Luxury Homes Pty Limited v Margaret Patricia Lanham [2009] NSWSC 873 | Case summary

Luxury Homes Pty Limited v Margaret Patricia Lanham [2009] NSWSC 873 | Case summary | Zoe

55022 of 2008 LUXURY HOMES PTY LIMITED v MARGARET PATRICIA LANHAM JUDGMENT 1 The plaintiff, Luxury Homes Pty Ltd, and the defendant, Margaret Patricia Lanham, entered into a Joint Venture Agreement (the Agreement) in March 2004 to develop land in Frenchs Forest, a northern suburb of Sydney, New South Wales (the Project). The plaintiff claims that the defendant wrongfully repudiated the Agreement for which it is entitled to $1,418,821 in damages. 2 The defendant alleges that the Agreement is void for uncertainty, but if it is not, claims that the plaintiff was in breach of its obligations under the Agreement entitling her to terminate it. The defendant, by Cross-Claim, claims damages for the loss of profit she would have derived from the Project if it had been completed. There is an alternative claim for the costs incurred by the defendant during the Project. Background 3 The managing director of the plaintiff is Barry George Alcock (Mr Alcock) whose son, Jay Justin Alcock (J Alcock), was at all relevant times employed with the plaintiff. Mr Alcock has been involved in property development projects for approximately 34 years and the plaintiff has been similarly involved for the last 6 or 7 years. The plaintiff's involvement has been more in the nature of project management and development than development of land. However the plaintiff developed and completed three sites in the Frenchs Forest and nearby Killarney Heights area in 2004. 4 The defendant owned three properties in the Frenchs Forest area being, 19 Sturt Street and 75 Forest Way outright and 17 Sturt Street as a joint tenant with her husband. In about 2001 the defendant had a conversation with the owners of 77 Forest Way, Barry and Jenny Nolan (the Nolans), in which she asked them if they would be interested in joining with her to develop the four blocks, being her three properties and the Nolans' property. The Nolans said they were interested but would prefer to give the defendant an option over their property rather than being a "partner" with the defendant. In about 2001 the defendant had a conversation with J Alcock (whom she had met socially in 1997) in which he informed her that Mr Alcock was doing some property development in the Frenchs Forest area and would be interested in doing a development with the defendant. At about this time the defendant spoke briefly with Mr Alcock but decided she would try to do the development herself. Her plan was to develop her properties and the Nolans' property by demolishing all existing buildings and constructing 19 home units for "over 55" purchasers. After 18 months and $60,000 in costs, the defendant decided it was "not worth" pursuing the development any further. 5 Mr Alcock became aware of the defendant's abandonment of her development plans and met with her in January 2004. The following conversation took place:

When should we meet? Of course you and I should meet earlier so that we have a firm policy. 54 On 2 February 2007 the defendant requested a copy of the contract between the plaintiff and the Nolans and a breakdown of what the Nolans could expect to make out of the development if they stayed in it. The defendant also agreed to meet the following week and asked Mr Alcock to clarify what he meant in relation to the DA for the three blocks. She asked whether they could modify the current DA or was it the case that a development with only the three blocks was not possible. 55 On the same day Mr Alcock advised that his conversations with the Nolans were along the lines of trying to organise the Nolans pay out. He provided the defendant with a copy of the agreement with the Nolans and said that the basic premise on the deal was that the Nolans would get about $1 million. Meeting with the Nolans - 8 February 2007 56 A meeting was arranged between the plaintiff, the defendant and the Nolans for 8 February 2007. Prior to the meeting the defendant had a brief conversation with Mr Alcock in which he advised her that he was going to offer the Nolans $700,000 immediately and $125,000 on completion. The defendant agreed that she would leave the negotiations to Mr Alcock. At the meeting Mr Nolan advised that they wanted $825,000 paid as soon as possible and not by instalments. He requested that any proposals be put in writing and that he and Mrs Nolan would consider them. After the meeting Mr Alcock advised the defendant that he would formulate a proposal to put to the Nolans. Mr Alcock said he thought there were two options; first, to offer to pay $700,000 immediately and $125,000 as soon as finance allowed; secondly, to offer $700,000 immediately and $300,000 when the development was sold. The defendant observed that the Nolans had said they wanted to be paid in full upfront and wondered why Mr Alcock was continuing to offer the split payments. The defendant claimed that after the meeting she received a telephone call from Mr Nolan confirming that they would only accept a full upfront payment and no split payments. 57 On 13 February 2007 the defendant asked Mr Alcock to provide any proposal to her prior to it being put to the Nolans. On 7 March 2007 Mr Alcock advised the defendant that he had been working with "our broker on the refinance to buy out" the Nolans and that the broker believed that "we can do it but he needs to know whether if you buy it would we need what is called a low doc loan or would you provide details of your income and see if it stacks up". March/April 2007 58 On 20 March 2007 the defendant wrote to Mr Alcock emphasising that it had been two months since the meeting with the Nolans which seemed an inordinate length of time to put together the two suggestions they were interested in; to pay them $700,000 immediately and $125,000 as soon as finance allowed; or pay them $700,000 now and $300,000 when the development was sold. The defendant requested that Mr Alcock advise her when he could show her what he thought would work. There was further discussion between the defendant and Mr Alcock in relation to the defendant's assets and capacity to pay any loans. 59 On 21 March 2007 the defendant advised Mr Alcock that as she understood the development, the loan repayments would come out of the refinancing and she would not be expected to pay any additional loan repayments and requested confirmation of her understanding. On the same day Mr Alcock advised by email that there were "several steps"; firstly to get an investment loan to buy the Nolans' block; then to generate enough funds to pay for the costs related to the construction; and when they were ready to undertake construction, to borrow for that purpose with interest capitalised thereafter. The defendant wrote back immediately after this communication as follows:

Proceedings commenced 89 The plaintiff commenced these proceedings by Summons and Technology and Construction List Statement filed on 29 February 2008. The defendant filed an Amended Technology & Construction List Response on 27 March 2009 and the plaintiff filed its Amended Reply on 22 May 2009. In the Technology and Construction List Statement the plaintiff contended that on 22 March 2004 the plaintiff and the defendant agreed, inter alia, that the plaintiff would acquire the Nolan's Land (par 2.1). The defendant admitted paragraph 2.1 of the List Statement in her Amended List Response (par 2(d)). The plaintiff also contended (and admitted by the defendant) that the cash required to acquire the Nolan's Land, to discharge the mortgages on the defendant's properties and to meet all "cash costs" of the Project, would be raised by way of loan from a financier (par 2.3). 90 In her Amended List Response the defendant contended that, "from December 2005 to 8 August 2007 the Plaintiff took the view that it should wait for the market for the proposed townhouses to improve before taking any substantive steps to advance the project, including potentially waiting for up to 5 years from the date the development consent was granted" (par 20). In answer to this contention, the plaintiff contended in its Amended Reply that inherent in the plaintiff's obligations in respect of the Project was the responsibility of both the plaintiff and the defendant "to decide when and, where applicable, with whom, and on what terms to proceed with obtaining development consent, construction, finance and marketing" (par 13.2). It contended that as at December 2005, it was necessary to finalise the purchase of the Nolans' property before substantive progress could be made toward "achieving the project objective" (par 13.3); and as at the same date it would not be in the best interests of the plaintiff and the defendant to undertake the construction phase of the project (involving the raising of loan capital to cover construction costs) unless market conditions for the sale of the townhouses to be built at prices which would yield a profit for the venture prevailed (par 13.4). 91 The defendant filed a First Cross-Claim Cross-Summons and a Technology and Construction List Cross-Claim Statement on 28 April 2008. The plaintiff filed a Response to Cross Claim on 12 May 2008. The defendant claims that by reason of her lawful termination she suffered a loss of the bargain, being 37.5% of the profit of the completed Project. The defendant makes an alternative claim for wasted costs plus the difference between the rental receipts from those properties and the costs of servicing the mortgages on the properties during the period 1 January 2006 to the date of sale of those properties. 92 The proceedings were heard on 10, 11, 12 and 13 August 2009 when Mr VRW Gray, of counsel, appeared for the plaintiff and Mr VF Kerr, of counsel, appeared for the defendant.

The Agreement 94 The plaintiff contends that the Agreement is constituted by one document, the Heads of Agreement signed by both parties. The defendant contends that the plaintiff's letters of 27 January 2004 and 12 February 2004 and the defendant's letter of 22 March 2004 also form part of the Agreement. 95 The defendant contends that the letter of 22 March 2004 was her offer to enter into the Heads of Agreement. The defendant requested that the plaintiff sign the letter and return it to her with the signed Heads of Agreement. It is common ground that the plaintiff signed the Heads of Agreement but did not sign the copy of the letter of 22 March 2004. It is also common ground that the Heads of Agreement signed by the plaintiff was not returned to the defendant until December 2005. 96 The defendant submitted that after receiving the defendant's letter of 22 March 2004, the plaintiff commenced work on obtaining the development approval and that this conduct evidences acceptance of the defendant's offer. In support of this submission the defendant relied on Brogden v Metropolitan Railway Co (1877) 2 App Cas 666. In that case the directors of the Railway Company (the company) sued the owners of a colliery (the owners), who supplied the company with coal and coke for use in its locomotives, for damages for breach of contract. The company forwarded a draft written agreement to the owners who made only one amendment by the insertion of a name of an arbitrator to deal with any disputes between the parties under the contract. The draft agreement was not signed by the owners but was sent back to the company with that one amendment. It appears that the amended document was simply placed in the drawer at the company's premises and never executed by either party. However, the parties acted in accordance with the terms of the draft agreement as to quantity and price from the specified date in the agreement. 97 In the company's action against the owners for breach of contract the owners claimed that there was no contract. The company succeeded at first instance and on appeal. The appeal to the House of Lords was dismissed. The Lord Chancellor, Lord Cairns, said at 680:

What I would ask of you is that I receive an update report on the last Friday of each month, as to what progress has happened during the previous month. That way I won't bother you with phone calls as I will want to know what is happening. 101 The letter made no provision as to the form in which any "update report" was to be provided. Certainly there were many communications between the plaintiff and the defendant during the period March 2004 and August 2007 but they could not fairly be characterised as monthly update reports. This part of the letter includes a fall back position that, if the update reports were not provided, the defendant would then have to "bother" the plaintiff with phone calls because she would, as the letter stated, want to know what was happening. There was no suggestion in the letter that the defendant's signature on the Heads of Agreement was conditional upon the plaintiff's signature on the letter. Although the defendant requested that the plaintiff let her know if there were any "concerns" in relation to her request, she did not make the plaintiff's agreement to her request conditional to her agreement to the terms of the Heads of Agreement. 102 I am not satisfied that the defendant's letter of 22 March 2004 formed part of the Agreement between the parties. 103 The plaintiff's letter of 27 January 2004 was a proposal for "the most suitable way" of proceeding with the development of the defendant's land and of purchasing the Nolans' property. The plaintiff invited the defendant to sign a copy of that letter if she agreed with the proposal within it. She did not do so. There was no reference to this letter in the Heads of Agreement. The plaintiff's letter of 12 February 2004 was an explanation to the defendant of how the risks of the joint venture could be minimised. That letter was referred to in the plaintiff's letter of 15 December 2005 to the defendant as "the mechanics of the deal". When the defendant's then solicitor wrote to the plaintiff on 20 February 2004, he requested a "formal agreement". The Heads of Agreement document was provided in response to that request and was signed. 104 I am satisfied that the plaintiff's submission in respect of the Heads of Agreement should be accepted. The contract between the plaintiff and the defendant is constituted by the Heads of Agreement signed by both parties (the Agreement).

108 A finding that a contract is void for uncertainty is a draconian solution and it is important to remember the traditional doctrine that courts should be astute to adopt a construction which will preserve the validity of the contract: Meehan v Jones (1982) 149 CLR 571 per Mason J, as his Honour then was, at 589. 109 In the present case the defendant submitted that there are numerous matters that a joint venture agreement for a substantial property development needs to address with care and precision. In this regard the defendant relied upon Koompahtoo Local Aboriginal Land Council v Sanpine Pty Limited (2007) 233 CLR 115 in which the subject joint venture agreement was a most detailed document. That joint venture agreement was in relation to a very large area of land in respect of a project to be undertaken by the Local Aboriginal Land Council that included necessary rezoning of land and sensitive environmental issues. Although the development in the present case may be a smaller project, it was still necessary for the agreement between the parties to address the essential elements of their bargain. In the present case the Agreement was to "develop and sell townhouses" in a residential area without the need for rezoning and, it would appear, without the need to address any sensitive environmental issues. The defendant submitted that the Agreement is "embarrassingly brief". Brevity, of itself, does not mean that an agreement fails for uncertainty. It will depend upon the aim and objective of the parties and whether they have agreed on the essential terms of their bargain. 110 The defendant was not a party to the Heads of Agreement between the plaintiff and the Nolans (the Nolans' Agreement), nor was that agreement referred to in the Agreement. The defendant was not consulted in relation to the terms of the Nolans' Agreement nor was she made aware of its terms until February 2007. The plaintiff's letter of 12 February 2004 (the "mechanics of the deal") made no mention of the Nolans' property. The original proposal in the plaintiff's letter of 27 January 2004, although not free from ambiguity of what was to happen in relation to the Nolans' property, was understood by both the plaintiff and the defendant to mean the plaintiff would purchase that property. Indeed on the "pleadings", the parties are ad idem as to that matter. 111 There was no provision in the Agreement as to the price that was to be paid for the Nolans' property, nor was there any provision in relation to: the date upon which such property would be included in the development; the method of how to "include" the property in the joint venture; or the nature and/or extent of the available equity in each property for the purpose of its use as security pursuant to clause 3 of the Agreement. 112 The Agreement makes no provision for the period within which the development of the site was to be completed nor does it identify the role each of the co-venturers was to have in determining the acceptability of the fundamental aspects of the Project which would determine its financial viability. Although the Agreement provided that the development would "include" the Nolans' property, it was silent as to how, if at all, the share of the profits would be affected by any liability to the Nolans for the inclusion of their property. Although the Agreement referred to the plaintiff and the defendant agreeing to "enter a joint venture", the venture necessarily involved the Nolans because the plaintiff's agreement with them factored in a percentage of the profits from the development as part of the so-called "sale price" to be paid to the Nolans at the conclusion of the development. The Agreement provides a regime for distribution of the profit at the conclusion of the development with no mention of any amount being paid to the Nolans. It is not possible to ascertain from the terms of the Agreement the parties intention as to whether any amount to be paid to the Nolans was to be a "cost" to the joint-venture and thus an amount to be taken into account prior to the ascertainment of the "net proceeds"; or whether it was to be categorised as a "remaining" cost; or whether it was to be the plaintiff's liability to pay the Nolans out of the 62.5% of the development profit to be paid to the plaintiff.

It is established by authority, both ancient and modern, that the courts will not lend their aid to the enforcement of an incomplete agreement, being no more than an agreement of the parties to agree at some time in the future. Consequently, if the lease provided for a renewal "at a rental to be agreed" there would clearly be no enforceable agreement. On the other hand, it is also well established that the parties to a contract may leave terms - even essential terms - to be determined by a third person: see the cases cited in Godecke v Kirwan [(1973) 129 CLR 629 at p.645]. In the present case, the lease itself provides the entire mechanism for determining the rental for the renewed term. There is no further agreement required of the parties. 116 The defendant submitted that in the present case an essential aspect of the bargain between the plaintiff and the defendant is absent from the Agreement. The plaintiff's Amended Reply made a general denial that the Agreement is void for uncertainty (par 2). It contended that both the plaintiff and the defendant had to decide when and, where applicable, with whom, and on what terms to proceed with obtaining development consent, construction, finance and marketing (par 13.2). The defendant submitted that where there is such a requirement, particularly in a venture such as the present for the development of property, it is imperative to have a mechanism agreed between the parties as to how any disagreement on such matters can be resolved. It was submitted that the absence of such a mechanism means that the agreement is "incomplete" and consistently with Booker Industries v Wilson Parking the Court would not lend its aid to the enforcement of such an agreement. 117 Clause 3 of the Agreement relating to the use of the four properties as security for development finance is vague and obscure. There is no certainty as to how the four blocks were to be used as security, nor was there any provision dealing with the extent to which each of the blocks would be mortgaged or encumbered for the purposes of obtaining development finance for the joint venture. The plaintiff's letter of 12 February 2004 advised the defendant that the plaintiff would not "deal with the property" (whatever was meant by that expression) without the defendant's permission. It also advised the defendant that after development approval was obtained the "property" and "the project" would be valued for the purpose of "refinancing and borrowing for construction". Even when the 12 February 2004 letter is taken into account, there is no prospect of ascertaining the parties' intentions in relation to the way in which the defendant's properties were to be used as security in accordance with clause 3 of the Agreement. It was left to further agreement by the plaintiff obtaining the defendant's "permission" to use her properties as security, with no mechanism for resolving any dispute in relation to the lack of permission, either generally or in respect of any aspect of the requirements of any prospective mortgagor. There was no capacity to ascertain the parties' intention as to what should occur if, for instance, the Nolans did not wish their property to be mortgaged for more than a particular amount, having regard to the fact that their property was apparently only 25% of the development site.

118 The defendant submitted that Clause 4 of the Agreement does not identify the most basic information to define the development. The defendant's submission in this regard should not be understood as requiring precise detail as to drawings, fittings and the like, but rather a requirement that the intentions of the parties as to how they were to develop not only the defendant's land but the land belonging to someone who was not a party to the joint-venture, the Nolans. As I have said above, there was no recognition of how the Nolans' property was to be brought into this development or how the defendant was to deal with the Nolans or their property in the joint venture. 119 There was certainly no indication of the number, size, configuration and design of the townhouses, the materials to be used in their construction or the program for completion of the development. Mr Gray submitted that this is not surprising because the development consent had not been granted at the time of the Agreement. There is some force in that submission. Mr Gray also submitted by way of example, that a partnership agreement between two people to practise as solicitors does not require them to include within it, their hourly charge out rates; the identity of their clients; the number of employees; or the detail of the premises from which they intend to practise. It was submitted that the absence of these matters from a partnership agreement does not make it void for uncertainty and that the same is true of the Agreement in this case. This analogy is not really helpful in the analysis of the circumstances of this case. Each case must be assessed on its own facts. In any event it may well be that in the example given by Mr Gray, such a loose agreement between two parties who want to practise together as solicitors might, without more, be unenforceable. 120 Consistently with what was said by the High Court in Booker, parties can agree in general terms to develop land and sell the constructed buildings on that land in a joint venture, leaving the mechanics of that development to be determined by some mechanism, but this was not such an agreement. This Agreement purports to be the "formal" agreement between the parties and does not contain any such mechanism. The so-called "mechanics of the deal", the letter of 12 February 2004, does not provide the mechanism for resolving any disputes between the parties nor does it remove the obscurities so that the contractual intentions of the parties in this regard can be ascertained. 121 Clause 5 of the Agreement is also obscure. The expression "net proceeds of sale" in the regime for distribution suggests that the distribution will be after all costs are paid. However clause 5(c) refers to the payment of "any remaining development or selling costs". It is not possible to ascertain with any certainty what is meant by the expression "remaining" costs that were to be paid in priority to the defendant being paid her percentage of the "development profit". These so called "remaining" costs were of significance to both parties. It was important that the plaintiff be reimbursed for its costs but it was also important that the defendant knew what costs were to be deducted prior to the distribution to her of the 37.5% of the development profit. There is nothing to explain the apparent contradiction in the expressions "net proceeds" and "remaining" costs. It is simply not possible to ascertain the intention of the parties in this regard. 122 It was also submitted that this clause does not identify who is to pay for the costs prior to finance being obtained or in the event finance or sales proceeds are insufficient to pay them. These were essential matters for agreement, not merely mechanical matters to be put in place at a later time. Indeed even when the letter of 12 February 2004 is taken into account, it is simply not possible to know what the parties intended should happen in relation to those costs. Clause 6 of the Agreement deals with the liability for costs only if there is agreement to discontinue the development application and the Project. Otherwise the Agreement is silent on this topic. Clause 6 also has the problem of the absence of any mechanism to resolve a dispute about whether to discontinue the application and/or the Project. 123 Clause 5(b) is also obscure. This was the second priority in the distribution regime said to be the "original equity" in the defendant's properties "less the present mortgages". It requires an assessment of the "present mortgages" without identifying the date on which the value of each of the mortgages was to be assessed as "present". The Agreement is undated and it is not clear whether the date for making that assessment was the date of the signing of the Agreement by either party or whether the parties intended that the values of the mortgages were to be assessed at the time of refinancing, after the Nolans' property was included in the proposed development. 124 I am of the view that essential aspects of the bargain are missing from the Agreement including: the obligations of both parties in respect of the Nolans' property; the Nolans' obligations in respect of the use of their property in the joint venture; the obligations in relation to the costs of the development, other than if the parties abandoned the Project prior to development approval; the intentions of the parties in respect of the costs of the development up to the stage of construction finance, except in the circumstance that the parties decided to abandon the project; the intentions if one party decided to abandon the Project prior to development consent but the other did not wish to do so; the intentions of the parties if one party wished to abandon the Project after development consent was obtained; the costs that were to be taken into account to ascertain the "net proceeds" of the development; the costs that were to be categorised as "remaining costs; and the mechanism for resolving disputes between the parties. It is not possible to identify any definite or precise meaning whereby any particular contractual intention can be attributed to the parties in respect of these essential matters. 125 It is true that the parties continued on in their unsatisfactory relationship for three and a half years. That fact, of itself, does not mean that the Agreement is certain and enforceable. Rather the frustration of the defendant in trying to ascertain what was happening with the development and attempting to bring some definition to the relationship is indicative of the uncertainty of the Agreement. 126 The plaintiff's submissions were that the contract was not uncertain and no submissions were made in relation to the possible severance of any clauses of the contract should any parts of it be found to be void for uncertainty. The parties approached this aspect of the matter on the basis of the whole, or no part, of the contract being void for uncertainty. This Agreement was uncertain in respect of many essential matters left either for future agreement or simply left unsaid that I am satisfied it is void for uncertainty. The plaintiff's claim to enforce it must fail. However I will consider the other claims as if the Agreement were enforceable.

Implied Term 127 The defendant claims that in all the circumstances a term requiring the plaintiff to report to the defendant all material information concerning the progress of the Project should be implied into the Agreement. The defendant also submitted that the relevant facts against which this claim should be assessed include that: the plaintiff was to have the exclusive role of carrying out all work associated with the Project; the defendant had no experience in property development and to the plaintiff's knowledge, was reliant on the plaintiff's expertise and skill; and the brevity of the contract document, in particular the failure of the Agreement to address communication requirements between the co-venturers. It was submitted that such a term is reasonable and equitable; is essential to give business efficacy to the Agreement; is obvious; is capable of clear expression; and does not contradict any express term of the Agreement: BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 283. 128 The defendant submitted that this was a substantial investment in a Project in which she had no experience and over which her co-venturer would exercise significant day-to-day control. The defendant needed to have timely information concerning the Project to enable her to protect her interest in the development and otherwise. Mr Alcock conceded in cross-examination that the defendant was entitled to be kept informed of what was happening with the progress of the development (tr 126). The plaintiff claimed expertise in property development and although the defendant had no such expertise, she was a co-venturer and was entitled to be kept informed of material information that affected her financial position. "Material" information in this context was information of importance or significance that was relevant to the progress of the development. That included the progress with the steps to "include" the Nolans' property in the Project and the steps in the process for obtaining finance for the development. 129 The defendant was servicing three mortgages and the longer the Project took the greater the burden on the defendant. The correspondence between the plaintiff and the defendant evidences the defendant's concern to have the development move forward in a fashion that would enable her to have some certainty in respect of both her financial position and the outcome of the development. In all those circumstances I am of the view that: such a term was just and equitable; the efficacy of the business arrangement between the parties required the co-venturer, the defendant, to be kept informed of material matters relating to the progress of the Project; such a term goes without saying and is obvious; and it is not inconsistent with any of the express terms of the contract. 130 I am satisfied that if the Agreement were otherwise enforceable, it included the implied term that the plaintiff would keep the defendant informed of material information concerning the progress of the Project.

The Nolans' Property 131 It is common ground that it was the plaintiff's obligation to acquire the Nolans' property (par 9(a) of the List Response; par 3 of the Amended Reply). It is also common ground that the plaintiff would perform the obligation of acquiring the Nolans' property "within a reasonable time" (par 9 of the List Response; par 3 of the Amended Reply). The evidence establishes that unless the four blocks, including the Nolans' property, was held in one name or alternatively, unless the registered proprietors of the four blocks were active participants in the joint venture, finance would probably not have been available because the financiers and builder's insurer would insist on contracting only with the owner(s) of the land. 132 The plaintiff submitted that a "reasonable time" for the acquisition of the Nolans' property should be determined by reference to the timeframe within which the Project could be completed and the stage at which availability of the Nolans' property became essential for the orderly achievement of the joint venture objective. The plaintiff submitted that at the earliest, this was when construction finance was arranged and at the latest, it would occur fourteen days after completion of the Project, if the Nolans' property at that time had still not been purchased. The plaintiff knew that the development consent was for a project that included the Nolans' property and Mr Alcock advised the defendant that the project could not proceed without the Nolans' property. However the plaintiff pressed on with the submission that there was no need to acquire title in the Nolans' property until the completion of the Project. That defies the reality of the situation in which the Nolans changed their position in December 2005 and advised that they would not allow their property to be used as security to obtain finance for the development. 133 The plaintiff submitted that there was a fundamental change in circumstances once the Nolans expressed a desire that their property be purchased outright before the Project was completed. The plaintiff does not contend that the Nolans were entitled to insist that their property be purchased before completion of the Project, or correlatively, that the plaintiff was legally obliged to purchase the Nolans' property before completion of the Project. Rather it was submitted that it so happened that the real estate market in the area between December 2005 and mid 2007 was not buoyant and accordingly it was not opportune for the Project to be advanced. It was submitted that this circumstance enabled the plaintiff to undertake negotiations to see whether it would be possible for the Nolans' property to be purchased on terms which the joint venture could finance. It was also submitted that the fact that no agreement was reached with the Nolans prior to August 2007 was not the fault of the plaintiff. 134 The defendant submitted that irrespective of the Nolans' legal obligations under their Heads of Agreement with the plaintiff, in December 2005 they indicated that they would only participate by selling their property. It was submitted that for the next twenty months the plaintiff's efforts were directed to finding a means by which the Nolans' property could be used in the Project without it being acquired by the plaintiff. The defendant contended that by the end of June 2007 the defendant's efforts had come to nought, so that it was driven to threatening the Nolans with legal action to enforce the Heads of Agreement. It was also submitted that three and a half years had passed since the Agreement with the plaintiff was struck and some nineteen months had passed since development approval had been granted. It was submitted that by 8 August 2007 a more than reasonable time had passed for the plaintiff to have acquired the Nolans' property and the plaintiff's failure to do so by that time entitled the defendant to terminate the Agreement.

135 The defendant submitted that at all times after December 2005 the plaintiff lacked the means to acquire the Nolans' property. The defendant had no obligation to purchase the Nolans' property, however all the proposals that were put forward by the plaintiff after December 2005 involved the defendant doing so. By July 2007 the plaintiff proposed that an offer be made to the Nolans for the defendant to purchase the Nolans' property for $850,000, with $150,000 to be paid on Project completion. The Nolans rejected that proposal because it lacked certainty and finality. 136 The Nolans' Agreement with the plaintiff provided that the plaintiff would apply for development consent for townhouses to be constructed on their property and those of the defendant (cl 1). It also provided that if development consent was granted the plaintiff and the Nolans "will enter into a contract for sale in respect of" the Nolans' property. It was not a contract for the sale of that property, but rather a contract for sale "in respect of" the property. Settlement of such sale was not until 14 days after the date on which construction of the townhouses on the property, and the defendant's land, was completed (cl 4). The Agreement also provided for a sale price to be fixed by reference to the profit on the development and sale of the townhouses. 137 There was reference in the communications between the plaintiff and the defendant to the enforcement of the Nolans' agreement. Whether it was enforceable or not, it was not an agreement by which the plaintiff acquired the Nolans' property. It contemplated the construction of townhouses on the Nolans' property and the subsequent sale to people nominated by the plaintiff: (cl 1, 4 and 7). It was an agreement pursuant to which the Nolans remained involved in the development until the construction of the townhouses was completed and were obliged "on completion of the project" to execute transfers to those persons nominated by the plaintiff. The Nolans' Agreement is in parts vague and obscure. There is no identification of any rights or obligations in respect of the particular use to which the Nolans' property would be put in the development, including how title in one or more townhouses would pass to the Nolans so they could then transfer them to prospective purchasers. Although clause 3 of the Nolans' Agreement referred to entry into "a contract for sale in respect of" their property, this was not an agreement for the sale of the Nolans' property to the plaintiff but for the construction and sale of townhouses to persons nominated by the plaintiff: see also Luxury Homes Pty Ltd v Danieli & Anor [2005] NSWSC 379 per White J at [22]. 138 The Agreement provides that the development was to "include" the Nolans' property, however the pleadings establish that it is common ground that the plaintiff would "acquire" the Nolans' property. The plaintiff did not enter into an agreement with the Nolan's to acquire their property. Rather, as stated above, it was an agreement to construct and sell townhouses that would be the subject of some arrangement and/or agreement by which the Nolans would, on payment of the sale price (calculated on the basis of $700,000 plus 12.5% of the profit on the development), became owners of one or more townhouses and transfer them to the persons identified by the plaintiff. 139 The plaintiff submitted that whether the market conditions were so poor as to make proceeding with the Project financially unwise depended upon a careful assessment of a number of matters including: the likely cost and timeframe for construction of the townhouses; other costs such as consultants and regulatory costs likely to be incurred in carrying out the Project; the likely sale prices of the completed townhouses; and the availability and cost of finance. Indeed these were the very matters referred to in the plaintiff's letter to the defendant of 15 December 2005. The defendant submitted that during the entire period from February 2006 to August 2007 the only independent, objective material obtained by the plaintiff was from Carritt Taylor Valuations in its report of 21 March 2006. That valuation was not provided to the defendant until after August 2007. Although the valuation does not assess the value of the Project, it gave a positive market commentary stating that: the residential real estate market was demonstrating a more positive mood; that prices had bottomed out with a noticeable increase in enquiries in recent months; with an ever increasing demand for modern low maintenance accommodation suitable for seniors living. The defendant submitted that this positive market view expressed by Carritt Taylor was not consistent with the view repeatedly expressed by Mr Alcock to the defendant. 140 The suggestion made by the plaintiff in its communications with the defendant that it may have to enforce the agreement with the Nolans could not fairly be understood to be a reference to enforcing the acquisition of the property prior to the completion of the development, but rather an attempt to have the Nolans make their property available to the plaintiff and the defendant for the purpose of using it as security for the development pursuant to clause 5 of the Nolans' Agreement. The success of such an action in the circumstances as presently known particularly with such vague and obscure language in the Nolans' Agreement, would in my view be far from probable. That view is based on the facts in the present case uninformed by any evidence in respect of the plaintiff's negotiations and discussions with the Nolans, of which the defendant was not made aware. 141 The defendant claimed that as at 8 August 2007 the plaintiff had evinced an intention not to perform its obligations under the Agreement to "include" the Nolans' property in the Project. The defendant submitted that the evidence establishes that at all times she was ready, willing and able to comply with her obligations under the Agreement by the provision of her properties for the Project. The defendant certainly made every effort to assist in the purchase of the Nolans' property. When some of her friends expressed an interest in becoming involved, the defendant's efforts in this regard were thwarted by the plaintiff's failure to provide the defendant with relevant information so that she could provide it to those prospective interested parties. The defendant also agreed to make an offer to purchase the Nolans' property herself, but the plaintiff was not willing to assist by being party to a payment, other than a part payment at the conclusion of the construction or at the time a construction certificate was obtained. It was very clear that the Nolans did not wish to accept a split payment, yet the offers were made on that basis. 142 Mr Alcock's evidence that he was concerned that the plaintiff and the defendant did not have the burden of mortgaged townhouses on their hands in a market that was flat must be considered in the light of the far more positive views expressed by the valuers in March 2006. The longer the plaintiff waited to purchase the Nolans' property, the more likely it was that there would be an increase in its value and price. Even if the correct assessment is that the market was flat during the period 2006 to 2007, it is also necessary to factor in the timeframe within which the development could be concluded. It would not seem sensible to wait until the market rose to commence construction. The ideal situation would be to purchase the Nolans' property when the market was flat; construct the development as the market rose; and sell when the market was recovering or had recovered. The plaintiff's failure to advance the matter between December 2005 and August 2007 meant that the Nolans' property was not acquired before the market was rising. 143 The plaintiff submitted that had the defendant not terminated the Agreement, the plaintiff could have enforced the Nolans' Agreement. It was submitted that acquisition of the Nolans' property was not necessary until the Project was completed. That may be an accurate submission based on the premise that the Nolans' Agreement was enforceable. However the plaintiff knew very well from December 2005 that the Nolans had decided not to allow their property to be used as security for the development. It was at this time that steps needed to be taken to identify some form of finance or security that would be available to purchase the Nolans' property. The plaintiff did very little in this regard and the efforts it did make were based on the flawed premise of making an offer that involved a split payment. This so called "negotiation" went on for the whole of 2006 and was still not anywhere near conclusion by the time the defendant terminated the Agreement. 144 The meeting between J Alcock and the defendant on 17 May 2007 resulted from the defendant's frustration at the lack of progress of the development. At that meeting a timetable was agreed which included the "refinance" by mid June 2007. It was on 7 June 2007 that Mr Alcock advised the defendant that before refinancing could be finalised a decision had to be made as to how much "in addition to the $700,000" would be offered to the Nolans. Mr Alcock persisted, against the objection of the defendant, with making an offer to the Nolans that involved the split payment. Not surprisingly that offer was rejected on 26 June 2007. 145 The defendant rightly questioned Mr Alcock when on 6 July 2007 he suggested that the defendant had a choice to put an offer to the Nolans. She rightly pointed out that it was Mr Alcock who had been negotiating alone with the Nolans without consultation with her and, as she put it "now you are again in another predicament and so it is back with me". 146 I should say something about the expert evidence called by the parties. The plaintiff relied upon the evidence of Robert Campbell a licensed real estate agent in support of its claim for damages. It also relied upon Mr Campbell's evidence in response to the evidence of the defendant's expert Glenn Lewis Peisah a registered real estate valuer. Mr Peisah expressed opinions in relation to a reasonable timeline within which steps would be taken in a property development generally and with some regard to the facts in this case. However the evidence of these experts is not of assistance in determining whether in the particular circumstances of this case the defendant was entitled to terminate the Agreement by reason of the plaintiff's failure to "include" the Nolans' property in the development. 147 The plaintiff contends that a "reasonable time" within which to include the Nolans' property for the development had not been reached by August 2007. I disagree. The tardiness with which the plaintiff approached the task to "include" the Nolans' land in the development was exacerbated by a failure to consult with the defendant appropriately and a failure to recognise that the only way forward to acquire the Nolans' land was without a split payment. To persist with making such offers was merely to delay the matter even further.

Breach/Termination 148 The defendant alleged that the first breach upon which she is entitled to rely to terminate the Agreement was the failure by the plaintiff to provide her with regular "update reports". I have found that the letter of 22 March 2004 was not part of the Agreement and accordingly that claim must fail. However the next claim made by the defendant is the alleged breach of the implied term to provide the defendant with material information in relation to the progress of the Project. There were clearly instances where the plaintiff did not provide prompt answers to the defendant's questions. It is obvious that the plaintiff could not provide answers to the defendant's questions until the Nolans' property was brought into the development and was able to be used, consistently with the Nolans' Agreement as security, for the Project. The plaintiff's failure to progress that aspect of the matter meant that nothing material was really happening in relation to the Project. Between February 2006 and 17 May 2007 when the defendant met with J Alcock, nothing of significance happened in the Project. The Project was simply not progressing. 149 I am satisfied that the plaintiff was not in breach of the implied term. 150 I am satisfied however that the plaintiff was in breach of its obligation to acquire the Nolans' property. As I have said earlier, that obligation is common ground by reason of the plaintiff itself pleading that it was its obligation and the defendant admitting it. Even putting the acquisition to one side, I am satisfied that the plaintiff was in breach of its obligation to "include" the Nolans' property in the Project. Whether it did this by negotiation with the Nolans so that the defendant was not disadvantaged or whether it sought to enforce the Heads of Agreement (such as they were) with the Nolans; or whether it simply purchased the Nolans' property pursuant to the suggested $825,000 price, I am satisfied that the plaintiff failed to proceed within a reasonable time to do so. I am satisfied that the defendant was entitled to terminate the Agreement by reason of the plaintiff's failure in this regard. 151 The plaintiff's claim against the defendant will be dismissed. Defendant's Claim for Damages 152 The defendant successfully claimed that the Agreement was unenforceable by reason of its uncertainty. In those circumstances the defendant's claim for damages for breach does not need to be considered. However because I have approached the matter on the basis that I would decide the issues on the presumption of enforceability, it is appropriate to deal with this aspect of the matter.

153 The defendant claimed that the lawful termination of the Agreement on 8 August 2007 entitles her to damages for the loss of bargain arising from that termination. The defendant called no evidence to establish the loss of bargain case and the only claim that was pursued was the difference between the rental receipts of the properties and the mortgage payments for the period January 2006 to the date of sale of the properties. 154 The defendant claims damages for the costs she incurred in continuing to hold her three properties after January 2006. The evidence establishes a holding cost for that period of $192,554.43. It was submitted that had the plaintiff performed its obligation to acquire the Nolans' land and attend to the construction, financing and marketing of the Project within a reasonable time then by January 2006 the defendant would no longer have been bearing those costs. 155 The development approval obtained by the plaintiff was at its cost, albeit that the defendant paid $30,000 towards those costs. The costs of obtaining the development approval were quantified in the plaintiff's letter of 1 February 2006 at $153,384. The plaintiff advised the defendant it would incur further professional fees to obtain the construction certificate and for contract administration and project management estimated at $150,000. The plaintiff did not call any evidence to establish the amount of any further costs incurred by it during the Project. The defendant requested verification of the costs referred to in the letter of 1 February 2006. Although there was some conflict between the evidence of the defendant and J Alcock in relation to these requests, the defendant did not call any evidence to suggest that the costs referred to in the plaintiff's letter of 1 February 2006 were not properly incurred. In correspondence post purported termination between the defendant's solicitor and Mr Alcock, the plaintiff claimed that the costs incurred were $182,643. The defendant's solicitor claimed that the tax invoices suggested that the correct figure was $171,686.95. In all the circumstances I intend to take this latter figure as the costs incurred by the plaintiff. 156 I think it is reasonable to bring these costs to account in determining the defendant's claim for damages. Although the plaintiff agreed to pay these costs and to recoup them out of the profit of the development, it would not be fair to burden the plaintiff with the whole of these costs in such an assessment. I think it is appropriate that the burden of these costs be borne equally between the plaintiff and the defendant. Accordingly each party would be responsible for payment of $85,843.48. The defendant has already paid $30,000 and her remaining liability for these costs would be $55,843.48 157 The defendant claimed an entitlement to the holding costs for the period January 2006 until the sale of each of the properties. After the Nolans advised the plaintiff and the defendant in December 2005 that their property could not be used as security for construction finance, the defendant continued to negotiate with the plaintiff in relation to the process to be adopted to secure or to attempt to secure the Nolans' property. The unavailability of the Nolans' property as security for the development was the real impediment to progressing the refinance of the properties. It is true that the defendant relied upon the plaintiff to progress the Project and the first step to be taken in that regard was as outlined in the plaintiff's letter to the defendant on 15 December 2005, to mortgage the properties to the bank that would be providing the Project funding. Neither party had the funding absent the Nolans' property, however the defendant continued to discuss with the plaintiff the alternative ways in which the Nolans' property could be brought into the development. It is true that those discussions were less than satisfactory because Mr Alcock did not respond to the defendant's requests promptly. It is obvious that an element of distrust entered the relationship and once Mr Alcock's son met with the defendant in May 2007 a timetable was put in place that required refinancing of the Project by mid June 2007. 158 It became clear in late June 2007/early July 2007 that the plaintiff was not going to acquire the Nolans' property nor were the Nolans going to agree to the alternative methods of acquisition which involved a part payment. I am satisfied that the defendant would be entitled to the holding costs, less the rental receipts for the period July 2007 to the date of sale of those properties. The holding costs for 17 Sturt Street were $33,746.35 or $1,088.60 per month. The holding costs for 19 Sturt Street were $70,001.76 or $2,333.39 per month. The holding costs for 75 Forest Way were $88,806.32 or $2,466.84 per month. Accordingly the defendant would be entitled to 13 and 12 months holding costs for 17 and 19 Sturt Street respectively, totalling $14,151.80 and $28,000.68. The defendant would also be entitled to 18 months holdings costs for 75 Forest Way totalling $44,403.12. 159 The defendant would be entitled to $86,555.60 in holding costs less her liability for the costs of obtaining the development approval of $55,843.48. If the Agreement were enforceable, the defendant would be entitled to entry of judgment in the amount of $30,712.12. Conclusion 160 The plaintiff's claim is dismissed. The defendant's Cross-Claim is dismissed. If the parties are unable to agree on a costs order I will hear argument when the matter is fixed for the filing of Short Minutes of Order at 9:30 a.m. on 25 September 2009.

Luxury Homes Pty Limited v Margaret Patricia Lanham

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Judgment (298 paragraphs)

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Cases Cited (9)