Europlex Pty Ltd v Unique Living Australia Pty Ltd; Unique Living Australia Pty Ltd v Europlex Pty Ltd

Europlex Pty Ltd v Unique Living Australia Pty Ltd; Unique Living Australia Pty Ltd v Europlex Pty Ltd - [2018] NSWSC 1291 - NSWSC 2018 case summary — Zoe

The Terrigal property

On or about 23 June 2014 Unique Living purchased the Terrigal property for some $2.1 million.
Mr Minarovic and Mr Hayek met on 8 September 2014 and agreed to develop the property. The agreement was partly written and partly oral.
It is common ground that the written part of the agreement is recorded in an email that Mr Hayek sent Mr Minarovic that day which reads: "I just wanted to summarise the outcome of our meeting for future references … We agreed that the percentage for Terrigal is 30% for you and 70% for me (after deducting all costs) If the budget for Terrigal goes over $4.5 mil you will need to justify that we will need to audit all the paperwork for Europlex If the budget for Terrigal goes over $5mil the extra amount will come off your commission."
It is also common ground that the terms of the agreement included that: 1. 15 units and 5 townhouses would be erected on the Terrigal property; 2. Europlex would carry out the construction work; 3. Mr Minarovic would supervise and project manage the work; 4. Mr Minarovic would receive 30 per cent of any development profit after all development costs were paid; but 5. in the event that construction costs exceeded $5 million, such excess would be paid out of Mr Minarovic's profit entitlement.
Europlex commenced building work in January 2015.
On 15 July 2015 Unique Living and Europlex executed a "Formal Instrument of Agreement" which incorporated the "General conditions of contract for design and construct" in Australian Standard AS4902-2000. I will refer to this document as the "Building Contract".
Europlex contends that it was never the mutual subjective intention of the parties that their relationship be governed by the Building Contract. Europlex asserts that document is a sham (see Lewis v Condon (2013) 85 NSWLR 99; [2013] NSWCA 204 at [57] - [70] (Leeming JA with whom McColl JA and Sackville AJA agreed)).
For the reasons I set out below, I do not accept that contention.
The terms of the Building Contract included that: 1. Europlex would carry out the necessary building work for a fixed lump sum of $4,545,454 exclusive of GST; that is $5 million inclusive of GST; 2. Europlex would execute the work under the contract to practical completion by the date for Practical Completion (1 August 2016); and 3. if Europlex failed to execute the work to practical completion by that date, it would pay liquidated damages of $2,500 per day after 1 August 2016 until, relevantly, termination of the contract (which occurred on 2 August 2017).
By May 2017 the works had not reached practical completion.
Europlex ceased work on the site in about June 2017.
During the course of the works, Unique Living paid Europlex some $7.85 million for the work it did on the project.
On 16 June 2017 Unique Living, by its solicitor, served on Europlex a notice pursuant to cl 39 of the General Conditions of the Building Contract calling on Europlex to show cause as to why Unique Living should not terminate the Building Contract.
On 29 June 2017 Europlex, by its solicitor, replied to that letter. I will refer to that reply below.
On 2 August 2017 Unique Living terminated the Building Contract.
Mr Allen, who appeared for Europlex, accepted that if the Building Contract governed the parties' rights (which I find it did), Unique Living was entitled to liquidated damages.
In December 2017 Unique Living engaged another builder to do further work on the development.
The development remains incomplete.
The only relief pressed by Europlex was for declaratory and other relief concerning Europlex's entitlement to 30 per cent of the profit from the development.
As Mr Allen said in his final submissions: "In line with the submissions for [Unique Living], the question is really what, if any profit was made, or will be made. Europlex has not proven either matter… As [Unique Living] points out, unit 6 and the [5] townhouses are yet to be sold. What they will realise, and whether the realisation is sufficient to realise the profit, is not known".
In those circumstances Mr Allen submitted that the "way forward" was for an order to be made under Uniform Civil Procedure Rules 2005 (NSW) r 20.14 referring for inquiry "what profit, if any, has been derived from the development of the Terrigal Land".
However, during final submissions, Mr Allen accepted that it would be premature to make such an order given the project is not complete.
Mr Allen also accepted in his written submissions that "to some extent" it would be premature to make the declaratory relief sought by Europlex concerning any profit it might make from the development.
Mr Roberts SC, who appeared with Mr Byrne for Unique Living, developed detailed submissions pointing to the improbability of a profit being realised from the Terrigal development. It is not necessary for me to set out the detail of those submissions here. Suffice to say I am satisfied that it is far from certain that a profit will be achieved and, for that reason, see no utility in granting Europlex declaratory relief.
Accordingly Europlex's claim should be dismissed.

[5]

Was there consideration?

First, Mr Allen submitted that "there was no consideration for the written agreement. Europlex had already promised to build and Unique Living had promised to pay $5 million".
I do not accept that submission.
The email agreement of 8 September 2014 did not specify a price for which Europlex was obliged to complete the work. It merely provided that if "the budget for Terrigal goes over $5 million the extra amount will come off your commission".
By the Building Contract, Europlex promised to perform the work for "the fixed lump sum of $4,545,454 (ex GST)", that is $5 million inclusive of GST, and otherwise on the detailed terms of the Building Contract including as to the date by which practical completion be achieved and the payment of liquidated damages if it was not.
In turn, Unique Living made the various promises set out in the detailed terms of the Building Contract.
Further, the conduct of Europlex and Mr Minarovic shows they accepted that the Building Contract governed the relationship between Europlex and Unique Living.
On numerous occasions Mr Minarovic made statutory declarations concerning monies due and payable to Europlex "under the Building Contract".
Further, as I have mentioned, on 16 June 2017 Unique Living's solicitors served on Europlex a notice pursuant to cl 39 of the General Conditions of the Building Contract.
On 29 June 2017 Europlex's then solicitors, Fielding Robinson, replied to deny Unique Living's entitlement to serve a notice under cl 39.2, but nonetheless affirmed that the parties' obligations were governed by the Building Contract.
Thus, Fielding Robinson said: "It is our client's position that it is progressing the works under and in accordance with the [Building] Contract and has not suspended the works under the [Building] Contract as alleged or at all".
This shows that the parties agree their relationship was governed not merely by the oral arrangements made on 8 September 2014 as confirmed by Mr Hayek's email sent that day, but also by the Building Contract.
Mr Allen did not suggest there is any inconsistency between the two. I see none.

[6]

Is the Building Contract a sham?

For a document to be a "sham" there must be an intention to deceive (Lewis, [63]). Thus, even if a contract is entered into for an improper purpose, it will not be considered a "sham" unless "intentional deception as to the effect of a document" is also made out (Lewis, [68]-[70]). It is necessary to be precise as to the extent to which a transaction is said to be a sham; particularly because there is a strong assumption against making such a finding (Lewis [63], [65]).
Mr Allen submitted that the Building Contract was a sham. He put this on several bases.
Only two of them appear to refer to any deceitful intent.
They are that: 1. the parties executed another contract later in time which Mr Allen submitted was itself a sham and thus bespoke the parties' earlier preparedness to "create documents that purported to record contractual arrangements" when they in fact did not; and 2. Mr Hayek asked Mr Minarovic to "make up some bullshit" on a curriculum vitae to be provided to a financier of the project.
As to the first of these matters, Mr Allen referred to a document executed by Mr Hayek and Mr Minarovic on 5 September 2016. The document purported to be a contract between Unique Living and Europlex for the construction of the five townhouses at the Terrigal property for $1.25 million. It was sent to a home warranty manager at SHC Insurance Brokers the same day.
Mr Allen submitted that the 5 September 2016 contract was entered into for the purposes of obtaining home warranty insurance.
That may be so, but the contract did no more than specify the consideration for which Europlex agreed to perform part of the work at the Terrigal, namely construction of the five townhouses. There is no suggestion that the amount of that consideration was falsely calculated to deceive the home warranty insurer. It seems likely, as Mr Hayek said, that the document was intended by the parties to be supplementary to their main contract.
I do not see how the second matter relied on by Mr Allen, assuming it to be true, is capable of relevance to the status of the Building Contract.

[12]

Fourth representation

According Mr Hayek's affidavit, on 11 January 2017 he had this conversation with Mr Cerny: "On 11 January 2017 I received a telephone call from Roman. He said 'I am here with the purchaser of unit 9. He is going to give us $400,000 as a loan for six (6) weeks if you discount his unit by $25,000. You accept that, and we will finish the construction work.' I said, 'Why would I do that?' Roman said 'You pay us $400,000 now or we will not finish the job and you will go bankrupt as Latrobe's loan is about to expire and you will need to repay all of those millions.' I said, 'So if I pay you the $400,000 that's it, you will finish the job'. Roman said 'yes we finish the job'. "
Mr Roberts submitted that Mr Cerny thus represented that Europlex would be able to complete the works if Unique Living: 1. authorised a unit purchaser to make a payment of $400,000 on account of its purchase price immediately and directly to Europlex; and 2. agreed to discount the purchase price by $25,000.
But Mr Hayek's evidence makes clear that he did not rely on what Mr Cerny said. He sent an email to Mr Minarovic protesting the arrangement at [81]. Thereafter he received an assurance from Mr Minarovic that "I will repay all this money back to you even if my commission is completely depleted". Mr Hayek's affidavit evidence is that he relied on what Mr Minarovic said, not on what Mr Cerny said.
In any event, the alleged representation is said to be misleading because neither Mr Minarovic nor Mr Cerny in fact intended that Europlex would apply the $400,000 advance to complete the Terrigal development and that Europlex did not in fact apply the $400,000 to the development.
There is no direct evidence that this is so. Mr Minarovic denied it in cross-examination. He said "the money has been spent at the site" on "trades, on the materials, on the building" and "on the construction costs".
I see no reason to doubt Mr Minarovic's evidence.
In any event I think it clear that both Mr Cerny and Mr Minarovic were speaking on behalf of Europlex and were understood by Mr Hayek to be speaking on behalf of Europlex, and not in their personal capacity.

[17]

The East Gosford property

On or about 29 April 2015 Unique Living purchased a property at East Gosford for $1.57 million.
There was then a development approval attached to the property for 14 units and 4 townhouses.
Unique Living requested various town planning consultants and other parties (including Europlex) to prepare and submit documents to amend the development application to permit construction of 27 units and no townhouses.
Unique Living spent some $334,000 preparing that documentation. Those costs included $16,293 paid to Europlex.
Europlex lodged the amended development application. It invoiced Unique Living for that work and was paid.
In cross-examination, Mr Hayek accepted that Mr Minarovic was "involved" in the amended development application although he added: "To what extent: very little. Probably about, as I said earlier, less than 10 per cent I would say".
Unique Living did not develop the property in accordance with the amended development approval. On 16 February 2018 it sold the property to a third party for $2.87 million.
Mr Minarovic gave evidence in his affidavit that in or about March 2016 he and Mr Hayek had a discussion to this effect: "Mr Hayek: Should I buy the property in East Gosford? Mr Minarovic: Yes. I've looked at the property and documents. Go for it. Mr Hayek: I'll buy it. Get to work on the DA and modification. Same deal as before. 70/30 split and I'll hold your profit at the end. Do you agree? Mr Minarovic: I agree."
If this conversation occurred, it must have been prior to March 2016 as Unique Living became the owner of the property in February 2016.
In his affidavit, Mr Hayek denied the existence of a joint venture to develop the East Gosford property.
He gave more nuanced evidence in cross-examination as follows: "Q. And do you recall that at some point in time in 2015 you said to Mr Minarovic, 'Should I buy the property in East Gosford?' A. Yeah. Q. To which he - A. Yeah, 'What do you think, should I buy it?' Q. And what did he say? A. 'Yeah, I think it's a good project.' Q. And after he said it was a good project, what did you say to him, if anything? A. Get together some - I'm sure, I don't recall exactly what I said to him, but I'm sure that my next logical answer will be, 'Well, get me more detailed information so we can assess the feasibility of you managing the project, the construction project, the construction work.' Q. Did you say to him words to the effect, 'Get to the work on the DA modification?' A. Yeah, that's the DA modification we're talking about. 'Well, help me with that. Earn my trust after you've lost it' and by that time we started to see that there - well, there's probably, I mean, a few hundred thousand or maybe up to a million dollars that we're running behind with the Terrigal project. So, you know there was a bit of a, you know, I wasn't very happy about it and he was keen, he was keen even into 2017, he was like, 'I hope - I hope that you will still go with me for the next project' and I said, 'Well, I don't know, I can't answer that for now.' Q. It's the case, isn't it, that you told Mr Minarovic words to the effect, 'Go and work on the DA modification?' A. And I told the same - a lot of other things, work on this engineering report, work on that thing, so, yes. Q. And by telling those things to Mr Minarovic, you were involving him in the East Gosford development, weren't you? A. As a consultant or a helper, you know, an advisor. Q. And you're involving Mr Minarovic in the East Gosford development whilst the Terrigal development had yet to be completed? A. Yes. Q. And you said to Mr Minarovic, 'Same deal as before, 70/30 split?' A. I said to him, 'Get me Terrigal as per time, I've got pre-sale contracts and we have to be really right with the time and the budget and then you'll be my builder. You'll be my - the project manager, just like in Terrigal, 30 for you, 70 for me'."
I see no reason to doubt Mr Hayek's account of what happened. Mr Minarovic had acted as project manager on the Terrigal project. It seems probable that the men would have agreed that he play the same role in relation to the East Gosford property, were it to be developed.
But the development did not proceed.
Mr Hayek arranged for the development approval to be amended and then on-sold the property. It is true that Mr Minarovic played some role in the formulation and submission of the application to amend the development application. For that work Europlex submitted an invoice which Unique Living paid.
Mr Minarovic did not get to play any role as project manager. The profit that Unique Living made on the property was not from a development that Mr Minarovic project managed. No occasion arose for any commission to be paid.
Europlex's claim in respect of the East Gosford property must be dismissed.

At a glance

Court

Decision date

Before

Source

Judgment (19 paragraphs)

Legislation Cited (1)

Cases Cited (2)

Cited By (1)