinic knew that Ms Drinkwater was under the misapprehension that the GST input tax credits were still available to Brooks. There was no reason for her to think that the GST input tax credits may have already been refunded. She believed the statement that the GST had not been paid to Maxstra and that Brooks had available GST input tax credits of some $774,301.81 to offset against Brook's liability to remit $1.2 million of GST to the ATO on the sales of apartments.
19. Ms Drinkwater was led into error by statements made by Frank Nadinic to which Andrew Nadinic was a party. Andrew Nadinic and Ms Drinkwater were negotiating on the price to be paid by Ms Drinkwater to buy out Andrew Nadinic's interest in the Project. When the handwritten calculation of how much money there was after the costs of the Project had been paid, Peter Drinkwater ended the note with "all approx costs, what am I missing?" In the circumstances, Ms Drinkwater was reasonably entitled to expect that, if GST input tax credits had already been claimed and paid to Maxstra Constructions, she would have been told "you're missing a further $760,000 in GST payable on sales".
20. Ms Drinkwater was under a misapprehension, in that she did not know about the refunds of the GST input tax credits and understood that Maxstra was demanding payment of GST by Brooks, implying that there would be GST input credits of $774,301, as indicated in the summary enclosed with the letter of 16 September 2015. Andrew Nadinic knew that Ms Drinkwater was under a misapprehension and that he had played a part in giving rise to the misapprehension. In those circumstances, it was misleading or deceptive, or at least it was likely to mislead or deceive, to have participated in giving rise to the misapprehension and not to have disabused Ms Drinkwater of her misapprehension.

Quantum of Loss or damage

1. Ms Drinkwater asserts that, had she not been under the misapprehension described above, she would not have entered into the Settlement Deed and that the Project would have been completed under the Joint Venture Agreement. She claims damages equal to the difference between the surplus that she actually derived from the Project, on the one hand, and the surplus that would have been derived from the Project had the Settlement Deed not been entered into and the Project been completed under the Joint Venture Agreement.
2. Mr Nadinic, on the other hand, contends that, had Ms Drinkwater been disabused of her misapprehension, the parties would have entered into a deed of settlement on the same terms except as to the quantum of the payment to be made by Ms Drinkwater as secured by the Mortgage. Accordingly, he says, the damages should be limited to the amount of the GST input tax credits. He contends that an inference should be drawn that, had there been full disclosure of the refund of the input tax credits and payment of it to Maxstra Constructions, the parties would have renegotiated a different figure to be paid under the Settlement Deed.
3. Andrew Nadinic gave no evidence before me. In those circumstances, I do not consider that he is entitled to have an inference drawn in his favour that he would have been prepared to negotiate with Ms Drinkwater on the basis that the amount to be paid for his interest in Brooks would be reduced by the amount of the input tax credits. That is particularly so in circumstances where, in his email of 8 November 2015, he asserted that the proposal then being advanced was "the only workable solution".
4. Under the Settlement Deed, Ms Drinkwater derived a return from the Project of $799,148.80. Set out in Appendix 3 is a schedule prepared on her behalf of (Schedule A) showing a calculation of the sum of $2,478,938.66, being the return that would have been derived by Ms Drinkwater had the Joint Venture Agreement run its course. Her claim for damages is $1,679,790, being the difference between those two figures.
5. While there is no dispute about the calculations, a question remains, namely, the extent, if any, to which Andrew Nadinic contributed funds towards the expenditure incurred for the purpose of the Project. Schedule A assumes that there was no contribution of funds to the Project by Andrew Nadinic. Set out in Appendix 4 is Schedule A as amended on behalf of Andrew Nadinic to provide for an alleged contribution to the Project by him of the sum of $2,368,542, indicating how such contribution would impact on the quantum of loss. The sum of $2,368,542 is the sum referred to as a condition precedent to the making of drawdowns under the Facility. However, there is no evidence at all of any actual payment made by or on behalf of Andrew Nadinic for the purpose of the Project. Nevertheless, he contends that an inference should be drawn that he did in fact contribute that sum. Significantly, the evidence suggests quite the contrary.
6. On 15 October 2013, Frank Nadinic sent to Ms Drinkwater "a revised offer" from Auspeak Pty Ltd (Auspeak) of an indicative loan facility in the sum of $2,328,542. The email said that Frank Nadinic had asked Andrew Nadinic to sign the revised offer "just in case we need to show [ANZ]". However, the "revised offer" from Auspeak was never accepted.
7. On 5 December 2013, Ms Drinkwater's solicitor, Peter Kilpatrick, sent an email to Frank Nadinic and Andrew Nadinic saying that Ms Drinkwater acknowledged that: "[ANZ's] requirements are being satisfied by you and Andrew and accordingly she is prepared to forward the attached Addendum as good faith of your actions to finalise the development funding." The Addendum enclosed with Mr Kilpatrick's email varied the amounts payable to the parties under the Joint Venture Agreement, on the assumption of different contributions by them. However, that Addendum never became binding.
8. In the circumstances, the inference should be drawn that Andrew Nadinic did not in fact contribute the monies referred to in the condition precedent in the Facility. In the absence of any evidence of any actual contribution on his part, I draw the inference that no contribution was in fact made by him.

Conclusion

1. I am persuaded that it is more likely than not that Ms Drinkwater suffered loss and damage because of the conduct of Andrew Nadinic. That conduct was the failure, in all of the circumstances, to disclose that there was no longer any input tax credit available to Brooks at the time when the Settlement Deed was entered into. In the circumstances outlined above, that conduct was deceptive. It is clear that the Settlement Deed would not have been entered into in the terms in which it was signed had there been disclosure of the correct position. There is no basis for concluding that the parties would have entered into any alternative deed of settlement had there been disclosure of the correct position. Therefore, Ms Drinkwater suffered loss and damage because of the conduct of Andrew Nadinic in contravention of s 18 of the Consumer Law in the sum of $1,679,790.
2. It follows that Ms Drinkwater is entitled to judgment against Andrew Nadinic in the sum of $1,679,790, together with interest. Andrew Nadinic should be ordered to pay Ms Drinkwater's costs of the proceedings. However, before making any orders, I will give the parties the opportunity of bringing in short minutes to reflect the conclusions I have reached in order to ensure that there are no complications arising from the fact that costs were incurred in the earlier trial before Pembroke J. The order for costs should be limited to the costs incurred after the remission of the matter by the Court of Appeal. Appendix 1 (63.8 KB, docx) Appendix 2 (14.7 KB, xlsx) Appendix 3 (25.9 KB, docx) Appendix 4 (21.5 KB, docx)

Endnotes

1. [2016] NSWSC 1364.
2. [2016] NSWSC 1733.
3. [2016] NSWCA 377.
4. [2017] NSWSC 301.
5. [2017] NSWCA 114.
6. [2017] NSWCA 334.
7. See Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357 at [22].
8. See Winterton Constructions Pty Ltd v Hambrose Australia Ltd (1992) 111 ALR 649 at 666.
9. See Midcoast County Council v Reed Constructions Australia Pty Ltd [2011] NSWCA 268 at [50] and [51]. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 05 April 2019