Fairmede Pty Ltd v Von Pein & Ors [2004] QSC 220

Supreme Court of Queensland|2004-08-05|Before: Mullins J

[2] The fourth defendants are the parents of the second and the third defendants. When referring to the fourth defendants separately, I will refer to them as Mr Kronk and Mrs Kronk. The first defendant is the husband of the second defendant. Together the defendants are the owners of the parcels of land bounded by Minchinton Street, Ormuz Avenue and Osterley Avenue at Caloundra comprising approximately 12,669m2 which they sold to the plaintiff for a total purchase price of $7.8m.

[3] Each of the four contracts was in the standard form contract for houses and land (5th ed) approved by the Real Estate Institute of Queensland Ltd and the Queensland Law Society Inc, but incorporated extensive special conditions. Time was of the essence of each of the contracts.

[4] Special conditions 1 and 9 are in the following terms:

(a) The parties agree that the second sentence of clause 2.2(1) of the Standard Residential Terms of the Contract is varied to the extent that it is inconsistent with this clause.

(b) The parties agree that the deposit of Seven Hundred and Eighty Thousand Dollars ($780,000.00) shall be paid to the Deposit Holder in the following manner:

(1) Two Hundred Thousand Dollars ($200,000.00) upon execution of the Contract; and

(2) Two Hundred Thousand Dollars ($200,000.00) on 2 May 2003;

(3) Three Hundred and Eighty Thousand Dollars ($380,000.00) on or before 2 June 2003 which part deposit may be secured by an irrevocable bankers guarantee for this sum in lieu of payment of that part deposit to the Deposit Holder.

has not been paid at settlement with the balance purchase monies.

(d) The Buyer agrees that the deposit amounts released to the Seller are not refundable under any circumstance.

(a) The Buyer shall on, or before, 5.00pm on 2 June 2003, produce to the Seller a letter from their financier confirming that sufficient funding is available to enable the Buyer to complete the terms of this Contract.

(b) In the event that the Buyer does not comply with part (a) of this clause the Seller shall immediately be entitled to terminate the Contract by notification in writing to the Buyer.

The Buyer will immediately forfeit the deposit in Special Condition1(b)(3).

Neither party shall have any further claim or action against the other party except for a claim based on default under the Contract prior to such termination."

[5] Even though each contract provided for a deposit to be paid of $780,000, it was common ground that the condition in each contract was to be treated as operating collectively in relation to the four contracts, ie. the total deposit on the four contracts was $780,000.

[6] In purported compliance with special condition 9(a), solicitors Herbert Greer & Rundle sent the defendant's solicitors a facsimile on 2 June 2003 enclosing heads of agreement entered into by John Holland Services Pty Ltd ("John Holland") in relation to the subject land. It is now common ground that the plaintiff did not comply with special condition 9(a) of each contract on or before 5pm on 2 June 2003. The defendants claim to have terminated the contracts on 3 June 2003.

[7] Evidence was given by the sole shareholder and director of the plaintiff, Mr Peter Gallus who is a property developer with over 30 years' experience, and a consultant to the plaintiff in connection with the purchase, Mr William Hamilton, who also describes himself as a property developer. In addition the plaintiff relied on the evidence of real estate agent Mr Jed McCormack ("McCormack"). The plaintiff's solicitor, Mr Ralph Praeger, who acted on behalf of the plaintiff in respect of the purchase also gave evidence for the plaintiff.

[8] Each of the defendants gave evidence, as did the solicitor who prepared the contracts and acted on their behalf in respect of the sale, Mr David O'Connell.

[9] In my analysis and summary of the relevant facts and evidence, I specify some instances where there is a conflict in the evidence. Where it is necessary in the reasons, I have indicated which of the evidence I accept or which I reject. In deciding what evidence to accept, I have taken into account my views on the credibility of the various witnesses.

[10] I found each of Mr O'Connell and Mr Praeger to be honest and reliable in the evidence which he gave. Each had the advantage of being able to refresh his recollection from his file for the transaction. Mr O'Connell's recollection was challenged on the basis that, as a busy solicitor with over 200 files at any one time, he would not be able to remember the content of a specific conversation. As Mr O'Connell himself said, this was a significant file for him. When this is added to the circumstances that he made extensive diary notes and was clearly conscious of the potential significance of some of the critical telephone calls at the time they occurred, the attack on his recollection fails.

[11] In the period leading up to the signing of the contracts, it was Mr Hamilton, rather than Mr Gallus, who was primarily liaising with McCormack. Mr Hamilton was flippant in giving his evidence and had difficulty relating what he was actually told by McCormack. He had a tendency to give evidence of his impression or understanding. There are a number of aspects of his evidence which are in direct conflict with evidence which I accept as reliable. I have approached Mr Hamilton's evidence with caution.

[12] I did not have the same degree of reservation about Mr Gallus' evidence. Although an attack was made on behalf of the defendants on the general credit of Mr Gallus, I did not find such discrepancies between Mr Gallus' evidence and that of other witnesses whose evidence I accept that gave me doubts about the general credibility of Mr Gallus. I have identified the specific instances where I have rejected Mr Gallus' evidence.

[13] McCormack's commission (before GST) in respect of the transaction was specified at $263,637. At all times during the negotiations, the execution of the contract and the performance of the conditions of the contract, McCormack had a substantial financial interest to protect. McCormack also has a substantial interest in the outcome of this proceeding. He had a tendency to want to give evidence of his rationalisation of the events that had occurred, rather than a true recollection of what had actually occurred. His evidence was coloured by the view which he obviously held that the defendants were to blame for the contracts not proceeding to settlement. McCormack's credibility was detrimentally affected by his creation of a diary note purporting to be as at 18 March 2003 (Ex 16), when it clearly could not have been created at that time, because it made reference to conversations which did not occur until May 2003. It is conceded on behalf of the plaintiff that the circumstances surrounding Ex 16 affect the credit of McCormack prejudicially. I have therefore treated McCormack's evidence with great caution.

[14] The first and second defendants live at Pittsworth. The first defendant is a farmer. The second defendant is also a farmer and a professional tennis coach. About 33 years ago the second defendant operated as a real estate agent in the Caloundra area, selling houses. Until about 5 years prior to the trial, when the fourth defendants were still collecting rentals, the second defendant would write out receipts for them, if she happened to be visiting Caloundra.

[15] It was submitted on behalf of the plaintiff that the second defendant's evidence was unduly influenced by an appreciation of what suited the defendants' case, she became evasive when pressed on matters which she thought did not suit the defendants' case and her evidence appeared to be influenced by a personal dislike of McCormack and the plaintiff.

[16] It is clear from the second defendant's letters and documents and the evidence that she gave that she paid close attention to detail during the course of the negotiations. She had a very literal approach to answering questions both in evidence-in-chief and cross-examination which reflected her extreme familiarity with all the material.

[17] There is no doubt that the second defendant had a firm view that McCormack was not the defendants' agent for the purpose of the transactions. This view influenced her evidence, in that the second defendant did not let an opportunity pass without expressing the defendants' view. Although on occasions the second defendant was reluctant to concede an answer which she considered was not helpful to the defendants' case and account has to be taken of her partisanship, I do not accept that the substance of the second defendants' evidence warrants the making of a general finding against her credibility.

[18] The fourth defendants had lived on the Kronks Motel site for over 48 years. Mr Kronk became a licensed real estate agent over 35 years ago and remained so until his licence lapsed after he had a serious accident approximately 2 years prior to the trial. Apart from managing his own properties, Mr Kronk used his licence for acting as a letting agent for properties owned by others. At the time of the trial Mr Kronk was 81 years old. The transaction was of great importance to him. I accept that Mr Kronk does recall the meetings and dealings that he had with Mr McCormack prior to the contracts being signed by the plaintiff, but I have allowed for Mr Kronk's enthusiasm to describe Mr McCormack as the plaintiff's agent, when considering his evidence.

[19] Mrs Kronk turned 80 years in March 2004. She indicated that there had been some discussion prior to the trial amongst the defendants of some of the issues the subject of the trial. That is not surprising, having regard to the closeness of their relationships. At all relevant times the third defendant lived in Florida where he owns a tennis club. He therefore did not participate in the meetings with McCormack at which the other defendants were present. His evidence did not have the same potential of being tainted by conferring with the other defendants before the trial. I was impressed by the third defendant as someone who knew what his requirements were during the course of the negotiations and was able to provide a straightforward account of what he could recall about his involvement. I have borne in mind that each of the first, second and fourth defendants' evidence may have been affected by discussing his or her evidence with the other relevant defendants, when evaluating the evidence of that defendant.

[20] The plaintiff alleges that McCormack as agent for the defendants made the following representations ("the specific representations") to the plaintiff between 6 and 18 March 2003:

"(a) strict compliance with special condition 9 of the contract would not be required by the defendants;

(b) all the defendants were requiring by special condition 9 was a letter which would give the defendants some comfort that the plaintiff was itself proceeding with the development, rather than buying the land in order to on-sell it;

(c) the letter from the financier was sought as a letter of comfort only, and to confirm to the defendants that they should begin making arrangements to provide vacant possession at settlement;

(d) the defendants would accept, as satisfying the condition, a letter that the financier had the capacity to make funds available which would enable the plaintiff to complete the contracts."

[21] There is an alternative pleading in the statement of claim on the basis that McCormack was acting as agent for the plaintiff and not as agent for the defendants. In connection with that alternative claim, the plaintiff alleges that the specific representations were made by the defendants to McCormack, including by Mr O'Connell on behalf of the defendants in telephone conversations on 5 and 6 March 2003.

[22] The plaintiff also alleges that McCormack made the following representations ("the general representations") to Mr Hamilton on behalf of the plaintiff in a number of conversations between December 2002 and March 2003:

"(a) the defendants understood that the plaintiff would be obtaining funding to complete, and that delays can occur in obtaining funding, including delays in obtaining development approval which is required as a precondition to obtaining funding;

(b) if the plaintiff entered into contracts with the defendants, the plaintiff would receive every possible assistance from the defendants in purchasing the property should there be any delay to the plaintiff in obtaining funding or should the plaintiff experience difficulty in dealing with the Caloundra City Council;

(c) in particular, in view of the early release of the deposit provided for in the terms of contract proposed by the defendants, the defendants would grant any reasonable extension of time sought by the plaintiff."

[23] The plaintiff also has an alternative claim based on the allegation that the general representations were made by the defendants to McCormack as agent for the plaintiff.

(a) did the defendants make representations in terms of the specific representations to McCormack?

(b) did McCormack make representations in terms of the specific representations?

(d) did the defendants make representations in terms of the general representations to McCormack?

(e) did McCormack make representations in terms of the general representations?

(f) was McCormack acting on behalf of the defendants in making the general representations?

(h) are the defendants estopped from contending that the facsimile of 2 June 2003 did not satisfy special condition 9?

(i) are the defendants estopped from terminating the contracts for non-compliance with special condition 9(a)?

(j) is the plaintiff entitled to relief from forfeiture?

(k) is the plaintiff entitled to relief under the Trade Practices Act 1974 (Cth) ("TPA")?

[25] In late 2002 the plaintiff became interested in purchasing the land known as the Kronks Motel land. At that stage Mr Gallus and Mr Hamilton were involved in another development at Caloundra known as "Windsong". By 18 December 2002 Mr Hamilton had obtained a fee estimate from the PMM Group for town planning services in respect of the Kronks Motel site (Ex 6). McCormack's agency prepared a contract in the REIQ form (5th ed) which provided for the plaintiff to purchase from the fourth defendants that part of the land owned by the fourth defendants and identified in the contract, comprising 11,300 m2 for $5.3m, subject to finance being obtained within 120 days. That form of contract was sent by L J Hooker Caloundra to Mr Gallus by facsimile on 24 December 2002, executed by him on behalf of the plaintiff and returned to the agent by facsimile (Ex 8). On the same date the sum of $2,000 was paid into the agent's trust account by Mr Hamilton on behalf of the plaintiff.

[26] The first meeting involving McCormack and the defendants (other than the third defendant) took place in late December 2002. McCormack told the defendants that he had a developer who was interested in buying their property. There was a discussion about price in which the figures were discussed on the basis of being clear of commission. McCormack told the defendants the developer was doing another project in Caloundra and proposed making a development application to the Council in respect of the Kronks Motel site. McCormack offered an option of $50,000 to be paid by 14 February 2003 and that by 1 May 2003 the contract would become unconditional with settlement on 28 June 2003. Mr Kronk told McCormack that the purchaser should go to the Council to find out what the Council's requirements were about zoning and the like and that when the purchaser was satisfied on those matters, they should come back to the defendants who would then consider signing a contract. Mr Kronk said the defendants would not deal with anyone else until the prospective purchaser had completed its inquiries. There was a discussion about the tenants on the site and that there would need to be a way to work out a date for settlement, that would take into account the need to arrange for the tenants to leave. McCormack asked whether the defendants would assist the buyer where necessary and the defendants responded, in general terms, that they would assist whereever they could. McCormack stated that Mr Kronk advised that the family were "very Christian-oriented" and that they had high ethics in how they dealt with people. After observing Mr Kronk give his evidence, I accept that it is likely that a statement to that effect was made. It is likely that at this meeting the point was made by the defendants that they wanted to deal with a person who was going to develop the site, rather than a trader. McCormack did not present the defendants at this meeting with the contract which had been signed by Mr Gallus (Ex 8). McCormack conveyed to Mr Hamilton what had been said at this meeting.

[27] A couple of further meetings took place over the next week between McCormack, Mr Kronk and the second defendant in which there were discussions about what parts of the land would be included in the sale.

[28] By letter dated 7 January 2003 (Ex 13) sent by facsimile to McCormack, the second defendant gave instructions to prepare contracts for the sale of that part of the subject land that was described which required excision of part of lot 9 for retention by the defendants. The price shown in this letter for the land to be sold by the fourth defendants was specified at a figure "plus commission". It was stated that the conditions were to include the following:

"As offered deposit and balance by 14th Feb, (we will extend this another week if necessary at the time), 1st May unconditional, settlement 28th June. Vacant possession by 29th August. The vendors agree to manage the site at no charge for the purchasers. The purchasers to pay all expenses and to receive all rental income."

[29] At this time many discussions took place involving McCormack and the defendants (other than the third defendant) about the possible terms of contracts. McCormack stated in his evidence that the topic of providing assistance to the purchaser was raised many times, especially by Mr Kronk, and that Mr Kronk said "I will offer every assistance ... I understand. I'm a real estate agent. I understand that there can be delays in time, that all sorts of things can come up. Please convey to the purchasers that we will do whatever it is that's necessary to make sure that that - and the family will - to make sure that the project get (sic) its best opportunity." Another point in evidence-in-chief, McCormack expressed what Mr Kronk had said on the same topic in the following terms:

"Eric Kronk said early on and repeated it to me a number of times that having had been a real estate agent, he understood that there were all sorts of things that could get in the way of a contract similar to the one that we were drawing up and that, either through council or through whatever, there may be delays and that he wanted me to pass on to the purchasers that they would be willing to accommodate just about anything to make sure it was happening as long as it wasn't going to cost them money or cause them a problem much later on."

[30] There is no doubt that Mr Kronk was keenly interested in what the prospective purchaser proposed for the subject land with which he had been closely associated for so long. I accept that the defendants (other than the third defendant) indicated at the outset that they would assist the plaintiff, as the plaintiff made inquiries about the land and had initial discussions with the Council. McCormack has, however, elevated this early offer of assistance and allowance of time for the plaintiff to investigate the land with the Council to a statement that is then relied on by McCormack to override specific contract provisions. I do not accept that the statements made by Mr Kronk on these matters were made in the precise and unqualified terms attributed by McCormack to Mr Kronk and, in particular, that Mr Kronk made any statement at the early stage of negotiations about assisting the plaintiff where there were delays in time relating to any obligations under any contract that was entered into. This is particularly so, when in the pre-contract stage, no question arose about performance of the obligations under the contract.

[31] What Mr Hamilton said he was told by McCormack on the offer of assistance from the defendants at the early stage of the negotiations was:

"Yes, Mr McCormack, I guess - what he said was, 'Look, Eric and the family realise what you are doing is a very complex deal, and they are good people. You are putting money into this. They are going to support you in your way to travel through this process to get the deal finished, completed.', and that involved working with council, even coming to meetings. He was told they would come to meetings and support us in council if we sought certain extensions if needed because council were taking too long to get through it. Those extensions would come because we were trying to do the right thing."

I do not accept this was an accurate recollection on Mr Hamilton's part of what he was told in the early stages of the negotiations. I accept that McCormack told Mr Hamilton about the offer from the defendants to give assistance, as the plaintiff made inquiries about the with the Council, that Mr Hamilton has embellished what he was told.

[32] McCormack recommended a solicitor, Mr Paul Frisby, to the defendants and discussions about the terms of contracts took place involving McCormack, Mr Frisby and the second defendant.

[33] The second defendant recalls a meeting with McCormack and the defendants (other than the third defendants) at the hall on the Kronks Motel land about 20 January 2003 at which McCormack advised that the purchaser wanted to make a finance application that covered both the purchase price and the commission. The second defendant recalls that Mr Kronk stated that the defendants wanted to talk about a price clear of commission and did not want to pay the commission and that McCormack explained that the defendants would get whatever price they wanted, but the commission would be added on top. McCormack's recollection differs. McCormack stated that he said "We're happy to deal with whoever, whichever party, and organise this in any way that you would like. We can either claim the commission from the buyers or we can claim the commission from you as the vendors. Whoever we claim the commission for (sic) we will be working on behalf of to do the best deal we possibly can." and that Mr Kronk then said "We want you to be acting for us". This is an example of McCormack embellishing the discussion with the benefit of hindsight to reflect the position that he adopted in his evidence that he was the agent of the defendants. As the concern of the defendants was about how the price was fixed, it is more likely that the discussion proceeded as recalled by the second defendant. I reject McCormack's evidence that Mr Kronk made the statement that the defendants wanted McCormack to be the defendants' agent.

[34] It was also at this meeting that the second defendant enquired as to what amount of commission McCormack would be receiving. It is common ground that McCormack advised that his commission was 3.85 percent. Although McCormack cannot recall what the second defendant said in response, I accept that it was likely that the second defendant did say "if you were our agent there's no way I would be paying you that", as that clearly reflected the views held by the defendants at that time of the quantum of commission sought by McCormack. It was at this time that McCormack raised with the defendants the need to sign a form, so that he could claim his commission. The defendants agreed to do so. It is common ground that a few days later McCormack produced a PAMD form 22a (Appointment of Real Estate Agent) for the fourth defendants to sign which they did and that form has been lost.

[35] It was common ground that another topic discussed by McCormack with the defendants at the early stages of the negotiations was the possible release of the instalments of the deposit paid under the contract to the defendants, before completion. This was suggested by McCormack. It was not a practice of which the defendants were aware. There was reluctance on the second defendant's part to follow that course. McCormack stated that in response to the second defendant's concerns expressed to him about whether the release of the deposit could result in legal action:

"... I said that there is no guarantee that anybody can give and as long as everything stayed reasonable and there was extensions of time that may have been granted if it was requested, if there was - because Eric Kronk had always - had stated very clearly in front of the family and in front of Ruth and everything else that they would be very amenable to the purchasers and help them in every way to make sure that the contract came to an end and that the best development would happen on the site, that as long as they continued to keep with that ..."

The second defendant disagreed that McCormack said anything to the effect that there would be no problems with the release of the deposit, as long as the defendants behaved reasonably. The second defendant stated that McCormack was insistent that the deposits be released to the defendants. I reject McCormack's evidence that he made a statement to the second defendant to the effect that there would be no problems with the release of the deposits, if everything stayed reasonable and there were extensions of time granted if requested. I had formed the view when McCormack gave this evidence, that this statement was self-serving. On further consideration of the evidence, that view was confirmed.

[36] When McCormack was asked in evidence-in-chief whether the second defendant responded to that statement which McCormack said he had made about the release of the deposits, he said "There was never any indication that they wouldn't be absolutely supportive of the purchasers". That typifies McCormack's rationalisation of the defendants' conduct in this matter during the negotiations for the contract. He assumed he would be able to persuade the defendants to keep the deal on foot or he anticipated how the defendants would or should react.

[37] McCormack gave instructions for the preparation of contracts to Mr Frisby in a facsimile sent on 23 January 2003 (Ex 54, pp 1-2). The instructions provided for the release of the first three instalments of the deposit to the defendants. Another instruction was that:

"The vendors agree to do everything possible to assist in helping the purchasers gain approval at council with the exception of paying money".

[38] Mr Frisby drafted special conditions to reflect the instructions he had been given by McCormack. They were sent by facsimile to McCormack on 28 January 2003 (Ex 54, pp 3-6). It appears that McCormack made some changes to the draft special conditions which he sent to Mr Hamilton, before forwarding them to Mr Frisby (Ex 54, pp 7-8). It appears that McCormack also sent the draft to the second defendant who was annoyed with McCormack about some aspects of them which is reflected by her email of 3 February 2003 (Ex 54, p9).

[39] The second defendant sent an email to Mr Frisby on 5 February 2003 requesting that he change the date in special condition 1(b) of the draft special conditions for the payment of the second instalment of deposit from 21 February 2003 to 7 March 2003, as the purchaser required more preparation time (Ex 54, p11).

[40] The PMM Group received a facsimile from the Council dated 5 February 2003 (Ex 20) responding to a request for information regarding the redevelopment of the Kronks Motel site. That letter stated:

"I wish to confirm that the granting of bonus's (sic) under the DCP is solely at the discretion of Council. In order to obtain a maximum level of bonus on the Kronks Motel key site (in terms of building height and plot ratio), Council would require amalgamation of a significant number of lots. As previously indicated to you, this should entail the amalgamation of the entire Kronks Motel land holding, as well as additional adjoining lots fronting Minchinton Street and Ormuz Avenue".

Mr Hamilton said that he instructed McCormack to ascertain from the defendants whether more of their land could be included in the sale. McCormack could not recall this instruction.

[41] Further draft conditions were prepared by Mr Frisby and sent by facsimile to the second defendant on 6 February 2003 (Ex 54, pp 13-16).

[42] After obtaining advice from some friends, the defendants were not happy with the draft conditions prepared by Mr Frisby and terminated his services on 7 February 2003. On 7 February 2003 McCormack sent the resume of Mr Gallus by email to the second defendant (Ex 35) which had previously been requested by the second defendant.

[43] The second defendant sent a facsimile to McCormack on 10 February 2003 (Ex 54, p 18) in which she advised that the defendants were prepared to make the offer set out in that letter, subject to their solicitors' "approval" of the correct wording. That offer was:

$120,000 deposit on the signing of contract which will be fully refundable if the purchaser does not proceed a further deposit on the 1st May to bring the deposit up to 5% tobe (sic) paid into solicitors trust account

The purchasers has until 1st May to decide if he is going unconditional but we are not prepared to be party to any council arrangements etc that is up to the purchaser.

Directors personal guarantee and or by his private company or other companies who do have money

Proper warrant that the contract will eventuate and the purchaser has the financial resources to carry it through."

[44] The second defendant retained Mr O'Connell of the solicitors' firm Macrossan & Amiet to act on behalf of the defendants on or about 13 February 2003.

[45] The second defendant prepared informal heads of agreement which she sent to McCormack on 17 February 2003 (Ex 54, pp 21-22) and Mr O'Connell on 18 February 2003 (Ex 29). These heads of agreement provided for a purchase price of $7.8m with commission of $290,000 including GST to be paid to agent from settlement proceeds. They did not require any of the land to be excised from that sold. They also provided for a deposit of $120,000 to be paid upon the signing of the contract and:

"A further deposit of $270,000 payable on 1-5-03 and payable to Macrossan & Amiet Solicitors' trust account. On or before the 1-5-03 a letter of guarantee from the purchasers' bank to guarantee settlement will be effected on the 1-9-03 is to be given to the vendors' solicitor. The purchaser's financial institutional (sic) to be a prime bank which is acceptable to the vendors' and their solicitor. Vendors to be paid this deposit."

The date of completion was specified as 1 September 2003.

[46] After sending the informal heads of agreement to McCormack on 17 February 2003, the second defendant was unsuccessful in her attempts to telephone McCormack. She therefore sent a facsimile on that day (Ex 14) in which she indicated that the defendants "would like you to give the purchaser a certain time to sign the agreement". The second defendant indicated that she thought that 21 February 2003 would be suitable. It was around this time that McCormack first made telephone contact with the third defendant after obtaining his telephone number from Mrs Kronk, as McCormack had found it difficult dealing with the second defendant.

[47] The email which the second defendant sent with the informal heads of agreement to Mr O'Connell on 18 February 2003 (Ex 54, p20) stated:

"I am forwarding a copy of the heads of agreement which I have sent to the agent. He has been to see my parents but has not contacted me. I think he is concerned about the bank guarantee and also that I have requested the second deposit be paid to us. We are going to a lot of trouble and expense to give tenants notice and to give vacant possession. Also I did not want the agent to have the opportunity of claiming the deposit in commission and leave nothing for us our trouble if settlement should be defaulted."

[48] McCormack engaged solicitor Mr Trevor Gilliland to draw special conditions for the contract. McCormack had indicated to the second defendant that his firm was prepared to contribute up to $2,000 toward the costs of preparing the contracts. This shows how keen McCormack was to bring about the sales. The conditions drafted by Mr Gilliland (Ex 54, pp 29-31) provided for a deposit of $400,000 to be paid, as to $2,000, upon the formation of the contract, as to $198,000 on 2 April 2003 and, as to $200,000, on 2 May 2003. These conditions provided for the contract to be conditional upon the purchaser conducting investigations and inquiries with respect to the subject property and being satisfied with the results of those inquiries by 1 June 2003. The special conditions allowed the vendors to require the purchaser to complete earlier than the nominated date for completion upon giving 30 days' written notice to the purchaser, provided that the notice was not given prior to 31 August 2003. The condition dealing with readiness for settlement was in the following terms:

"(a) The Buyer shall on, or before, 5.00 pm on the 31st of August 2003, produce to the Seller a letter from their financier confirming that sufficient funding is in place to enable the Buyer to complete the terms of this Contract within Thirty (30) days.

(b) In the event that the Buyer does not comply with the terms of part (a) of this clause, then the Seller shall immediately be entitled to terminate the Contract and forfeit the deposit in Special Condition 1(b)(3). Neither party shall have any further claim or action against the other party except for a claim based on default under the Contract prior to such termination"

The timing of the provision of the letter from the financier and the earliest date for settlement provided for in this draft of the special conditions was quite different to that proposed in the second defendant's informal heads of agreement.

[49] There were further exchanges between McCormack and Mr Gilliland on the terms of these special conditions. McCormack sent an email on 27 February 2003 to the third defendant giving him a summary of the timeline proposed for the contract based on the special conditions that McCormack had prepared with Mr Gilliland's assistance and also forwarding those special conditions. The third defendant forwarded that email to a friend who was assisting the defendants who then forwarded it onto Mr O'Connell on 3 March 2003 (Ex 42). Mr O'Connell therefore had the draft of those special conditions to use in preparing the contracts. On 27 February 2003 McCormack also forwarded a draft of those special conditions to Mr Hamilton (Ex 54, pp 38-42).

[50] The first and second defendants attended at Mr O'Connell's office on 3 March 2003. He went through the draft special conditions and obtained their instructions on what changes they wanted to make and how they wanted the transaction structured. After a process of drafting, obtaining instructions and re-drafting, Mr O'Connell prepared contracts which were satisfactory to the first and second defendants. One of the instructions given by the second defendant to Mr O'Connell was that the defendants wanted the time limits in the contracts to be observed.

[51] On 4 March 2003 the defendants' solicitors sent a facsimile to McCormack (Ex 54, pp 43-80) which forwarded the form of contracts for the sale of the subject land with the following advice:

"We have taken detailed instructions from our clients. The sellers have thoroughly revised and considered the terms on which they are willing to offer for sale the properties detailed on the enclosed contracts."

[52] The defendants' solicitors also advised in that letter that the first and second defendants would be in Mackay and available to collect the contracts in final form only until 1pm on 5 March 2003. McCormack was therefore requested to consult the plaintiff and advise if the contracts could be printed in final form, so that the first and second defendants could take them with them on 5 March 2003.

[53] After sending this facsimile, Mr O'Connell had a telephone conversation with McCormack in which McCormack checked with him the terms of the contracts that had been forwarded. Mr O'Connell stated, and I accept, that this was the first telephone conversation which he had ever had with McCormack.

[54] The special conditions in the contract sent by facsimile on 4 March 2003 provided for a deposit of $400,000, half of which was to be paid upon the execution of the contracts and the other half on or before 2 May 2003. The earliest date for settlement of the contracts under this draft was 30 September 2003. Special condition 9 dealing with readiness for settlement was in the following terms:

"(a) The Buyer shall on, or before, 5.00pm on 2 June 2003, produce to the Seller a letter from their financier confirming that sufficient funding is available to enable the Buyer to complete the terms of this Contract.

(b) In the event that the Buyer does not comply with part (a) of this clause the Seller shall immediately be entitled to terminate the Contract by notification in writing to the Buyer.

The Buyer will immediately forfeit the deposit in Special Condition 1(b)(2).

Neither party shall have any further claim or action against the other party except for a claim based on default under the Contract prior to such termination."

Apart from changing the date for the provision of the letter from the financier by bringing it forward from 31 August 2003 to 2 June 2003, this special condition is in similar terms to that set out in the draft proposed by Mr Gilliland. The expression "sufficient funding is available" is used instead of "sufficient funding is in place". Objectively, I do not consider what was required of the letter from the financier was changed by this change in words. The change in the date for the provision of the financier's letter brought this draft closer to the timing provided for in the informal heads of agreement.

[55] Mr Hamilton stated that when he saw those special conditions, he knew that special condition 9(a) would not work for the plaintiff and requested McCormack to convey that to the defendants.

[56] McCormack stated in evidence that, upon receiving the facsimile of 4 March 2003, he telephoned Mr O'Connell and observed that the date for special condition 9(a) had been changed from August 2003 to 2 June 2003 and that it would be too far away from a settlement date of 2 December 2003 or, at the earliest 30 September 2003, for the plaintiff to organise its finance. McCormack stated that Mr O'Connell said that the defendants were not looking for a guarantee, but something that showed that the plaintiff through its directors or whoever else it was involved with had the capacity to settle on the due date. It was in this conversation that McCormack asserted that Mr O'Connell stated that he was intending for the financier to provide a letter of comfort and not a guarantee. Mr O'Connell's evidence was to the effect that there was no such discussion about the effect of special condition 9(a) with McCormack at that time, other than confirming that the date for compliance had been brought forward in accordance with the instructions given by the defendants.

[57] McCormack's evidence was that he was concerned about the change to special condition 9(a), as he considered that it was not providing the defendants with what they had instructed him they required which was an assurance that the sales would be settled, before they vacated the premises in anticipation of the settlement date.

[58] The change to special condition 9(a) that had real implications for the plaintiff was the bringing forward of the date for the provision of the letter from the financier to 2 June 2003. That timing suited the defendants because of their expressed desire of being confident that the contracts would proceed to completion, before causing the subject land to be vacated by the tenants. The substance of what was required by the letter from the financier was otherwise not changed by the minimal changes in the wording to this draft of special condition 9(a) from the draft prepared by Mr Gilliland at McCormack's instigation.

[59] A copy of the contract for the sale of that part of the land owned by the third defendant was sent by facsimile to the third defendant by the defendants' solicitors on 4 March 2003.

[60] The third defendant had a telephone conversation with McCormack, after the third defendant had received the facsimile contract from the defendants' solicitors. The third defendant was non-committal about the terms of the contract. He said that McCormack told him that he thought the plaintiff would pay some additional deposit, another $380,000, and that would provide a greater commitment. This was confirmed by McCormack's evidence that the suggestion for increasing the deposit to 10 per cent of the total sale prices was made by him to the third defendant. It is not clear from the evidence given by both the third defendant and McCormack in respect of this conversation, as to what McCormack's true motivation was for suggesting the increase in deposit. In view of McCormack's substantial interest in this transaction, it is likely that the suggestion was made, because that was what McCormack thought was necessary at that time to facilitate achieving the sales. It is not necessary, however, to reach any conclusion as to what the motivation of McCormack was in making the suggestion. He made the suggestion, it was taken up by the defendants and the plaintiff was prepared to agree to the increased deposit. Little reference was made in the evidence of Mr Gallus or Mr Hamilton about the increase in the deposit. It appears that Mr Hamilton and Mr Gallus accepted that the increase was a requirement of the defendants.

[61] McCormack gave evidence that he told the third defendant that Mr O'Connell had said that the guarantee was no longer a guarantee and that it was now a letter of comfort and from the way Mr O'Connell had described it to him, that he was concerned it was not going to offer the protection to the defendants that McCormack believed the defendants wanted. Objectively, this was a curious position for McCormack to take when this draft of special condition 9(a) had been prepared by solicitors acting for the defendants on their express instructions and more closely reflected the timing between the provision of the letter from the financier and the date for settlement that the defendants had required in the informal heads of agreement. In any case, I have found that McCormack did not have the conversation with Mr O'Connell that he said was the source of his expressing this concern to the third defendant. In addition, the third defendant's evidence was most credible when he rejected the suggestion that McCormack had said to him at this time that he did not think that special condition 9 provided much protection to the defendants and that it required only a letter of comfort from the financier. I therefore reject that part of McCormack's evidence of the telephone conversation he had with the third defendant to the extent that he said he described the letter required under special condition 9 as a letter of comfort which gave less protection to the defendants.

[62] The third defendant telephoned the second defendant at Mr O'Connell's office on 5 March 2003. The third defendant also spoke to Mr O'Connell and advised him that he had negotiated with McCormack for the deposit to increase from $400,000 to $780,000. Eventually on that day Mr O'Connell revised the special conditions to show 3 deposit instalments respectively of $200,000, $200,000 and $380,000. The re-engrossed contracts for execution by the first, second and fourth defendants were handed to the first and second defendants by Mr O'Connell on 5 March 2003 together with a covering letter (Ex 37).

[63] Mr O'Connell also sent the revised terms by facsimile to McCormack. They had a telephone conversation in the afternoon of 5 March 2003 in which McCormack said that he had not sent the revised copies of the contracts to the plaintiff, but the plaintiff appeared to be happy with the terms which he had discussed with them. If Mr Hamilton had asked McCormack to convey to the defendants that the timing of the provision of the letter from the financier requested by special condition 9(a), as drafted by Mr O'Connell, did not suit the plaintiff, McCormack did not carry out that request.

[64] Mr Gallus stated that he was in Caloundra soon after the facsimile of 4 March 2003 had been sent and had a meeting with McCormack in the presence of Mr Hamilton. Mr Gallus stated that he asked McCormack what special condition 9(a) really meant and that McCormack responded it was to give reassurance to the defendants that the plaintiff would proceed with the investment as property developers and not merely be resellers of the land. That was a curious response. Special condition 9(a) had nothing to do with obtaining finance for the development of the subject land. The expressed desire by the defendants in the early negotiations to deal with a developer rather than a reseller was only relevant to the extent to which the defendants satisfied themselves about the plaintiff's intentions, before negotiating with the plaintiff in earnest for the sales. Mr Gallus stated that McCormack said that he had spoken to Mr O'Connell and to some of the defendants, particularly Mr Kronk, and "that he had been given an assurance that they would be flexible in terms of the purchaser complying exactly with the terms of its clause and the timing of it" and that if the plaintiff needed more time to meet special condition 9(a), the defendants would "probably" grant it.

[65] On 6 March 2003 the first and second defendants had returned to Caloundra with the contracts for the fourth defendants and them to sign. McCormack attended at Kronks Motel for the signing of the contracts by these defendants. The second defendant read the conditions out loud to the others present. McCormack proposed a change to special condition 3(a)(2) which was the subject of a facsimile sent by the defendants to Mr O'Connell for advice (Ex 31). Mr O'Connell advised that it was in order to make that change and it was made on each of the contracts. The first, second and fourth defendants then signed the contracts.

[66] The second defendant recalls actually standing up after this was done and making a little speech to the effect:

"This is it, your buyer either accepts these conditions the way they are or leave it. Take it or leave it. We have other people interested in the property and we also have other ideas. You don't need to feel bad about it. If your buyer doesn't take it, we are not worried about it. ... You have precisely one week to get this contract signed."

McCormack does not recall this statement made by the second defendant on this occasion. That was not surprising. It was apparent from how McCormack spoke of the second defendant, when he gave his evidence, that he was not interested in and would not have taken any notice of what the second defendant said after the contract had been signed by the defendants. I accept the second defendant's evidence which was supported to some extent by that of the other defendants who were present that she did, in fact, make such a speech. The speech reflected the attitude that the defendants had at that time as, by then, the defendants were aware that another real estate agent also had a prospective purchaser for the land.

[67] McCormack stated that he was driving to Brisbane to take the contracts to Mr Hamilton when Mr Kronk telephoned and said that the defendants had other land surrounding the subject property and requested McCormack to approach the plaintiff about purchasing that land. McCormack stated that he suggested that it was not the time to start negotiations in respect of other land. He said that Mr Kronk then said "Well, could you please let them know ... that we appreciate their time that they've given us to be able to prepare these things and that we would like to offer them every assistance in the future". McCormack stated that Mr Kronk said that he would like to be kept informed as to the development of the property and what may be happening with the deal in every possible way. McCormack stated that he conveyed what Mr Kronk had said to him to Mr Hamilton. I reject McCormack's evidence of this telephone conversation. Mr Kronk was not cross-examined on whether such telephone conversation took place. Mr Kronk did say, however, that on 13 March 2003 he telephoned McCormack and asked whether the contracts had been signed. That is much more likely to have been the concern of Mr Kronk after the defendants had signed the contracts.

[68] Mr Hamilton gave evidence of a meeting held at McCormack's office at which McCormack, Mr Gallus and Mr Hamilton were present after the contracts had arrived. Mr Hamilton said that a discussion took place about the fact that special condition 9(a) was in the terms that it was, when the plaintiff was paying the further deposit of $380,000. Mr Hamilton said that McCormack responded that all that was required under special condition 9(a) was a letter of comfort and that Mr Hamilton then raised changing the contract to reflect that. Mr Hamilton described what happened in the following terms:

"Well, when I questioned about how we could deal with the question, that clause 9 differently, Jed informed me this was a clause that Ruth wanted Ruth Kronk wanted, or Ruth Von Pein wanted as a minimum, because she had given grounds on the original clause that they wanted to put in there that was requiring something quite specific from our financier, saying that we can settle, et cetera, that in lieu of that clause, she was coming back to something that was less onerous and this was it and we had an understanding from the family and from their solicitor this is the way in which the clause would be interpreted and that's the best we could manage at the time. And given that we were aware there were other players out there in the market place, we thought, 'Well, they've watered it back, they've changed the deposits, there's other players out there playing, let's just accept what is being told to us by their agent and he's been talking to their solicitor about what the meaning of this clause would have on our edification' ..."

[69] Mr Hamilton also gave evidence of having conversations with McCormack about special condition 9(a) after he became aware of the final form of contract, but before the contracts were signed by Mr Gallus. Mr Hamilton stated that he questioned McCormack on whether he was certain that all that the defendants wanted was a letter of comfort. Mr Hamilton's evidence was that McCormack told him that he had spoken to Mr O'Connell. Mr Hamilton's evidence on what McCormack told him was:

"He explained to me David O'Connell was quite aware that we couldn't deliver unconditional guarantees of finance so early in the piece and that if we were going to proceed to contract, we need to understand that they wanted a letter of comfort to be sure we were proceeding. We thought, 'We're getting 10 per cent deposit in cash, why would they want anything else?'

Did you say that to Mr McCormack?-- I did. Mr McCormack's explanation to me, Ruth wanted that clause in. As long as it means it's a letter of comfort, we can wear it."

[70] On 7 March 2003 Mr Lovell on behalf of the agent attended on the fourth defendants to have them sign an appointment of LJ Hooker Caloundra as real estate agent in PAMD form 22a (Version 1, 2002) in respect of the sale of the land owned by them (Ex 40). The only contract which noted that LJ Hooker Caloundra was the agent was the one relating to the land owned by the fourth defendants. The commission for which the fourth defendants had agreed to be liable under the Appointment of Real Estate Agent signed by the fourth defendants was calculated in respect of a total sale price of $7.5m.

[71] The contract relating to the third defendant's land signed by him was returned by facsimile.

[72] The defendants were aware at the time they signed the contracts that the plaintiff wanted the contracts signed by the defendants for the purpose of taking them to a meeting that had been arranged between representatives of the plaintiff including Mr Hamilton and Council officers on 10 March 2003 in relation to the development proposals and possibilities for the subject land. That meeting did take place.

[73] On or about 10 March 2003 the plaintiff retained Mr Praeger to act on its behalf in connection with the purchase of the subject land. Mr Gallus and Mr Hamilton attended on Mr Praeger on 11 March 2003 with the contracts executed by the defendants. Mr Praeger raised with them that special condition 9 appeared to be onerous, in that it would be difficult to obtain a letter from a financier confirming funding at that time in the transaction. Mr Praeger recalls being advised by Mr Gallus to the effect that the terms of the contract were non-negotiable and that Mr Gallus and Mr Hamilton explained that they had been involved in the negotiation of that term via the agent and were satisfied with the wording. When asked in evidence-in-chief whether Mr Gallus and Mr Hamilton said anything further about those negotiations with the agent, Mr Praeger responded "No, not that I recollect". Mr Gallus stated in evidence that he had difficulty recalling exactly the conversation he had with Mr Praeger, but "felt" that he would have told Mr Praeger that special condition 9 (a) was "basically immovable", but that they understood that there was flexibility on the part of the vendors in respect of timing and complying with the condition.

[74] It was apparent from Mr Gallus' evidence that he was reconstructing to some extent about the content of the discussion he had with Mr Praeger about special condition 9. This was a conversation with the solicitor who was advising on the terms of the contracts, before they were signed by Mr Gallus. In view of the fact that Mr Praeger had pointed out what he considered onerous about special condition 9 and was instructed not to seek any change to the wording of the clause, it is inconceivable that Mr Gallus at the same time would have advised Mr Praeger that they had been assured that the defendants would be flexible in respect of the timing of compliance and the manner of compliance with that condition. I therefore reject Mr Gallus' evidence that he told Mr Praeger about the flexibility of the defendants in respect of compliance with special condition 9.

[75] Mr Hamilton's evidence is that on 10 March 2003 he telephoned Mr Praeger and asked him to verify what Mr Hamilton had been told by McCormack that only a letter of comfort was required under special condition 9(a). Mr Hamilton stated in evidence that he telephoned Mr Praeger on 12 March 2003 to follow up and was advised by Mr Praeger that he had spoken with Mr O'Connell and that it was a letter of comfort that was required according to Mr O'Connell. Mr Hamilton's evidence about these telephone calls was in direct conflict with Mr Praeger's evidence about his dealings with Mr Gallus and Mr Hamilton at this time on special condition 9(a).

[76] Mr Praeger sent a facsimile to the defendants' solicitors on 11 March 2003 (Ex 54, p 109) in which he raised what he considered to be procedural matters. There is no reference in that facsimile to special condition 9(a).

[77] By facsimile sent on 12 March 2003 (Ex 54, p 110) Mr O'Connell responded to each of the matters raised by Mr Praeger, but in a way that did not require any amendments to the contracts as signed by the defendants.

[78] At 11.27am on 14 March 2003 the defendants received a facsimile from Mudjimba Beach Real Estate (Ex 34). The second defendant had previously had one or two discussions with an agent from that agency. On behalf of an undisclosed purchaser the agent made an offer in the facsimile for the purchase of the subject land for $9.1m inclusive of commission of 1% plus GST of the purchase price, subject to conditions providing for due diligence, obtaining 2 major leases and finance approval.

[79] The second defendant attempted to contact Mr O'Connell about what was happening with the signing of the contracts. The second defendant spoke to Mr O'Connell's secretary about why she wanted to speak to Mr O'Connell. Although the second defendant stated in evidence that she was reluctant to extend the time for the contracts to be signed by the plaintiff, it appears that was not how Mr O'Connell's secretary understood the message given to her. By facsimile dated 14 March 2003 to the plaintiff's solicitors (Ex 45), the defendants' solicitors requested a response, as to whether the contract was signed, by 4pm on 18 March 2003. This had the effect of allowing additional time for the plaintiff to sign the contracts.

[80] The contracts were executed by Mr Gallus on behalf of the plaintiff on 18 March 2003. They are Exs 1 to 4. Mr Gallus said in evidence that he relied upon what he had been told by McCormack in relation to the flexibility of the defendants in meeting time limits, when he signed the contracts on behalf of the plaintiff.

[81] Mr O'Connell made a diary note of a telephone conversation which he had with McCormack at 4:09pm on 18 March 2003. The diary note records that McCormack confirmed that he had received the contracts about half an hour earlier, they were signed by the plaintiff and he had a cheque for the deposit of $200,000.

[82] McCormack wrote a diary note which is dated 18 March which is in the following terms:

"William has rung and is concerned about the deposit clause and the Letter of Comfort. I told him it is between his solicitor and David O'Connell to sort out. He asked me to repeat what I had told him before as to what a letter of comfort was suppose (sic) to be. I suggested I ring David O'Connell again to confirm and ring him back. David told me that the issue was simple that he would work it out with Praeger Batt. But that as explained before it was simply a letter similar to the one he described between the Mackay Port Authority an (sic) contractor doing work on the wharf and the Westpac Bank letter. Rang William back told him. He said 'Yea that was what his solicitor had said.' He is happy to sign the contract on that understanding and everything would would (sic) be signed and the deposits would be paid. I told him to make sure they didn't run out of time as the Kronks (Ruth) were getting anxious. He said that they had been given extra time."

[83] The diary note reads as if it were recording conversations that took place before the contracts were signed. It was recorded in a notebook (Ex 16) in which it appears that McCormack occasionally made notes relating to his business. In form and style, it is unlike any other notes recorded in that notebook. Mr O'Connell denies having the conversations with McCormack in the terms alleged by McCormack as reflected in this diary note and of which McCormack also gave oral evidence. Mr O'Connell did not get instructions from Mackay Port Authority in the matter in which the Westpac Bank letter was received until 23 April 2003. That is the date recorded on the relevant file cover sheet as the date for the opening of the file (Ex 51). The diary note could therefore not be accurate in purporting to record conversations that occurred on or before 18 March 2003. I reject McCormack's evidence that he had conversations with Mr O'Connell on or before 18 March 2003 in the terms that he recorded in the diary note. I also reject Mr Hamilton's evidence about the telephone calls which he said he had with Mr Praeger on 10 and 12 March 2003 about whether all that was required to satisfy special condition 9(a) was a letter of comfort.

[84] The second instalment of deposit of $200,000 was due to be paid on 2 May 2003. That was also the date under special condition 2(a) by which the plaintiff had to be satisfied with the results of its due diligence investigations and inquiries. That instalment of deposit was paid by the plaintiff on the due date. Before it was paid, Mr O'Connell had written a letter to the defendants (Ex 38), noting their instructions were not to allow any further extension of time whatsoever.

[85] On 23 May 2003 heads of agreement were executed by John Holland and Mr Gallus and Mr Hamilton to record the proposal to negotiate a formal agreement in respect of the development of a Four Points Sheraton Hotel on the subject land on the basis that John Holland would be the project development manager, project sponsor, debt/equity arranger, designer and constructor. It was proposed that John Holland would secure equity investors and/or debt to acquire the subject land for a total value of $8.1m by 30 September 2003 and that Mr Gallus and Mr Hamilton would secure regulatory approvals for the project and presales of the project.

[86] Mr Praeger telephoned Mr O'Connell on 27 May 2003 and foreshadowed that he had instructions to seek an extension of time to pay the next instalment of the deposit. A discussion took place about the need for compliance with special condition 9(a) by 2 June 2003. It is common ground between Mr Praeger and Mr O'Connell that Mr O'Connell referred to a leasing transaction in which Westpac Bank had provided a letter of comfort.

[87] Mr O'Connell made a diary note of this conversation after it occurred (Ex 46) which records:

"DOC said the letter of comfort is along the lines of what we had for Westpac for CSR with their recent demerger and DOC used the example of how we acted for a landlord where with the new entity Readymix Holdings that we got a letter of comfort from Westpac which essentially said they had been their bankers for 150 years and they are certainly able to continue trading and they have sufficient capability to meet their obligations under the lease. It was rather a simple letter and did not go much further than that. He said that is fine, he is sure he can get that type of thing."

[88] Mr O'Connell recalls that he conveyed additional matters to Mr Praeger in that conversation that were not recorded in his diary note and, in particular, that the letter should state that it is from the financier for the plaintiff, that the financier is advancing moneys to the plaintiff and the plaintiff has the funding available to complete the contracts. Mr Praeger recalls that Mr O'Connell did say that the letter which he described from Westpac Bank in relation to the leasing transaction was different in nature and that the plaintiff should submit whatever it thought was appropriate at the time in satisfaction of special condition 9(a).

[89] Although there are variances in the respective recollections of Mr Praeger and Mr O'Connell on the detail of this conversation, the substance of the conversation was that Mr O'Connell conveyed his experience with the letter of comfort from Westpac Bank as illustrative of what was required, but the plaintiff had to comply with the terms of special condition 9(a).

[90] By facsimile dated 27 May 2003 sent to Mr O'Connell (Ex 54, p 118), Mr Praeger made the request on behalf of the plaintiff for an extension of 28 days for satisfaction of paying the balance deposit of $380,000 due on 2 June 2003 and the confirmation of funding required under special condition 9(a).

[91] Early on 28 May 2003 Mr O'Connell had an accident in which he fractured his right arm. He still managed to send by facsimile to the second defendant at 1pm on that day a request for instructions in relation to the plaintiff's request for an extension (Ex 32). Mr O'Connell then left work and did not return until Monday 2 June 2003.

[92] Mr Praeger gave evidence of a meeting held in his office on 30 May 2003 at which McCormack, Mr Gallus and Mr Hamilton were present to discuss with him a letter in satisfaction of special condition 9(a). Mr Praeger stated that McCormack reported on his discussion with Mr O'Connell that he believed all that was necessary was a letter of comfort. This is in fact recorded in Mr Praeger's letter to Messrs Pacholski and Grosvenor dated 30 May 2003 (Ex 22) seeking a letter in relation to the John Holland funding arrangement for the project for the subject site. I accept that was what McCormack told Mr Praeger at the time the plaintiff was concerned in late May 2003 with satisfying special condition 9(a). In view of my reservations about the credibility of McCormack, I do not accept that it is evidence that McCormack had such a conversation, as he described, with Mr O'Connell, particularly as Mr O'Connell is adamant that such a conversation did not occur.

[93] On the morning of 2 June 2003 Mr Praeger telephoned Mr O'Connell and advised that an extension of 5 business days only was now sought, rather than 28 days. About an hour later Mr O'Connell spoke to the second defendant about the request. She conveyed her view not to grant the request, but advised that she would have to check with the other defendants which would take about an hour or so. She therefore instructed Mr O'Connell to wait for an hour before refusing the request for an extension. She told Mr O'Connell that if there were any change to her instructions, she would get back to him within the hour.

[94] When Mr O'Connell had not heard from the second defendant after an hour, he waited for about another 10 minutes or so and then telephoned Mr Praeger to tell him that the defendants would not grant the extension of 5 days. Mr Praeger does not remember this telephone call, but I accept Mr O'Connell's evidence about this call, even though he did not record it in a diary note.

[95] At about 12:40pm on that day the second defendant sent a facsimile to Mr O'Connell (Ex 33) which instructed him to "leave as long as possible to advise re extra 5 days to allow reduced banking time". Mr O'Connell did not receive that facsimile, until after he had told Mr Praeger of his instructions that the extension of 5 days would not be given.

[96] This facsimile is irrelevant in the sense that it did not affect the course of the transactions. It had no effect on what was conveyed by Mr O'Connell to Mr Praeger and when he conveyed it. The facsimile is relevant to the extent that it sheds light on the second defendant's intentions on 2 June 2003. The explanation given by the second defendant for sending the facsimile was:

"This fax was in response to Mr O'Connell that he said he would act on my verbal instructions, but he just wanted a note to confirm it and I wrote it almost immediately, but I was very, very annoyed that the purchaser actually was showing such disrespect to my parents and to our offer to them to sacrifice our property to them that they were asking this time. They had five months and they said they were supposedly professional developers and that they would even ask us for this. It was just - I just felt really annoyed about it."

[97] The plaintiff submitted that this was not a true explanation, as it should be inferred that the defendants wanted to be in a position to terminate the contracts. The plaintiff relies on this facsimile to support the proposition that the defendants were seeking to terminate the contract unconscientiously, because they wanted to sell the land to another buyer at a higher price. The second defendant was cross-examined extensively on her motives for sending this facsimile. In the light of the defendants' attitude to the importance of what had been agreed by them with the plaintiff, I accept that the second defendant's annoyance at the request for an extension at that late stage was real and the second defendant had formed the view that the contracts should be terminated by the defendants, if they were not performed in accordance with their terms.

[98] At about 12.45pm Mr O'Connell received a telephone call from Mr Praeger asking whether the plaintiff could pay the instalment of deposit by a bank cheque that afternoon and replace it with a bank guarantee the next day. Mr O'Connell stated that he would have to get instructions. He spoke to the second defendant who refused the request. Mr O'Connell telephoned Mr Praeger about 10 minutes after Mr Praeger had made the request and advised that his instructions were to decline it.

[99] It is not in issue that the plaintiff paid the instalment of deposit of $200,000 due on 2 June 2003. As set out above, it is common ground that the plaintiff did not comply with special condition 9(a) on or before 5pm on 2 June 2003. On 3 June 2003 the defendant's solicitors sent a letter by facsimile to the plaintiff's solicitors (Ex 54, pp128-130) terminating the contracts.

[100] On 11 July 2003 the plaintiff obtained a letter from Australian Finance Solutions Pty Limited (Ex 54, p134) in relation to the purchase of the subject land in the following terms:

"This letter confirms that Australian Finance Solutions:

a) has the financial capacity to fund Fairmede Pty Ltd in the acquisition of the real property, subject to four contracts, referred to as the Kronks Motel Site for a total purchase price of $7.8 million; and

b) would be in a position to fund Fairmede Pty Ltd in making this acquisition subject to the acquisition satisfying its due diligence review and to its terms and conditions of lending being satisfied."

Mr Gallus stated that such letter was obtained within 3 or 4 days after seeking it and that it could have been obtained within the same time frame, if sought in early June 2003. This letter does not, however, comply with special condition 9(a), as it does not confirm that sufficient finance was available to enable the contracts to be completed.

[101] When giving evidence, Mr Gallus was able to identify the accounts of contractors engaged by the plaintiff to undertake services in respect of the subject land after the contracts were executed and for which the plaintiff was committed prior to 3 June 2003. The accounts may have been paid by an entity related to the plaintiff, but Mr Gallus indicated that the plaintiff had accepted the liability to reimburse the related entity for the payment. The accounts in this category are:

[102] These figures accord with the schedule of expenses attached to the plaintiff's submissions (Ex 57), other than the amount for Young Architects. I reduced the amount allowed for in the schedule by the sum of $8,000 to reflect the evidence of Mr Gallus that approximately $7,000 or $8,000 of that account had not been paid.

[103] The plaintiff has failed to establish its allegation that the specific representations were conveyed to McCormack by Mr O'Connell on 5 or 6 March 2003. The plaintiff had also alleged that the same representations were made to McCormack in a telephone conversation by the third defendant on or about 6 March 2003 and in a meeting on or about 7 March 2003 by the second and fourth defendants. These allegations are not established by the evidence which I have accepted.

[104] Even though the plaintiff cannot show that the content of the specific representations was generated from the defendants to McCormack, that does not dispose of the issue of whether the specific representations were conveyed by McCormack to the plaintiff.

[105] The particulars that are provided in the statement of claim as to when the specific representations were made by McCormack focus on telephone conversations between McCormack and Mr Hamilton between 6 and 18 March 2003, although in general terms it is also alleged that the specific representations were made orally to Mr Gallus, without providing particulars of how those conversations occurred.

[106] Mr Hamilton's evidence on this aspect is tainted by his evidence which I have rejected of alleged telephone conversations he had with Mr Praeger conveying the gist of what he had been told by McCormack. I do not accept that either McCormack or Mr Hamilton has given reliable evidence about the statements made by McCormack to Mr Hamilton and/or Mr Gallus on the subject matter of the specific representations.

[107] I accept that during this period between the date on which the defendants executed the contracts and the date on which the plaintiff finally executed the contracts that Mr Gallus discussed with McCormack what was required under special condition 9. After listening to McCormack's explanations given in his evidence, I have no doubt that what was conveyed by McCormack to Mr Gallus was what he hoped the defendants would do or could be persuaded to do, if an indulgence were sought by the plaintiff in respect of compliance with special condition 9.

[108] It is significant that when Mr Gallus was asked to expand on what had been conveyed to him about the defendants' flexibility in meeting time limits, he responded that it was that, if the plaintiff needed more time to meet special condition 9(a) or the requirements of it, "they would probably grant it". This falls short of being the specific representation (a) that is pleaded in unqualified terms that "strict compliance with special condition 9 of the contract would not be required by the defendants". It is more consistent with McCormack conveying what he anticipated that the defendants would do.

[109] I am also satisfied that if McCormack had made a representation to Mr Gallus either directly or via Mr Hamilton to the effect that is pleaded in specific representation (a), then Mr Gallus would have conveyed that to Mr Praeger when he raised how onerous special condition 9 was. The making of any such specific representation is not reflected by the acknowledgement of both Mr Gallus and Mr Hamilton to Mr Praeger that the defendants were immovable when it came to the wording of the special conditions. I am further satisfied that if such an unequivocal statement had been made by McCormack to Mr Gallus prior to 18 March 2003, it would have been relied on by Mr Gallus when he gave instructions to Mr Praeger to seek an extension of time for compliance with special condition 9(a) in late May 2003. The plaintiff has failed to show that specific representation (a) was made by McCormack to Mr Hamilton and Mr Gallus in the terms alleged.

[110] Specific representations (b) and (c) reflect the information which I accept was provided to Mr Gallus by McCormack in the period between 6 and 18 March 2003, which was McCormack's interpretation of the defendants' motivation for including special condition 9 in the contracts, namely that the defendants wanted to know that the plaintiff was proceeding with the development of the land and not reselling it and that they wanted to confirm that they should begin making arrangements to provide vacant possession at settlement. Mr Gallus' evidence does not support a finding that this information conveyed to him amounted to representations as to how compliance with special condition 9 could be achieved. If this had been so, then it would have been passed onto Mr Praeger (which it was not).

[111] I reject Mr Gallus' evidence that, prior to consulting with Mr Praeger, McCormack made an unequivocal statement to him in terms of specific representation (d), that the defendants would accept, as satisfying special condition 9(a), a letter that the financier had the capacity to make funds available which would enable the plaintiff to complete the contracts. If that had been the case, it would have been raised with Mr Praeger when he was advising on special condition 9(a) and it was not. It is also inconsistent with the acknowledgment of Mr Gallus and Mr Hamilton to Mr Praeger that the defendants were immovable on the special condition.

[112] The plaintiff has failed to show that any of the specific representations were made to Mr Gallus and/or Mr Hamilton in the terms and on the occasions that are pleaded by the plaintiff.

[113] It became clear early in the negotiations that the defendants did not wish to enter into contracts that were subject to conditions relating to the obtaining of development approval or finance. That was the rationale for the defendants requiring the plaintiff to undertake its inquiries at the Council, before entering into the contracts.

[114] On the basis of the evidence relevant to the topics the subject of the general representations which I have indicated that I accept in these reasons, it is clear that during the negotiations prior to the contracts being entered into, the defendants did make a general offer of assistance to the plaintiff and allowed further time for the plaintiff to undertake its inquiries of the Council, before entering into the contracts and that was passed on by McCormack to Mr Hamilton in respect of the period for pre-contract negotiations.

[115] The plaintiff relies on specific instances of the defendants being prepared to extend time during the pre-contract negotiations as indicative of the general approach of the defendants to granting extensions of time. The reference to being prepared to extend for another week the date on which the deposit would be paid in Ex 13 was merely an offer by the defendants at an early stage of the negotiations with respect to a specific proposed date that in no way could be taken as a general attitude to time limits. Similarly the instruction of the second defendant to Mr Frisby on 5 February 2003 (Ex 54, p11) was a response by the defendants to a request for a change in date to accommodate the plaintiff, when special conditions were being drafted. It was not an indication that the defendants would not rely on the terms of the contracts entered into, when the thrust of the negotiations was directed at reaching agreement between the defendants and the plaintiff on the special conditions of the contracts.

[116] It was a desperate submission on behalf of the plaintiff that the choice of words by Mr O'Connell in his letter to the defendants of 2 May 2003 (Ex 38) in referring to the defendants' instructions not to allow any further extension of time whatsoever reflected an understanding that extensions of time had been discussed previously between the defendants and McCormack. It was not an unusual choice of phrase, when the contract provided for the payment of the deposit by instalments. The letter merely reflects Mr O'Connell's choice of words and nothing significant can be read into that.

[117] What is alleged in general representation (a) is that McCormack made a statement to the plaintiff about the defendants' understanding and knowledge of the steps usually required in obtaining funding to complete a purchase where development approval is required as a pre-condition to obtaining funding. I have difficulty in characterising that statement as a representation. I accept that it was likely that at an early stage in the negotiations McCormack made a factual statement to Mr Hamilton to the effect of that incorporated in general representation (a). It does not have any consequence, as the statement does not suggest any particular conduct would follow for the plaintiff from that knowledge and understanding of the defendants. In fact, in the plaintiff's written submissions (Ex 57), the general representations which the court is asked to find are limited to general representations (b) and (c).

[118] The evidence which I have accepted does not establish that general representations (b) and (c) were made in those terms by the defendants to McCormack or by McCormack to the plaintiff. It was more likely that what McCormack conveyed to Mr Hamilton about the offer of general assistance from the defendants and affording time was in respect of the pre-contract period. In addition, evidence of Mr Gallus which I accepted about what he was told by McCormack about flexibility in timing on the part of the defendants in respect of special condition 9(a) was in terms of what McCormack anticipated the defendants would do, rather than a statement as to what they would do.

[119] The hardening of the defendants' approach to the negotiations commenced with the informal heads of agreement. The defendants then did not accept the special conditions drafted by Mr Gilliland on McCormack's instigation. Mr Hamilton and Mr Gallus were made aware of the contents of the letter from the defendants' solicitors to McCormack dated 4 March 2003 (Ex 54, p43) which clearly signalled that the terms on which the defendants were willing to sell were those detailed in the contracts that accompanied that letter. The awareness of Mr Hamilton and Mr Gallus of that position was reflected by their instructions to Mr Praeger about the terms of the special conditions being non-negotiable. The statements that had been made by the defendants to McCormack about providing assistance to the plaintiff and extending specific dates that arose during the course of those initial negotiations were exhausted by the time the defendants' solicitors prepared the special conditions on 4 March. The plaintiff was cognisant of the position of the defendants adopted through their solicitors .

[120] It is strictly not necessary to consider the respective allegations that the plaintiff relied on the specific representations and the general representations (b) and (c) in the respects that are pleaded in the statement of claim, in view of my finding that representations in those terms were not made. Even if any of these specific representations or general representations had been made, I am not satisfied that the plaintiff relied on any or some of those representations in any of the respects that is pleaded, because of the clear signal which had been given to and understood by the plaintiff that from 4 March 2003 the terms on which the defendants were prepared to sell were those that were incorporated in the contracts drawn by their solicitors. There was nothing in the terms of general representation (a) which caused the plaintiff to act in any particular way.

[121] Something that was said by Mr Hamilton in passing may throw some light on why the plaintiff entered into the contracts, despite being warned by Mr Praeger of the onerous nature of special condition 9. When it came to making the decision whether or not to sign the contracts, Mr Hamilton referred to being aware that there were other prospective buyers for the subject land. My conclusion, after considering the evidence of both Mr Gallus and Mr Hamilton, is that the plaintiff entered into the contracts when it did, even though the date for compliance with special condition 9 did not suit the plaintiff, in order to have the defendants committed to selling to the plaintiff.

[122] Although it was only the fourth defendants who signed the PAMD forms 22a in favour of McCormack's agency on or about 23 January and 7 March 2003, that was to suit the purpose of the defendants. The defendants did not demur from the calculation of the commission claimed by McCormack in respect of the total sale prices. Effectively McCormack was acting as the agent of the defendants for the purpose of introducing the plaintiff to purchase the subject land. It is not within the usual authority of such an agent to make representations to the purchaser about how the vendors would respond to requests for extensions of time under the contract or a request to modify the requirements for satisfying any obligation under the contract.

[123] From the outset McCormack knew that the plaintiff wanted to purchase the subject land and acted as the contact point for both the plaintiff and the defendants during the initial stages of the negotiations. McCormack was used by both the defendants and the plaintiff as the conduit for passing each of their respective requirements to the other. It is clear that he did not have express authority from the defendants to make any statements to the plaintiff, other than those that he was instructed to pass on. He was used by the defendants as their agent for this limited purpose. Nothing that the defendants did, however, amounted to holding out McCormack to the plaintiff, as their agent for anything other than that limited purpose.

[124] In any case, the defendants' relationship with McCormack changed to the knowledge of the plaintiff when they engaged Mr O'Connell to act on their behalf in preparing the formal terms on which the defendants were prepared to contract with the plaintiff. From the time the defendants' solicitors sent the letter of 4 March 2003 to McCormack's agency (Ex 54, p43) which was shown by McCormack to Mr Gallus and Mr Hamilton the plaintiff was on notice that McCormack was not the defendants' agent in any way for passing on the defendants' requirements as to the terms of the contract. McCormack was not the defendants' agent for the purpose of making any representations about what compliance the defendants would accept as satisfying special condition 9, during the period when it is alleged by the plaintiff that the specific representations were made.

[125] There is an allegation in the statement of clam that by reason of the specific representations which the plaintiff alleges it acted on, the defendants are estopped from contending that the facsimile of 2 June 2003 did not satisfy special condition 9. That allegation is disposed of by my finding that the plaintiff has not established that the specific representations were made to it by McCormack.

[126] The plaintiff alleges that the defendants were estopped as a result of making the general representations from terminating the contracts on 3 June 2003 for non-compliance with special condition 9(a) by 5pm on 2 June 2003. This allegation is disposed of by my finding that representations were not made by McCormack in terms of the general representations (b) and (c) that are pleaded in the statement of claim.

[127] It was common ground that the principles set out in the majority judgment of the High Court in Tanwar Enterprises Pty Ltd v Cauchi [2003] HCA 57; (2003) 201 ALR 359 ("Tanwar") had to be applied to determine whether the plaintiff was entitled to relief against forfeiture.

[128] The relevant principles derived from the majority judgment at 373-374 are:

(a) Where accident and mistake are not involved, it is necessary to point to the conduct of the vendor as having in some significant respect caused or contributed to the breach of the essential time stipulation.

(b) Circumstances do not have to be exceptional before equity intervenes, but a court will be reluctant to interfere with the contractual rights of parties who have chosen to make time of the essence of the contract and the circumstances must be such as to make it plain that it is necessary to intervene to avoid injustice or, what is the same thing, to relieve against unconscientious conduct.

(c) In circumstances where the conduct of a vendor had helped to lull the purchaser into the belief that the vendor would accept completion provided that it occurred within a few days of the stipulated time, then to relieve against forfeiture in those circumstances would be an exercise of the jurisdiction with respect to "surprise".

[129] The facts which I have found in this matter do not bring the plaintiff within any of the categories where equity will intervene to relieve a party from the consequences of the breach of an obligation under a contract as a result of not performing the obligation in the time required by the contract, where time is of the essence of the contract.

[130] The terms of each of the contracts specified the dates on which the obligations were to be performed. The defendants were under no obligation to communicate to the plaintiff, prior to exercising their rights to terminate the contracts, that they intended to hold the plaintiff to its bargain. The plaintiff sought to make much of the fact that the defendants had given their solicitors instructions that they required the time limits in the contracts to be observed, but had not conveyed that to the plaintiff. All the defendants were proposing to do was rely on the rights that the contracts gave them. It was not unconscientious for the defendants to have the intention on 2 June 2003 of terminating the contracts, if special condition 9(a) were not satisfied on that day, when they had not engaged in any conduct suggesting otherwise to the plaintiff. This is not a case where the inability of the plaintiff to comply with special condition 9(a) on the due date was caused or contributed to by the conduct of the defendants.

[131] The plaintiff is not entitled to relief from forfeiture of the deposit.

[132] This alternative claim fails because of the failure of the plaintiff to establish either the specific representations or the general representations (b) and (c).

[133] An issue arose as to whether the TPA applied. It was argued by the defendants that there was no conduct of the defendants "in trade or commerce". It is not necessary to resolve the issue. The view I reached, however, was that the sale of this conglomeration of land for the purpose of re-development was in trade or commerce. Although the letting of parts of the land conducted by the defendants was not intended to continue after the completion of the purchase by the plaintiff, the magnitude of the transaction and the fact that the course of the negotiations was affected by the re-development proposed by the plaintiff meant that the dealings between the plaintiff and the defendants had a commercial character: Concrete Constructions (NSW) Pty Ltd v Nelson [1990] HCA 17; (1990) 169 CLR 594, 604.

[134] The plaintiff has failed in establishing its claim for specific performance or its claim for alternative relief.

[135] It follows that the orders which should be made are:

(a) Each of the four contracts of sale dated 18 March 2003 which are the subject of this proceeding were validly terminated by notice given on behalf of the defendants to the plaintiff dated 3 June 2003, because of a breach by the plaintiff of special condition 9(a) of each contract of sale;

(b) The deposits totalling the sum of $780,000 paid by the plaintiff pursuant to the said contracts of sale are forfeited to the defendants.

[136] If the plaintiff were unsuccessful in obtaining specific performance, the plaintiff sought a declaration that each of the four contracts was not liable to transfer duty, because the contract was ended, because of a breach of it by a party to it, within the meaning of s 115(1)(a) of the Duties Act 2001. That is not a matter in issue in this proceeding. It is not appropriate to make such a declaration, in the absence of submissions from all parties whose interests would be affected by such a declaration.

[137] It is common ground that it would be appropriate for an order to be made removing the caveats lodged by the plaintiff in respect of the subject land. The making of that order, however, requires further information to be furnished to the court on the details of the caveat.

[138] I will hear the parties on the issue of costs, before making orders dealing with the costs of the proceeding.

At a glance

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Judgment (194 paragraphs)

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Cases Cited (2)