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[2008] VSC 479
mixed. Judgment for the defendant on the plaintiffs' claim. The defendant's drainage claim failed. On the counterclaim, the court declared that the plaintiffs must bear a proper area-based proportion of...
The former joint venture parties had agreed on percentages for sharing drainage costs, but had not settled which drainage works those percentages covered or made a binding agreement. The defendant could not recover drainage costs on that basis. The parties' conduct showed that the conditions for the outgoings clause had been met when documents were placed in escrow on 4 April 2001, so the plaintiffs had to pay a proper share of specified outgoings, calculated by area. The water and sewerage credits were not property belonging to the plaintiffs, and the former fiduciary relationship did not continue after the Heads of Agreement. The plaintiffs' claim therefore failed, while the defendant succeeded only on the outgoings issue.
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2,543 words · generated 29/09/2026
Harry One Pty Ltd and Luciano One Pty Ltd, together referred to as the plaintiffs, and Pentridge Village Pty Ltd, the defendant, had been involved in a joint venture to develop the former Pentridge Prison complex in Coburg. Pentridge Village held the land as Custodian for the joint venture. Disputes led the parties to agree, on 5 December 2000, to divide the land and pursue separate development arrangements. The plaintiffs' part became known as Lot J and the defendant's part as Lot K ([1], [3]-[5], [11]).
3 cited instruments linked from this judgment.
The Heads of Agreement dealt with transferring the Subject Land, subdividing the wider property, holding specified documents in escrow, and allocating costs and outgoings. The subdivision plan was lodged in December 2000 but not registered until 5 April 2002 ([12]). The dispute before Mandie J concerned three financial claims: the defendant's claim for contributions to drainage costs; its claim for outgoings paid in respect of Lot J before subdivision registration; and the plaintiffs' claim that the defendant had wrongfully used water and sewerage credits ([14]-[15]).
The drainage dispute arose from correspondence in 2001. The parties' solicitors exchanged communications indicating that they were prepared to use the cost percentages proposed by surveyors Breese Pitt Dixon. The plaintiffs' proposed share was 47.3%, with the defendant's at 52.7%. But the parties disagreed about whether that exchange made a binding agreement to pay those proportions of the costs ultimately incurred. The defendant claimed $419,184.86, calculated as 47.3% of its asserted total drainage costs of $886,225.94 ([16]-[20]).
The outgoings claim concerned rates, taxes, assessments and other amounts paid by the defendant while it remained responsible for the land. The defendant sought payment under cl.24.3 of the Heads of Agreement. That clause said the outgoings in respect of the Subject Land were to be paid by the Custodian and borne by the plaintiffs from the date all conditions precedent were met, with apportionment on an area basis if the Subject Land was not separately rated ([76]-[78]).
The plaintiffs' claim concerned credits said to arise from fixtures and services that had existed on the former prison land. The evidence described these not as payments by Yarra Valley Water, but as offsets that could reduce charges assessed for later development. The plaintiffs argued that the defendant had used credits referable to Lot J and thereby breached fiduciary duties ([110]-[121]).
Mandie J dismissed the plaintiffs' claim. On the defendant's counterclaim, the judge rejected the drainage claim but declared that the plaintiffs had to bear a proper area-based proportion of $959,177.15 in outgoings. The judgment did not finally quantify that share if the parties could not agree on the relevant area calculation, and left interest and costs for further submissions ([135]-[137]).
The drainage claim failed because the court distinguished agreement on a percentage from agreement on the work to which the percentage applied. The correspondence supported the view that the parties had settled the proposed proportions, but it did not establish what drainage works were included. The 1 June 2001 estimate was based on assumptions, and the court was not satisfied those assumptions had later become agreed contractual terms ([71]-[74]).
The documentary context also suggested that the parties expected a fuller agreement. The plaintiffs' solicitors proposed putting drainage arrangements into a s.173 agreement. The defendant's solicitors later suggested a separate agreement would be needed to record matters including the sharing of drainage costs ([72]). Mandie J did not treat these exchanges as merely recording an existing, complete contract. In the judge's assessment, they supported the conclusion that a contractual document was still needed to bind the parties ([72]).
A further difficulty was that the defendant's case, as argued, would have required the plaintiffs to pay a percentage of whatever drainage costs the defendant incurred, without a defined scope of work or a right to be consulted about the work and its cost. The judge considered that the correspondence did not objectively establish that the plaintiffs had accepted that open-ended obligation ([74]). The outcome illustrates the importance, in this dispute, of identifying both the method of allocating cost and the work whose cost is allocated.
The outgoings issue turned on the evidence of what happened on 4 April 2001. Documents including the partial discharge of mortgage and bank releases were placed with Deloittes to be held in escrow. The plaintiffs' solicitor inspected the documents and accepted the escrow arrangement. Mandie J concluded that the parties' conduct showed they treated the conditions precedent as having been satisfied on that date ([88], [103]-[105]).
The Bank's stipulation that the documents would become null and void if not released from escrow by 30 September 2001 did not change that conclusion. The judge noted that the parties accepted that the documents should be lodged and that the escrow period should begin. The later delay in registration did not undo satisfaction of the conditions, particularly since the documents were ultimately released and the plan registered ([105]-[106]). On that construction of cl.24.3, the plaintiffs had to bear a proper share of the specified outgoings from the relevant date.
The court did not accept every amount claimed as an outgoing. It was not satisfied that the insurance payments were outgoings within cl.24.3. It therefore confined its declaration to $959,177.15 and required area-based apportionment between Lots J and K ([108]-[109], [136]).
The credits claim failed for two distinct reasons. First, the court found that the credits were not property belonging to the plaintiffs. Applying the evidence about s.28 of the Water Industry Act 1994 (Vic), the judge understood the credits as amounts that Yarra Valley Water might take into account, as a matter of policy, when assessing what payment was fair and reasonable. The owner of Lot J had no right to insist that the credits be used in a particular calculation ([120], [132]).
Second, the court found no relevant fiduciary obligation after the Heads of Agreement were executed. Before then, the defendant's fiduciary obligations under the joint venture and Custodian arrangements were not seriously disputed. But the parties had adopted the Heads of Agreement to govern their future commercial relationship, and the judge characterised them as dealing at arm's length thereafter. The agreement made no provision for the credits ([133]). The court also held that the release in cl.23.1 covered pre-agreement claims but did not extend to claims arising after the date of the Heads of Agreement. That construction did not save the plaintiffs' case, because the post-agreement claim failed on the other grounds ([134]).
The judgment does not purport to establish a new general rule of Australian contract or fiduciary law. Its conclusions arise from the particular language of the Heads of Agreement, the particular correspondence, and the evidence about the parties' conduct.
On contract formation, the decision applies an objective assessment to the correspondence. The court accepted that the parties had agreed on proposed cost percentages, but found that this did not amount to a complete, binding agreement where the works covered by the arrangement remained undefined and the correspondence contemplated further documentation ([71]-[75]). The decision therefore offers a fact-specific illustration of the difference between agreement on one commercial term and a concluded agreement on the whole subject matter.
For cl.24.3, the judgment gives effect to the parties' conduct in treating documents as properly placed in escrow. The clause linked liability for outgoings to satisfaction of conditions precedent. On the evidence, the judge found that the parties' acceptance of the escrow arrangement showed those conditions had been met on 4 April 2001, notwithstanding the Bank's time stipulation and the later registration date ([103]-[106]). The decision does not set out a broader test for all conditions precedent; it resolves how this clause operated in the circumstances proved.
On the credits issue, the judgment characterises the asserted credits by reference to the statutory power discussed at trial. The judgment records that s.28 of the Water Industry Act 1994 (Vic) allowed the licensee to require a payment assessed as fair and reasonable in the defined circumstances ([120]). Mandie J concluded that the credits were policy considerations in that assessment, not property rights attaching to land ([132]). The judgment does not decide every possible question about water-service charges or other forms of development credit.
On fiduciary obligations, the court's conclusion is confined to the transition from this joint venture and Custodian arrangement to this Heads of Agreement. Mandie J found that the former arrangement no longer governed the parties' relationship after they executed the new agreement, and that they were then at arm's length ([133]). The judgment should not be read as saying that fiduciary duties always end whenever commercial parties sign a separation agreement. The stated conclusion depends on the relationship and agreement before the court.
At [71], Mandie J said the parties had not reached “any final agreement or agreement that was intended to be binding.” In context, this did not mean there had been no agreement at all: the parties had agreed on cost percentages. It meant the court was not satisfied that they had agreed to a complete and binding arrangement for the drainage works.
At [74], the judge identified the central problem: “the works in respect of which the plaintiffs were to make their contribution were never defined.” In plain English, the court could not identify the boundary of the obligation the defendant said the plaintiffs had accepted. That gap mattered because the defendant sought a percentage of substantial costs, including costs associated with a changed drainage solution.
At [104], the court said the parties' conduct showed “an agreement by all of them that the conditions precedent had been satisfied on 4 April 2001.” The practical significance was that liability under cl.24.3 was not postponed until registration of the plan. On the court's findings, the escrow arrangement and the parties' acceptance of it established satisfaction of the relevant conditions.
At [132], the judge described the credits as amounts which, “as a matter of policy,” Yarra Valley Water might take into account when assessing a fair and reasonable payment. The plain-English point is that the court did not treat the credits as an asset owned by the landowner, or as a guaranteed reduction that the plaintiffs could require the water authority to apply.
At [133], Mandie J said that, after the Heads of Agreement, the parties were “at arms' length” and their relationship was governed by that agreement rather than the Custodian Agreement. This explains why the plaintiffs could not rely on the former fiduciary relationship for the post-agreement credits claim.
The decision is most directly relevant to disputes where parties exchange correspondence about sharing project costs but leave the work, services or expenditure covered by the proposed arrangement uncertain. In this case, the percentage allocation was repeatedly recorded, but the parties had not defined the drainage works to which the allocation applied ([71]-[75]). A lawyer or adviser examining a comparable dispute would likely want to check whether the correspondence identifies the work, the cost calculation, approval processes, and any intention to be bound before a later formal document is signed. Those are issue-spotting questions, not conclusions about other agreements.
It is also relevant where a contract makes liability depend on conditions precedent and documents are placed in escrow. The court examined not only the wording of the Heads of Agreement but also what the parties did: the documents were delivered to Deloittes, inspected, accepted and held under an arrangement treated by the parties as operative ([87]-[88], [104]-[106]). The decision shows why the practical handling of documents and communications about the escrow can matter when construing whether a condition has been met.
The judgment may also be relevant to a claim that a development-related “credit” is property attached to land. The court's conclusion rested on the evidence that the asserted credits were not payments or an entitlement to a fixed reduction, but a possible input into the licensee's fair-and-reasonable assessment ([119]-[120], [132]). Whether another credit has that character would depend on its legal source and operation, neither of which can be assumed from this judgment.
Finally, the case may be relevant where former joint venture parties claim continuing fiduciary duties after dissolving their arrangement. Mandie J considered the terms of the replacement agreement and the parties' changed commercial relationship, and found no relevant continuing duty in this case ([133]). The decision does not establish that dissolution alone ends fiduciary duties, or that every later agreement has that effect.
The supplied judgment contains no account of later judicial treatment of Harry One Pty Ltd & Anor v Pentridge Village Pty Ltd [2008] VSC 479. It therefore does not establish whether later courts have followed, applied, distinguished or questioned its reasoning. No later cases can be responsibly identified from the judgment text provided.
The judgment does refer to Hospital Products Limited v United States Surgical Corporation (1984) 156 CLR 41 in a footnote recording a submission made by the defendant about fiduciary obligations ([124] n 42). The reasons do not discuss that authority by name when setting out the court's conclusion at [133]. On the supplied text, it is safest to distinguish the defendant's citation from a precedent relationship expressly adopted by Mandie J.
The judgment also refers to legislation, including s.28 of the Water Industry Act 1994 (Vic) and the proposed s.173 agreement under the Planning and Environment Act 1987 (Vic). Those statutory references help explain the factual and legal setting, but they are not later judicial treatment of the case.
The judgment leaves the precise amount of the plaintiffs' liability for outgoings unresolved if the parties could not agree on the area calculation. Mandie J declared liability for a proper proportion of $959,177.15 and specified area-based apportionment, but allowed further evidence about the areas of Lots J and K if agreement was not reached ([109], [136]). The judgment also left interest and costs for submissions ([137]).
The drainage ruling resolves the pleaded claim on the evidence and correspondence before the court. It does not decide what the result would have been if the parties had signed a separate drainage agreement, if the relevant works had been precisely defined, or if the agreement had included a process for approving variations and costs. Those matters were not established as agreed terms in this case ([71]-[75]).
The credits reasoning is tied to the evidence about how Yarra Valley Water treated the credits and the operation of s.28. The judgment does not determine how a different statutory credit, a contractual entitlement, or a credit expressly allocated in a development agreement should be characterised. Nor does it decide a claim based on different post-agreement conduct or a different continuing relationship.
The release ruling also has limits. The court considered the words of cl.23.1 and held that it covered earlier claims but not claims arising after the Heads of Agreement ([134]). The judgment does not provide a general construction rule for releases drafted in different terms or directed to different time periods.
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CONTRACT - dissolution of joint venture for residential development of land - agreement under Heads of Agreement for division of land between former joint venture parties - claim by defendant pursuant to Heads of Agreement for contribution to outgoings pending registration of two lot plan of subdivision - claim by defendant pursuant to alleged agreement by correspondence for contribution to costs of stormwater drainage - claim by plaintiffs based on alleged breach of fiduciary obligation in relation to appropriation of "sewerage and water credits"
1 This proceeding arises out of a dispute between former joint venture partners involved in the residential development of the former Pentridge Prison complex in Coburg ("the Pentridge land"). As a result of disputes between the joint venture parties, it was agreed in Heads of Agreement that the Pentridge land should be divided between the two disputant groups and that each group would develop its parcel of land separately. Following that, a number of monetary claims have arisen between the parties.
2 The proceeding was commenced by the plaintiff companies ("Harry One" and "Luciano One") by originating motion filed 19 December 2001. However, upon an undertaking to the Court by the defendant ("Pentridge Village") that it would not before 7 January 2002 encumber, mortgage, charge, hypothecate, pledge or otherwise deal with its assets, it was ordered by consent that the proceeding be continued as if commenced by writ[1] and pleadings were then exchanged with respect to these monetary claims.
3 In the first half of 1999, the defendant[2] became the registered proprietor of the Pentridge land. In June 1999, a joint venture[3] was formed to undertake the residential development of the Pentridge land. At that stage, the defendant was appointed by the joint venture parties as the Custodian to acquire and hold the property on their behalf and each of the joint venture parties was represented on the board of directors of the defendant.
4 To give effect to a dissolution of the joint venture and to new arrangements, on 5 December 2000, Heads of Agreement were entered into between a number of companies and persons including the plaintiffs and also the defendant (described as "the Custodian"). The Heads of Agreement provided that Breese Pitt Dixon Pty Ltd ("Breese"), Surveyors, were to be engaged to prepare a two lot plan of subdivision. The defendant was to cease to act as Custodian and was to be taken over by the joint venture parties (other than the plaintiffs). The plaintiffs were to receive the parts of the Pentridge land known as the walled city, the hospital site, the Pentridge Village gardens, an area outside the wall of the prison and an area called Pentridge Village Piazza. Annexure B to the Heads of Agreement depicted the area allocated to the plaintiffs.
5 That part of the Pentridge land allocated to the plaintiffs was, in addition to the Heads of Agreement, transmitted to them by a contract of sale between them and the defendant dated 5 December 2000. The plaintiffs lodged a caveat over the Pentridge land to protect their interest under the contract of sale in the part of it allocated to them. This caveat is relevant to a separate proceeding[4] between the parties that began when disputes arose between the parties at the time of settlement of the sale of certain lots on the defendants' part of the land.
6 The Heads of Agreement recited that pursuant to a Joint Venture Agreement dated 15 June 1999, the plaintiffs had agreed with others to participate in an unincorporated joint venture to purchase, develop and construct improvements to and on the Pentridge land. The others were Piero One Pty Ltd (a party to the Heads of Agreement) and another company, Dallas Rise Pty Ltd. Dallas Rise was not a party to the Heads of Agreement because it had apparently purported to transfer its interest to another company (Tower & Tower Developments Ltd) which was a party to the Heads of Agreement. Amongst the individuals who executed the Heads of Agreement were Harry Barbon (sole director of Harry One), Luciano Crema (sole director of Luciano One) and Peter Chiavaroli (a director of the defendant).
7 The Heads of Agreement further recited that the joint venture parties' contribution to the purchase of the Pentridge Land and interest in the joint venture was in certain specified proportions.[5] The Heads of Agreement then recited the existence of various disputes and legal proceedings in relation to the joint venture and concluded that the parties wished to resolve all outstanding disputes and matters between them on the terms and conditions set out therein.
8 A further recital[6] stated that the plaintiffs had "instituted Supreme Court Proceedings No. 7720/2000 ("the Harry Proceeding") against Piero, Tower & Tower and Chiavaroli" ("the Harry Proceeding defendants").
9 The Heads of Agreement provided, so far as relevant, as follows:
Subject to the terms of these Heads of Agreement:
2.1 The Custodian shall transfer and convey to Harry and Luciano by vesting that part of the Pentridge Land known as:
2.1.1. the walled city;
2.1.2 the hospital site;
2.1.3 Pentridge Village Gardens;
2.1.4 Pentridge Village Piazza; and
2.1.5 an area outside the wall
being the land set out the attached Plan marked with the letter "B" and coloured red (described as "the Subject Land").
2.2 The parties acknowledge that Breese Pitt Dixon will be preparing a plan of subdivision in accordance with annexure B in a form detailing the boundaries of the Subject Land and that such plan will be accepted by each party as an accurate description of the Subject Land and which will constitute the plan of subdivision contemplated by these Heads of Agreement.
2.3 The transfer of the Subject Land by the Custodian to Harry and Luciano shall be free from any existing financial encumbrances including the existing mortgage from the Bendigo Bank Limited.
3.1 By 15 January 2001 the Custodian, Piero and Power & Tower shall procure the Bendigo Bank Limited to:
3.1.1 provide an executed partial discharge of its mortgage with an order to register endorsed thereon over the Pentridge Land insofar as it relates to the Subject Land together with an undertaking to provide the Certificate of Title issued to Comlaw Barristers & Solicitors if it comes into the bank's possession prior to lodging of the discharge of mortgage and such partial discharge of mortgage shall be held in escrow.
3.1.2 provide a letter to Luciano, Harry, Barbon and Crema confirming their release from all claims or potential claims from Bendigo Bank, such letter to be held in escrow.
3.2 As security for payment of the balance of the Said Sum a Bank Guarantee or Letter of Credit in this amount will be provided to Harry and Luciano within 14 days of signing of these Heads of Agreement by Tower & Tower. The form of the Bank Guarantee or Letter of Credit shall provide that in the event the balance of the said sum is not paid in accordance with the terms of these Heads of Agreement then Harry and Luciano have the irrevocable right to call upon or demand payment under the bank guarantee or letter of credit.
3.3 Within 14 days of signing these Heads of Agreement Harry shall execute a transfer to Piero of the 4.1% interest in the unincorporated joint venture and shall execute a transfer to Chiavaroli of the equivalent of a 4.1% shareholding in the Custodian, such interest in the joint venture and the Custodian being the subject of the West Homes proceeding.
3.4 Within 14 days of signing of these Heads of Agreement Crema and Barbon will resign from the board of the joint venture and as directors of the Custodian.
3.5 Within 14 days of signing these Heads of Agreement Harry and Luciano shall execute a transfer of their shareholding in the Custodian (except the 4.1% referred to above) and a transfer of their interest in the joint venture (except in the 4.1% referred to above) in favour of Tower & Tower.
3.6 Each of the documents referred to in clause 3.1, 3.3, 3.5, and 3.7 is to be held in escrow in accordance with the terms of these Heads of Agreement [by] Deloittes Legal Services.
3.7 Within fourteen days of the signing of these Heads of Agreement the Custodian shall execute a transfer of the Subject Land in a form prepared by ComLaw Barristers & Solicitors to Harry and Luciano together with any declarations required under the .
4.1 All documents held in escrow shall be released to the parties entitled within seven days of registration of the plan of subdivision upon written request to Deloittes by the party entitled to the documents and Deloittes shall not be required to obtain the consent of any other party to the release of the said documents.
4.2 All parties agree and acknowledge the title in any documents referred to in Clause 3.1, 3.3, 3.5 and 3.7 does not pass until released pursuant to Clause 4.1.
4.3 In the event that any of the conditions precedent are not met or the plan of subdivision is not registered by 29 June 2001 or in the event that any appeal to VCAT lodged prior to 29 June 2001 in accordance with paragraph 5.4 hereof is unsuccessful then:
4.3.1 the partial discharge or mortgage and the letter referred to in clause 3.1 shall be immediately returned to the Bendigo Bank;
4.3.2 the security for payment provided pursuant to clause 3.2 shall be immediately returned to the issuing party.
4.3.3 the transfers and supporting documents provided pursuant to clauses 3.5 and 3.7 will be returned to the transferor.
4.3.4 The parties agree that Crema and Barbon shall be re-appointed to the board of the joint venture and as directors of the Custodian.
4.3.5 The withdrawal of caveat referred to in clause 3.10 will be handed to the Custodian.
5.1 The Custodian shall forthwith apply for a subdivision of the Pentridge Land excising as a separate lot the Subject Land and will notify Comlaw Barristers & Solicitors immediately upon the plan of subdivision has been registered.
5.2 The Custodian, Piero, Tower & Tower, Luciano and Harry and their directors Crema, Barbon, Chiavaroli, Italia and Bramwell shall use their best endeavours to ensure that the plan of subdivision is registered by the Land Registry by 29 June 2001. This shall include signing all documents and agreeing to do all works in accordance with the provisions of clause 5.5 as may be required by any Relevant Authority, or Heritage Victoria, in order to obtain the registration of the plan of subdivision.
5.3 The parties hereto agree that the Custodian shall engage Breese Pitt Dixon as surveyors and Best Hooper as solicitors for the purposes of acquiring the registration of the plan of subdivision and all parties to these Heads of Agreement agree to follow any directions given by either Breese Pitt Dixon and/or Best Hooper to enable the registration of the plan of subdivision to occur. The costs of Best Hooper shall not exceed the sum of $20,000.
5.4 The parties hereto hereby instruct Best Hooper to lodge an appeal with VCAT in respect of any failure of the City of Moreland to decide the application for a planning permit for the said plan of subdivision immediately after the statutory time for such determination has expired or of any refusal of the City of Moreland to approve the said plan of subdivision.
5.5 The costs of procuring the registration of the plan of subdivision (including the cost of any appeal to VCAT) shall be borne equally by Harry and Luciano on one hand and Tower & Tower on the other hand save for works that are required in order to obtain the registration of the said plan of subdivision, the costs of such works being met by Harry and Luciano insofar as the works are carried out on or relate to the Subject Land and by Tower & Tower insofar as the works are carried out on or relate to the balance of the Pentridge Land.
5.6 If any relevant authority requires an easement for the purpose of carrying on maintenance to the exterior of any part of the existing east facing wall of the old Pentridge jail which easement effects the balance of the Pentridge Land such easement will be provided by the Custodian on reasonable terms to Harry and Luciano.
6.1 Tower and Tower, Piero and the Attorney appointed pursuant to Clause 22 may direct the Custodian to borrow moneys upon commercial terms and at commercial interest rates normally found in borrowings of a like nature for property developments provided by Bendigo Bank to complete the construction of the 30 houses currently under construction and any other houses for which building contracts are or will be entered into in accordance with guaranteed maximum price or similar terms to that building contract dated 31 March 2000 or to construct or to complete the infrastructure required in order to obtain an occupancy permit in relation to the houses and a statement of compliance in order to obtain separate certificates of titles to the any house lots. All reasonable costs associated with the project management, accounting, administration and conduct of the Custodian on similar terms to those presently entered into.
6.2 Luciano and Harry will not be required at any time to make a contribution of funds to the joint venture equivalent to any amount obtained by the Custodian pursuant to Clause 6.1 or pursuant to the joint venture agreement.
6.3 Until the release of the documents in escrow the Custodian shall apply the net proceeds of any sale of any lot on plan of subdivision PS 43027T in reduction of the debt owed to Bendigo Bank Ltd.
In the event that the plan of subdivision is not registered by 29 June 2001 or, in the event that any appeal to VCAT lodged prior to 29 June 2001 in accordance with paragraph 5.4 hereof is unsuccessful then:
7.1 On the day of this notification, the transfers referred to in Clause 3.3 will be immediately released from escrow and delivered to Piero and the title in the interest and shares being the subject of the transfers, will immediately vest in Piero who will be entitled to have them registered accordingly.
7.2 A full accounting in writing shall be taken of all the assets of the Joint Venture and of all the liabilities connected therewith by a special liquidator appointed in accordance with Clause 7.4 and immediately after such accounts shall be taken all the assets (other than cash) of the Joint Venture shall be realised and sold to their best advantage and the monies arising from such sale and other monies of the Joint Venture shall be applied in the following manner:
7.2.1 first, in payment of any costs and expenses connected with the taking of the above account and the realisation or sale of the above assets;
7.2.2 secondly, in payment and discharge of any debts or liabilities connected with joint venture that exists as at the date of those Heads of Agreement;
7.2.3 the payment of any amount owed by the Custodian pursuant to clause 6.1 hereof.
7.2.4 fourthly, any surplus shall be paid to Tower & Tower, Piero, Harry and Luciano in the following proportions namely Tower & Tower 31%, Piero 27.1%, Luciano 23%, Harry 18.9%.
7.3 Any of the parties hereto may purchase any of the assets of the joint venture upon any sale made pursuant to this clause, from the special liquidator.
7.4 For the purpose of this clause, an asset of the joint venture shall be deemed to be realised and sold to the best advantage if so realised and sold at a price by the special liquidator appointed pursuant to this clause.
7.5 A special liquidator for the purpose of this clause shall be nominated by the president for the time being of the Institute of Chartered Accountants upon a request in writing from any of the Tower & Tower, Piero, Harry or Luciano, such nomination to be independent of all parties to this Heads of Agreement, such nominated person to have experience in property development.
23.1 Upon the release of all the documents held in escrow pursuant to Clause 4.1 Barcrem, Harry, Luciano, Barbon and Crema and each of them shall release and forever discharge West Homes, Piero, Tower & Tower, the Custodian (and their respective directors) Chiavaroli, , Bramwell and Italia from all claims, actions, suits, damages, charges, costs and expenses of every description whatsoever which such parties may have or may have had but for these Heads of Agreement against West Homes, Piero, Tower & Tower, the Custodian (and their respective directors) Chiavaroli, Bramwell and Italia in respect of any debt, injury, loss, cost or expense of any kind suffered or incurred by them arising out of or in any way connected with the Joint Venture Agreement, the Custodian Agreement, the rights and obligations of the parties under such Agreements, any conduct of the parties in purported performance of such Agreements and the joint venture ...
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24.3 All rates, taxes, assessments and other outgoings in respect of the Subject Land shall be paid by the Custodian and borne by Harry and Luciano as from the date that all condition precedents are met and the same shall, if necessary, be apportioned between the Custodian, Harry and Luciano and shall be paid within 14 days of registration of the plan of subdivision. If the Subject Land is not separately rated the apportionment shall be made on an area basis.
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30.1 Luciano and Harry may lodge a caveat pursuant to The Transfer of Land Act on the Pentridge Land such caveat to be immediately withdrawn in total upon the registration of the Plan of Subdivision and to be withdrawn partially upon the settlement of the sale of any lot on the Pentridge Land. The provision of any withdrawal of caveat will be provided without cost to the Custodian or to Tower and Tower or to Piero One of any of their respective directors.
30.2 Provided that Luciano and Harry are not in breach of any terms of these Heads of Agreement no application shall be made by the Custodian to remove any caveat lodged by Luciano and Harry."
10 As can be seen from the foregoing, and because the defendant obtained finance upon the security of the Pentridge land, the Heads of Agreement provided that specified documents would be held in escrow by Deloittes pending registration of the plan of subdivision.
11 After 5 December 2000, the plaintiffs proceeded to develop their part of the Pentridge land (hereinafter called "Lot J") and the defendant proceeded to develop its part of the Pentridge land (hereinafter called "Lot K").
12 On 11 December 2000, a Plan of Subdivision numbered PS438587S was lodged with the Moreland City Council for certification. It was not registered until 5 April 2002.
13 The parties subsequently executed a variation of the Heads of Agreement dated 22 December 2000. On 16 March 2001, a second variation to the Heads of Agreement was executed ("the second variation").
14 The proceeding is concerned with monetary claims and cross-claims arising from circumstances affecting the parties' development of their respective parcels of land and resulting from the dissolution of the joint venture.
15 The defendant has two claims against the plaintiffs. Firstly, the defendant claims from the plaintiffs a monetary contribution towards its expenditure on stormwater drainage. Secondly, the defendant claims contribution from the plaintiffs for certain outgoings paid by it. The plaintiffs have one claim against the defendant that relates to what is said to be the wrongful appropriation by the defendant of certain "sewerage and water credits" ("the credits"). A number of minor matters initially raised by the plaintiffs were, in the end, not pressed.
The defendant's claim for drainage costs - the pleadings
16 The defendant alleges[7] that, by an agreement made in or about June 2001, the plaintiffs agreed to pay 47.3% of the costs associated with drainage works to be undertaken on the Pentridge land ("the drainage agreement"). The defendant provides the following particulars of the drainage agreement:
"The drainage agreement was partly oral, partly in writing and partly to be implied. Insofar as it was oral, it was constituted by conversations in or about May and June 2001 between Luciano Crema on behalf of the Plaintiffs and John Johnson on behalf of the Defendant the substance of which was to the effect alleged.
Insofar as it was in writing, it was contained in correspondence being a letter dated 19 June 2001 from Comlaw, solicitors for the Plaintiffs, to Best Hooper, solicitors for the Defendant (which referred to a letter dated 1 June 2001 from Breese Pitt Dixon Pty Ltd to the Defendant), a letter dated 21 June 2001 from Comlaw to Best Hooper, a facsimile dated 22 June 2001 from Best Hooper to Comlaw and was evidenced by a facsimile dated 2 July 2001 and a facsimile dated 5 October 2001 from Comlaw to Best Hooper, copies of which are in the possession of the Defendant's solicitors.
Insofar as it was implied, it was to be implied from the said conversations, the said correspondence, from a letter dated 22 April 2002 from Pentridge Piazza Pty Ltd to Breese Pitt Dixon Pty Ltd and a letter dated 9 August 2002 from Breese Pitt Dixon Pty Ltd to Pentridge Piazza Pty Ltd which referred to actual and estimated costs totalling $897,801.00 excluding fees for professional services and administration (copies of which are in the possession of the Defendant's solicitors), from clause 5.5 of the Heads of Agreement (referred to in the facsimile dated 5 October 2001 from Comlaw to Best Hooper) and in order to give business efficacy to the drainage agreement."
17 The defendant alleges[8] that it undertook drainage works on the Pentridge land (comprising the construction of stormwater drainage, from drains existing as at 1 June 2001, to the Merri Creek and associated structures including drains, sediment control structures and gross pollution traps) and paid drainage costs totalling $886,225.94 made up as follows:
(a) $347,241.95 as certified as apportioned by Breese Pitt Dixon Pty Ltd in a letter dated 13 December 2001 plus GST of $34,724.19;
(b) $214,285.00 as certified by Lambert & Rehben in a facsimile dated 21 September 2005 plus GST of $21,428.50
(c) $18,986.00 as invoiced by Civilport Constructions on 7 October 2004;
(d) $134,116.40 as invoiced by VDS Pty Ltd on 23 August 2004;
(e) $115,443 as invoiced by Invisible Structures Pty Ltd on 5 August 2004 and 26 November 2004.
18 The defendant says[9] that the plaintiffs are liable to pay and indebted to it, pursuant to the drainage agreement, in the sum of $419,184.86, being 47.3% of the said total cost of $886,225.94.
19 The plaintiffs deny the making of the drainage agreement.[10] Further, the plaintiffs say[11] that the drainage agreement "was not a concluded agreement" because, in substance, the alleged drainage agreement formed part of unconcluded negotiations relating to the preparation of an agreement under s.173 of the Planning and Environment Act 1987 (Vic) ("the s.173 Agreement"), and the plaintiffs had not agreed to the terms of the alleged drainage agreement, alternatively, the terms of the alleged drainage agreement were uncertain.
20 Further, the plaintiffs say[12] that, if (which is denied) the defendants undertook the works and paid the drainage costs as alleged, the drainage works were "not in pursuance of the drainage agreement" because the defendant installed a drainage system ("the stormwater harvesting scheme") that was more expensive than it was required to install (and which also resulted in an increase in site value to the defendant) and, further, the stormwater harvesting scheme amounted to a unilateral variation of the alleged drainage agreement. The plaintiffs put the foregoing in a number of ways, including an allegation[13] that sum claimed was more than a fair and reasonable sum to undertake the drainage works because the costs to be shared between Lot J and Lot K "were intended to be based on sharing costs of the common trunk drainage system representing the direct trunk drainage route between Lot J and the stormwater treatment facilities and approved discharge points." The plaintiffs also rely upon an estoppel by representation.[14]
The defendant's claim for drainage costs - the evidence
21 In about January 2001 Breese was instructed by the defendant to carry out survey work that was required to enable preparation of a registrable two lot plan of subdivision. Breese was also instructed to prepare a stormwater drainage plan for Lots J and K.
22 On 3 January 2001, the Moreland City Council ("the Council") wrote to the defendant (care of Breese[15]) in relation to its application for a planning permit to allow the two lot subdivision. The letter stated that a number of issues required further attention and under the heading "Stormwater and Drainage" the letter stated:
"7. A stormwater management plan for the site and its integration with the Stage 1 and Stage 2 subdivisions.
23 A copy of the above letter was received by Mr Luciano Crema ("Crema") on behalf of the plaintiffs.
24 In a letter dated 22 January 2001 from Breese to another project consultant,[16] Breese stated that Lot J graded to the east and that stormwater drainage outfall for 80% of the site was catered for in the two existing drains provided in Stage 1 of the residential development and that the southern 20% of Lot J would be sourced by stormwater drainage pipes within Stage 2 of the residential development. Breese further stated that it was proposed to construct a sedimentation pond and outfall structure to Merri Creek at the south-east corner of Stage 2 and that Melbourne Water had received the stormwater drainage framework plan and had agreed with Breese's proposed drainage strategy for the whole site. The letter concluded with Breese stating that "[m]atters of cost sharing will presumably be addressed between the respective developers in due course."
25 Mr John Francis Hawkins ("Hawkins"), a director of Breese and a civil engineer, testified that in mid-2001 he received instructions from Crema (on behalf of the plaintiffs) and John Percival Johnson ("Johnson" - on behalf of the defendant) to prepare an estimate of the cost to construct stormwater drainage beyond the existing stage to Merri Creek and as to what would be the apportioned costs between the defendant and the plaintiffs. In his evidence, Crema denied giving any instructions to Hawkins. Crema said that he dealt with Johnson and did not speak with Hawkins on the topic of drainage costs until a meeting in April 2002. However, I understood the gist of Crema's evidence to be that the instructions that Hawkins said were given to him were probably given by Johnson and were instructions that he had agreed with Johnson should be given to Hawkins. Mr Crema also testified that any instructions given to Comlaw in June 2001, concerning the sharing of drainage costs, would have been provided to Comlaw by Barbon[17] and not him.
26 Johnson testified that he was employed by the defendant as project manager. Johnson testified that the development of the Pentridge land entailed the design and construction of a drainage system and that the topography of the site meant that the drainage system had to be adequate to accept stormwater run-off from Lot J which would flow down to and over Lot K. Johnson said that, during 2001, he was involved in negotiations on a number of issues with various representatives of the plaintiffs, including Crema and, on several occasions, Barbon. He said, in his witness statement:
"At the time of my involvement in discussions with [Crema] and other representatives of the plaintiffs ... I recall that [Breese] were to advise the parties as to appropriate proportions in which the parties would bear the costs of the drainage works. I do not recall the parties agreeing anything further in relation to the drainage works.
On 1 June 2001, Mr Hawkins of [Breese] provided me with an estimate of the costs to construct stormwater drainage beyond the then existing stage to Merri Creek and those costs were apportioned between [the defendant] and [the plaintiffs] .. The estimated costs of drainage from the then existing stage 1 was estimated at $695,849 by Mr Hawkins in his letter of 1 June 2001. This amount was apportioned between the plaintiffs and [the defendant]. Subsequently, on 13 December 2001, I received from [Breese] a letter setting out the costs incurred for stages 1A2 and 1A3 stormwater drainage in the sum of $347,241.95."
27 The letter of 1 June 2001, to which Johnson refers, was from Breese (John Hawkins) to the defendant (Johnson) and relevantly stated:
"Following your instructions, we have prepared an estimate of the cost to construct stormwater drainage beyond the existing stage to Merri Creek, and apportioned these costs between [the defendant's] and [the plaintiffs'] sites.
The estimates and apportionments are based on the following assumptions: -
- Triangular parcel of land adjacent to Moreland School is excluded from the development.
- Main Drains and outlet to Merri Creek in accordance with preliminary plans lodged with Council and Melbourne Water, amended to exclude triangular piece of land.
- Apportionments based on a % equivalent area contributing to stormwater discharge.
- Costing rates for estimated pipe sizes adopted per current Melbourne Water manual rates.
- Pipe sizes and lengths are subject to detail design plans.
The estimates and apportionments are summarised as follows: -
Total cost estimate $695,649
Apportioned costs (a) [defendant] $367,035
(b) [plaintiffs] $328,814
..."
28 I interpolate that in his evidence, Hawkins explained that, in undertaking drainage design, they allowed for relative areas to be corrected by a co-efficient to then give an "equivalent area" for the calculation of run-off from those sites. Hawkins testified in substance that at all times the drainage costs that he intended to be shared were the costs of those subdivisional drains serving Lot K that were designed to also cater for any run-off from Lot J.
29 On the same date (1 June 2001), the plaintiffs' solicitors ("Comlaw") wrote to the solicitors handling matters relating to the subdivision, and for this purpose also acting for the defendant ("Best Hooper")[18] relevantly stating:
" ... Drainage
In your letter of 27th April 2001[19] there is no suggestion as to what should be done about drainage. We are instructed to suggest that we await the recommendation of [Breese] as to the contributions to be made by the various parties and agreement be reached concerning the percentage to be paid by each of the parties with respect to the drainage required to be installed to satisfy Council requirements.
Please note at this stage we have no evidence from you that Council has made this matter an issue."
30 On 4 June 2001 Best Hooper said, in a fax to Comlaw, that the defendant was awaiting the report of Breese and that it would be hoped on the basis of that report an arrangement could be reached between the defendant and the plaintiffs. On the same day or shortly thereafter, Comlaw received a copy of a letter from the Council to the defendant dated 30 May 2001 and a copy of the letter dated 1 June 2001 from Breese to the defendant.
31 I note that the said Council letter dated 30 May 2001 referred to a meeting on 15 May 2001 between Council officers, a representative of Melbourne Water, and Johnson, concerning drainage issues and the need to ensure that appropriate access was possible for the drainage of Lot J across the site and that indicative plans provided by Breese indicated that the southern portion of Lot J would need to drain across Lot K and potentially into the street network and it was discussed "as to whether a section 173 or similar agreement should be used to require that drainage across the site be co-ordinated by the two future owners." The letter said that the Council had sought additional information on the costs and site arrangements which would form the foundation for an agreement.
32 By letter dated 19 June 2001 from Comlaw to Best Hooper, the plaintiffs' position was stated as follows:
"We refer to previous correspondence in this matter and have been instructed by [Crema] after his discussion with [Johnson] (on behalf of [the defendant]) to provide you with our clients' position in this matter.
We are instructed that subject to an appropriate Section 173 Agreement in relation to both aspects concerning drainage and road, that our clients are prepared to approach those issues on the following basis.
Drainage
We are instructed by our clients that the proposal concerning the apportionment of the drainage costs provided by [Breese] on 1st June 2001 is to form the basis of apportionment of the costs concerning the drainage.
What is proposed is that the Section 173 Agreement provide that in relation to the two Lot subdivision that each of the registered proprietors of those Lots pay in proportion to the costs percentage referred to in the letter of [Breese]. That is [the defendant] contribute 52.7% of the cost and [the plaintiffs] contribute 47.3% of the cost.
Please let us have as a matter of urgency the proposed Section 173 Agreement concerning drainage ..."
33 I think that it was common ground that the above percentages, as calculated by Comlaw, reflected the apportionment in Breese's letter dated 1 June 2001.
34 On 21 June 2001 Best Hooper (Cicero) sent a fax to the Council in which they told the Council that Johnson had advised them that the plaintiffs and the defendant had agreed to an apportionment of the estimated cost of drainage in the amount set out in Breese's letter of 1 June 2001 and that this allowed for "an upsizing of the drainage to be installed within the balance of the land outside Lot J to accommodate drainage requirements emanating from the development of Lot J." Best Hooper sent a copy of their fax to Comlaw and on the same day Comlaw responded by denying that such an agreement had been reached, stating:
"...What you have represented to Council is not the position not agreement our clients have reached with [the defendant].
What you state John Johnson represents as [the plaintiffs and the defendant] as having agreed is not true nor correct.
We refer you to our letter dated 19th June 2001 to you. It clearly states our clients' position concerning drainage and road.
Drainage
As our previous letter states, each of the registered properties or the two Lot subdivison are to pay in proportion to the cost percentage referred to in the letter of [Breese]. That is, [the defendant] contribute 52.7% of the cost and [the plaintiffs] contribute 47.3% of the costs.
[the letter then dealt with the position in relation to road construction and continued ..]
Please confirm by 9.30am tomorrow that you will correct what our clients' position is to Council ..."
35 On 22 June 2001 Best Hooper responded by fax to Comlaw, stating, inter alia:
"In relation to drainage the percentages that you have specified reflect the apportioned costs as set out in the letter of 1 June 2001 from [Breese] to Mr Johnson and accordingly are confirmed."
36 On the same day Best Hooper advised the Council by fax (and provided a copy to Comlaw):
"..that the apportionment represents the following percentages which are agreed to:
37 After some further correspondence to which it is unnecessary to refer, Comlaw sent a fax to Best Hooper on 2 July 2001 relevantly stating:
"As solicitors retained for the purposes of the Terms of Settlement you are requested to perform your duties as required.
Please proceed to prepare the Section 173 Agreement.
You should be well aware what the requirements of the parties concerning the Section 173 Agreement. (sic)
We refer to our previous correspondence which sets out the basis upon which our clients are prepared to proceed with this matter.
It is in substance that they will contribute to a percentage cost of the drainage as previously advised ...
We suggest you act in interest of all of the parties as you are required and obliged to do so."
38 In the course of dealing with other matters in relation to the proposed subdivision, Best Hooper wrote to the Council by letter dated 16 August 2001 enclosing proposed covenants to be incorporated in the s.173 Agreement. In relation to drainage, the proposed covenant provided that "[t]he Owner covenants and agrees that a drainage system shall be installed within Lot K which shall have the capacity to take drainage from any development on Lot J to the satisfaction of the Council." The Council subsequently dealt with the topic by an email dated 17 September 2001 and proposed a number of covenants in the s.173 Agreement "for discussion purposes only". In relation to drainage, the proposed covenant read:
"The owner covenants and agrees that a drainage system shall be installed within Lot K at no expense to Council which shall have the capacity to take drainage from any development on Lot J to the satisfaction of the Council. The drainage system shall be installed in co-ordination with the sequence of development of Lot J to the satisfaction of Council. The owner shall within 6 weeks of receiving direction to do so by Council prepare detailed engineering drawings for the drainage works and shall complete the drainage works within 12 months of the approval of the engineering drawings."
39 In a long letter dated 25 September 2001 from Comlaw to Best Hooper, Comlaw stated the following in relation to the drainage issue:
"In relation to the Section 173 Agreement, we advise as follows:-
...
(b) The Drainage Issue
Again this clause fails to designate who is in fact to pay for the costs of the drainage system. It is not the owner who is to be paying for the drainage system. It is the joint venturers who are paying for the drainage costs in proportion to what has already been agreed. This should be reflected in the Section 173 Agreement.
Again a further term in the Section 173 Agreement is required to clearly state the process by which the parties to the agreement are to tender for their works and to nominate the party to perform the works.
...
Kindly take notice that you have no proper mandate from [the defendant] or our clients to undertake a course of action with Moreland City Council whereby a Section 173 Agreement is entered into which imposed obligations upon our client who they do not consent to and which have been unilaterally imposed by you...."
40 Best Hooper responded to Comlaw by a fax dated 26 September 2001, stating that the defendant was well aware of its obligations under the Heads of Agreement. The letter went on to say that the defendant was the proper party to the s.173 Agreement having regard to the definition of "owner" under the Planning and Environment Act as the defendant was the registered proprietor of the land. They suggested that one option was for the plaintiffs to be noted as prospective purchasers of Lot J and the agreement could then separate the respective covenants that were common to the plaintiffs and the defendant from those that could be specifically allocated to the owner of Lot J or Lot K and that another option was to have two s.173 Agreements. The letter went on:
"In either case, in our view, there will need to be a separate agreement between [the defendant]... and your clients which would record, inter alia: -
...
(ii) The sharing of drainage costs
...
The drainage ... contributions have already been agreed to."
41 After some further correspondence that need not be detailed, Comlaw wrote to Best Hooper by letter dated 5 October 2001 stating, in regard to the drainage issue:
"As you are aware, the drainage issue has been determined in pursuance of clause 5.5 of the Heads of Agreement in that the works associated with Lot J of the Plan of Subdivision will be paid by our clients and the works relating to your client's land will be paid for by them. Furthermore, the amount of contribution by each of our respective clients has been determined by [Breese] in their letter dated 1 June 2001 by reference to the proportional amount of drainage on land respectively owned by the parties. In this way the amount of contribution has been calculated by direct reference to ownership of the land on which the works are to be performed."
42 In a responding fax dated 10 October 2001, Best Hooper, in relation to the drainage issue, simply stated "[w]hat you have stated merely records what has previously been stated as agreed."
43 A letter dated 13 December 2001 from Breese to the defendant, stated:
"Further to our letter of 1st June 2001, we have upgraded the apportioned stormwater drainage costs to reflect actual contract rates from G & S Fortunato Pty. Ltd.
The works included in these figures are for drainage constructed, Stages 1A2 and 1A3, from the existing drainage in Stage 1 to a temporary outlet to Merri Creek, adjacent to the Moreland High School oval (i.e. it excludes excluding Stage 1 drains and future sediment control ponds, Gross Pollutant Traps and permanent outfall structures).
This compares to the estimate of 1st June 2001, based on rates in the Melbourne Water Manual of $162,879.00 and $186,264.00 respectively."
44 As noted earlier, this proceeding was commenced on 19 December 2001 and, on 7 January 2002, the defendant was restrained until further order from executing a s.173 Agreement which affected Lot J without the plaintiffs' consent.
45 On 8 January 2002, the Council provided to the defendant (care of Breese) a copy of the planning permit allowing subdivision of the Pentridge land into two lots. This permit was issued in accordance with a decision of VCAT dated 10 December 2001. The permit included a number of conditions including the following:
"10. Before the issue of a statement of compliance an Agreement under section 173 of the Planning and Environment Act must be entered into between the owner or owners of Lots J and K on the plan of subdivision and the Responsible Authority in the form satisfactory to the Responsible Authority including:
...
(b) a requirement that the owner provide at no cost to Council:
...
(ii) a whole of site Drainage Strategy that is capable of accommodating all drainage from the site resulting from future development of the land to the satisfaction of the Responsible Authority
...
(e) A requirement that the Drainage Strategy is sensitive to the potential environmental impact on the Merri Creek and identifies appropriate retarding mechanisms consistent with the Moreland Stormwater Management Strategy and the "Best Practice Environmental Management Guidelines for Urban Stormwater" to the satisfaction of the Responsible Authority and Melbourne Water."
46 In the course of negotiations between Best Hooper and Comlaw concerning the content of the s.173 Agreement, Best Hooper (by fax dated 14 January 2002) stated, inter alia:
"..Condition 10 of the Planning Permit which was put forward by your clients to VCAT as an agreed position between them and [the defendant] sets out the matters that are required to be included in the Section 173 Agreement ("the Agreement"). Draft 2 of the Agreement as drawn by us takes those obligations out of Condition 10 of the Planning Permit and puts it into a Section 173 as required by Condition 10."
47 Comlaw had a number of concerns on behalf of the plaintiffs about the contents of the proposed s.173 Agreement and communicated these both to the Council and to Herbert Geer & Rundle ("HGR") in their capacity as solicitors for the defendant. In a letter to HGR dated 13 February 2002, Comlaw said, inter alia:
"The section 173 Agreement provides that the Owner is to pay for the road construction and drainage costs without reference to an apportionment as to the costs attributable to each of the two Lots. Please confirm what the position is in this regard. We do not wish it to be assumed that because our clients consent to a Section 173 Agreement without having addressed this issue that the Section 173 Agreement overrides prior arrangements."
48 By a fax dated 14 February 2002, Best Hooper made detailed comments on the contents of Comlaw's letter to HGR - with regard to drainage, Best Hooper said:
"The Agreement does override any agreement reached between [the defendant] and your clients in relation to the construction of the road and drainage costs."
50 The s.173 Agreement was executed between The Council and the defendant and is dated 22 March 2002. The Agreement included an owner's covenant, incorporating the terminology required by Condition 10 of the planning permit.
51 The defendant sent an invoice dated 28 March 2002 to the plaintiffs for a number of costs incurred by it said to be recoverable under the Heads of Agreement. Included in that invoice was the sum of $187,576.45, described as additional costs for stormwater drainage and attached to the invoice was a copy of Breese's letter to the defendant dated 13 December 2001, in which that amount appears as the plaintiffs' share of the stormwater drainage costs. That invoice appears to have precipitated a luncheon meeting between Hawkins of Breese and Crema and Barbon.
52 Crema testified that, on 18 April 2002, he and Mr Harry Barbon ("Barbon"), on behalf of the plaintiffs, had a meeting with Hawkins in relation to the drainage from Lot J during which Hawkins said there would have to be some upsizing of the drains to take some of the water from Lot J and Crema said that he thought that the plaintiffs should make some contribution towards the upsizing of the main barrel drains. In cross-examination, Crema agreed that there had also been discussion at that meeting of the necessity to have a treatment facility which could deal with the volume of water, including the water generated from Lot J.
53 A letter dated 22 April 2002 from Pentridge Piazza Pty Ltd, on behalf of the plaintiffs,[21] to Breese refers to this meeting between Hawkins, Crema and Barbon and states:
"As we discussed, [the plaintiffs] have a commercial agreement with [the defendant] regarding the land separation. One matter which emanates from this commercial agreement and the conditions of the ... Council Planning Permit for the subdivision is the construction of a stormwater drainage system in the Pentridge Village land which has the capacity to drain rainwater from [the plaintiffs'] land and [the defendant's] land.
We therefore need to determine what liability, if any, [the plaintiffs] have to contribute to the cost of the drainage system constructed in [the defendant's] land.
I understand from our meeting last Thursday that the main drainage system has or will be constructed generally per the accompanying site plan. I have coloured the site plan to reflect my understanding of the construction details."
54 A coloured plan was attached to the letter indicating the various stages of the works and seeking information about the details of the drainage installed (or proposed to be installed) and the cost (or estimated cost) thereof in relation to each stage.
55 In a letter from HGR to Comlaw dated 1 May 2002 on a number of topics, HGR said, in relation to the claim for $187,576.45 for drainage costs that the plaintiffs' agreement to pay that sum was "evidenced in correspondence between your firm and Best Hooper in June 2001."
56 Comlaw responded to this in a letter dated 9 May 2002 as follows:
"You state that there is an agreement between our clients in correspondence between Best Hooper Solicitors in June 2001 and our office. Please provide us with copies of that correspondence.
We also note that you state that the price of Drainage Construction was certified by [Breese]. Where is the agreement that [Breese] was to certify any costs of drainage construction works. Where is it said that this agreement to pay was subject to no other further condition.
Are you suggesting that there was an agreement where your client could perform any works it wished concerning drainage and then recover monies from our client for work performed without our clients' having any right to decide whom would perform the works for what amount and when?"
57 Breese did not reply to the letter of 22 April 2002 (see above) until 9 August 2002 when they wrote as follows:
"Further to your letter of 22nd April 2002, I advise as follows:-
The above cost exclude fees for professional services associated with design and construction supervision/administration works. The above costs have not been apportioned between the [the plaintiffs'] and [the defendant's] development.
A copy of the drainage plans are attached for your reference."
58 By letter dated 20 November 2002 from HGR to Comlaw, HGR asserted the existence of an agreement between Comlaw and Best Hooper in which the plaintiffs agreed to bear 47.3% of the costs associated with the construction of stormwater drainage capable of accommodating the run-off from Lot J and that, as agreed, Breese had determined the apportionment. HGR enclosed a draft deed for consideration by the plaintiffs "so that there can be no doubt about the arrangements" but no deed was subsequently agreed or executed.
59 Peter Edward Beyer ("Beyer") was a consultant to the defendant from April 2002 to June 2004 and its project manager from June 2004 to May 2007. Beyer testified that the original drainage plan included a two stage sediment pond, to take the stormwater from Lots J and K, which was intended to be located on public land to the east of the subdivision and adjacent to the Merri Creek. By October 2001, at the Council's request, the ponds were to be put on the defendant's land. The defendant commenced work on the ponds in about 2002 and carried out some limited excavation work in 2003. Beyer described this work as general scraping and bulking out. In late 2003 and during 2004, Beyer had a number of meetings with Council representatives, as a result of which it was agreed that the sediment ponds would not be constructed and that they would be replaced by a "treatment train system." This system involved the use of a gross pollutant trap for plastic bottles, rubber balls and other rubbish. The stormwater would then flow into an underground tank in which sediment would settle. The water could then be re-used. Beyer testified that this system was installed and was working well and that it had been installed on land originally owned by the defendant that was transferred to the Council on 10 February 2005.
60 Beyer testified that the defendant had paid the following amounts to the following contractors for the drainage works:
61 Rohan Mark Jarvis ("Jarvis") is a civil engineer employed by Lambert & Rehbein, the design engineers for the stormwater treatment train. Jarvis gave evidence as to the additional cost involved in the installation of the treatment train in substitution for the two stage sediment pond system . He estimated the total costs associated with the original design in the sum of $303,370 and he estimated the costs of the works constructed in their place in the sum of $381,393 - an additional amount of about $78,000.
62 As indicated earlier, the defendant now claims not only the said to be agreed percentage payment of the amount set out in Breese's letter of 13 December 2001 but also the same proportion of a number of additional amounts relating to further drainage costs.[22]
The defendant's claim for drainage costs - submissions
63 The defendant submitted that there should be a finding that Johnson and Crema instructed Hawkins to do the work the results of which were set out in his letter of 1 June 2001. A copy of the letter of 1 June 2001 was given by either Crema or Barbon to Leonidas and that Leondias had subsequently confirmed, in his letter of 19 June 2001 to Best Hooper, his instructions on behalf of the plaintiffs that the proposal by Breese was to "form the basis of apportionment of the costs concerning the drainage." Leonidas had written again to Best Hooper on 21 June 2001 stating that each of the registered proprietors were to pay in proportion to the cost percentage referred to in Breese's letter and this was confirmed by a fax from Best Hooper on behalf of the defendant on the same day. Leonidas had confirmed the agreement again in the letter dated 2 July 2001. Thereafter the defendant had continued with the drainage works without any comment or objection from the plaintiffs that there was no concluded agreement on the matter. Leonidas had written again, on 25 September 2001, stating that it was the joint venturers who were paying for the drainage costs in the proportion that had already been agreed. This was repeated by Leonidas in a letter to Best Hooper on 5 October 2001.
64 The defendant submitted that the said written communications, when assessed objectively by an intelligent bystander, amounted to "a concluded agreement on the sharing of costs of the drainage works necessary to implement the drainage strategy referred to in clause 10 of the planning permit." The parties knew the character of the work to be done and it had already been partly done. The defendant submitted that it would be artificial to treat the parties as having only agreed on percentages and not as also having agreed to pay for the works in accordance with those percentages. The defendant submitted that the agreement was not uncertain or intended not to be binding until put in some other form. Even if (contrary to the defendant's contention) it was intended to incorporate the agreement in an s.173 Agreement, it was not intended that the agreement should not be binding unless and until that happened.
65 The defendant submitted that it could not be said that the works that were carried out were excessive or not what was agreed. In fact, the only change was the substitution of the treatment train system for the sediment pond facility and the extra costs involved amount to some $78,000 plus the value of the limited work involved in commencing the construction of the sediment pond facility. The works that were done answered the description of the works in respect of which it was agreed that the costs would be shared.
66 The plaintiffs submitted (correctly, I think) that no oral drainage agreement was reached in June 2001 as pleaded and particularised. However, as the defendant ultimately relied only upon the existence of a drainage agreement in writing (by correspondence), it is unnecessary to further consider this aspect of the plaintiffs' submission.
67 The plaintiffs submitted that no agreement arose from the exchange of correspondence between the solicitors for the parties. The correspondence showed that Comlaw required a term to be inserted in a s.173 Agreement to deal with the question of the sharing of drainage costs and that Best Hooper (in its letter of 26 September 2001) had also asserted the need for a separate agreement.
68 The plaintiffs submitted that although there was an agreement on percentages there was no agreement on the "subject matter" and that the solicitors for the parties had not reached any consensus in relation to the other terms of any drainage agreement. Thus, the only term identified as the subject of agreement was the proportion in which costs were to be shared. Further, Best Hooper had stated that the s.173 Agreement overrode any agreement between the parties in relation to drainage costs.
69 The plaintiffs also submitted that the costs of the drainage works had not been properly proved nor had the works involved been related to the works covered or contemplated by the alleged drainage agreement.
The defendant's claim for drainage costs - conclusions
70 I am satisfied that Crema and Johnson agreed that Breese should be instructed to prepare an estimate of the cost to construct stormwater drainage beyond Stage 1 to Merri Creek and to advise as to what should be the apportionment of costs between the defendants and the plaintiffs but I am satisfied that their instructions went no further than that. The evidence of both Crema and Johnson supports that conclusion.
71 I think that what the correspondence passing between Comlaw and Best Hooper in the second half of 2001 demonstrates is that the parties were in "agreement" upon the proportions in which the "drainage costs" were to be shared but I do not consider that they had reached any final agreement or agreement that was intended to be binding. It is unlikely, I consider, that the parties (or their solicitors) would have intended to reach a binding agreement to be constituted by various somewhat loose statements in correspondence between solicitors. It is more probable, on a topic such as this involving not inconsiderable monetary amounts, that both the parties and their solicitors would have intended any agreement to be properly documented. That is particularly so in circumstances where it was necessary to define the drainage works so as to cover those works on or in relation to Lot K that were intended to take any run-off from Lot J. Although it may be that a s.173 Agreement was an inappropriate vehicle to record any such agreement, it is not surprising that Comlaw was suggesting that such an agreement be so recorded or, given the difficulties with Comlaw's suggestion, that Best Hooper were suggesting that there be a separate agreement.
72 The letter from Breese dated 1 June 2001 hardly provides the basis for a clear agreement. The estimates and apportionments are stated to be based on a number of assumptions and it does not appear that the parties subsequently accepted those assumptions although they appear to have accepted the percentage apportionment. As Comlaw makes clear in its letter dated 19 June 2001, the instructions from the plaintiffs were "subject to an appropriate Section 173 Agreement," and the plaintiffs were "prepared to approach those issues" on the basis of the apportionment suggested by Breese. Subsequent correspondence in June 2001 made it clear that the respective solicitors considered that there was an agreement on the percentages but there was no attempt to define the drainage works in respect of which the costs were to be shared. On 2 July 2001, Comlaw reiterated that it desired a s.173 Agreement and Comlaw referred to previous correspondence "which sets out the basis on which our clients are prepared to proceed .. it is in substance that .. " In its letter dated 25 September 2001, Comlaw again referred to the necessity for a s.173 Agreement and mention was made in the same letter for the need for a term dealing with tendering for the works. Then, on 26 September 2001, Best Hooper referred to the need for a separate agreement recording the sharing of drainage costs. I do not regard this as objective evidence of the existence of an agreement that merely needed to be recorded but rather objective evidence of the necessity for a contractual document to bind the parties. Comlaw's letter dated 5 October 2001, by referring to an agreement that the works "associated with" the respective lots would be paid by the respective parties, emphasises the state of ambiguity then existing.
73 I am not satisfied on an objective assessment of the whole of the correspondence that a drainage agreement in writing as alleged by the defendant can be identified as having been made at any particular time in 2001.
74 The plausibility of the defendant's claim is of course that the plaintiffs accepted that they ought to contribute to the drainage costs and "agreed" to their percentage contribution. The weakness in the defendant's claim is that the works in respect of which the plaintiffs were to make their contribution were never defined. The defendant's submission was that the agreement was to share the costs of "the drainage works necessary to implement the drainage strategy referred to in clause 10 of the planning permit." However there is no evidence of any agreement to that effect and the making of a submission in those terms highlights the difficulty that the defendant faced in identifying precisely what, if anything, had been agreed in relation to the extent of the drainage works to which the plaintiffs were to contribute. As Comlaw pointed out in correspondence, the defendant's claim involves the contention that the plaintiffs bound themselves to pay an agreed percentage of whatever costs were incurred by the defendant in relation to drainage works without any right to be consulted about what was done and how much was expended.
75 For the foregoing reasons, the defendant's claim under the alleged "drainage agreement" fails.
The defendant's claim for payment of outgoings - the pleadings
76 The defendant alleges[23] that between 4 April 2001 and 5 April 2002 (when the plan of subdivision was registered), the defendant paid outgoings in relation to Lot J in the sum of $234,028.53. This sum included 23.28% of the total outgoings[24] of $959,177.15 plus an amount of $10,732.09 for insurance premiums. The defendant also claims the sum of $8,933 being 23.28% of a further amount paid by the defendant for Council rates in January 2003. The defendant says[25] that, pursuant to cl.24.3 of the Heads of Agreement, the plaintiffs became liable to pay these amounts, totalling $242,961.53 within 14 days of the registration of the plan of subdivision.
"All rates, taxes, assessments and other outgoings in respect of the Subject Land shall be paid by [the defendant] and borne by [the plaintiffs] as from the date that all condition precedents are met and the same shall, if necessary, be apportioned between [the defendant and the plaintiffs] and shall be paid within 14 days of registration of the plan of subdivision. If the Subject Land is not separately rated the apportionment shall be made on an area basis."
78 The plaintiffs denied any liability to pay any share of the outgoings (the actual amounts paid out by the defendant were not in dispute.) The basis for this denial was the plaintiffs' contention that "all conditions precedent" were not met prior to and until the registration of the plan of subdivision. The particular conditions that the plaintiffs said were not so met were the requirements, in cl.3.1 of the Heads of Agreement, that the defendant (and others) procure the Bendigo Bank Ltd (or "the Bank") to provide an executed partial discharge of mortgage (as therein described) and a letter to the plaintiffs (and Crema and Barbon) releasing them from all claims or potential claims (both to be placed in escrow).[26]
79 The defendant's primary position was that the conditions were met on or about 4 April 2001.[27] The defendant's particulars of this allegation are:
"On or about 26 March 2001, Bendigo Bank Limited, by its solicitors Middletons Moore & Blevins, provided an undertaking in writing to provide to Comlaw the Certificate of Title issued if it came into the Bank's possession.
On 4 April 2001 the following documents were placed in escrow with Deloitte Touche Tohmatsu:
(a) Undated partial discharge of mortgage in respect of Lot J.
(b) Undated ASIC Form 312 Partial discharge of charge.
(c) Duplicate releases of Bendigo Bank by Harry Barbon, Luciano Crema and the Plaintiffs.
(d) Duplicate releases of the Plaintiffs, Harry Barbon and Luciano Crema by Bendigo Bank Limited."
80 Alternatively, the defendant says[28] that, by reason of a representation made on behalf of the plaintiffs that the conditions had been satisfied, and the defendant's reliance thereon, the plaintiffs were estopped from contending to the contrary or had waived their entitlement to do so. The defendant provided the following particulars of the representation:
"(i) A facsimile dated 5 April 2001 from Aitken Walker & Strachan to Comlaw in which it was stated that all the conditions precedent had been satisfied and that pursuant to clause 10.2 of the Heads of Agreement, proceeding no. 7720 of 2000 ought to be discontinued with no order as to costs;
(ii) A facsimile dated 5 April 2001 from Comlaw to Aitken Walker & Strachan that referred to the conditions precedent and confirmed that it would be appropriate to discontinue proceeding no. 7720 of 2000 and further noted that pursuant to clause 9 of the Heads of Agreement, all notices issued by any party to rectify any breach under the Joint Venture Agreement had now been withdrawn upon all the conditions precedent having been satisfied;
(iii) The fact that on 5 April 2001 orders were made by consent by Master Bruce that proceeding no. 7720 of 2000 be deemed discontinued and there be no order as to costs."
The defendant's claim for payment of outgoings - the evidence
81 By letter dated 15 March 2001 from the Bendigo Bank Ltd[29] to the defendant, the Bank said that it would provide a discharge of mortgage (and a release and other documents) to be held in escrow by Deloittes pending approval and registration of the plan of subdivision, after which they would be released to the plaintiffs. The letter required the plaintiffs to execute a priority agreement and went on to state that should the plan of subdivision not be approved and registered on or before 30 September 2001, the discharge, release and other documents "will be null and void and be returned to the Bank."
82 The second variation (dated 16 March 2001) recited that the parties agreed that the condition precedent contained in cl.3.1.1 of the Heads of Agreement was not complied with in that the defendant (and others) had failed by 15 January 2001 to procure from the Bendigo Bank Ltd the required executed partial discharge of mortgage insofar as it related to Lot J and had failed to provide a letter to the plaintiffs, Barbon and Crema confirming their release from all claims from Bendigo Bank (such letter to be held in escrow).
83 The second variation further recited that Bendigo Bank Ltd had requested a priority agreement, a copy of which was attached, upon the execution of which it had agreed to provide the said executed partial discharge of mortgage (to be held in escrow by Deloittes).
84 The copy priority agreement attached to the second variation was an agreement between the plaintiffs (described as the "Caveators"), the defendant (described as the "Mortgagor"), and the Bendigo Bank Ltd (described as the "Mortgagee"). The priority agreement gave the Bank's security priority over the plaintiffs' claim to an interest in part of the land.
85 The second variation amended the date contained in cl.3.1 of the Heads of Agreement from 15 January 2001 to the date of the second variation (i.e. 16 March 2001) and amended the date of 29 June 2001 (which, inter alia, was the date by which the conditions precedent in cl.4.3 had to be met) to 30 September 2001.
86 Another clause in the second variation referred to a number of letters including the letter from the Bank to the defendant dated 15 March 2001 and provided that the parties to the various letters would use their best endeavours to perform the obligations imposed upon them by such letters. A copy of the letter dated 15 March 2001 was apparently attached to the second variation.
87 By letter dated 4 April 2001 from Deloittes addressed, amongst others, to Comlaw as solicitors for the plaintiffs, Deloittes stated that it was prepared to act as custodian for the various documents to be held in escrow pursuant to the Heads of Agreement. Deloittes listed the documents which included an undated partial discharge of mortgage by Bendigo Bank Ltd in respect of Lot J and a number of releases from Bendigo Bank Limited as required by the Heads of Agreement. The letter also stated in substance that the documents would be returned if they were not released from escrow by 30 September 2001. A copy of the letter was signed for Comlaw by Leonidas as an acknowledgement of the letter and to the terms of Deloittes' acting as custodian.
88 On 4 April 2001, as Leonidas testified,[30] the documents required to be delivered into escrow were delivered into the custody of Deloittes as required. Leonidas attended a meeting at the office of Deloittes, along with representatives of other parties, and I find that he inspected and verified to his satisfaction that the various required documents, including the partial discharge of mortgage and the releases from the Bank to the plaintiffs were there and handed to Deloittes and that they accorded with the Heads of Agreement. I interpolate here that, when the plan of subdivision was ultimately approved and registered, the documents held in escrow by Deloittes to which the plaintiffs were entitled were released by Deloittes to Comlaw on behalf of the plaintiffs.
89 On 5 April 2001, Aitken Walker & Strachan ("AWS"), as solicitors for the Harry Proceeding defendants in the Harry Proceeding, by a fax to Comlaw (with a copy to Best Hooper), stated that they understood that all the conditions precedent identified in the Heads of Agreement had now been satisfied and accordingly, pursuant to cl.10.2 of the Heads of Agreement, the Harry proceeding ought to be discontinued with no order as to costs. In the fax, AWS said that as the matter was listed for further directions before the Master that morning consent orders could be handed up to the Master that day. Comlaw replied by fax (with a copy to "client") stating:
"On the basis that all condition precedents to the Heads of Agreement (as varied) has been satisfied, it would be appropriate to discontinue the proceedings with no orders as to costs.
We agree that the appropriate course would then be to hand up Consent Orders to the Master today seeking orders that the proceeding be discontinued with no orders as to costs.
We note that pursuant to clause 9, all notices issued by any party to rectify any breach under the said Joint Venture Agreement have now been withdrawn upon all the conditions precedent having been satisfied."
90 Consent orders were made by the Master as foreshadowed by the above faxes.
91 On 11 April 2001, Comlaw sent a fax to the solicitors for the Bank requesting copies of the Deeds of Release and relevantly stating:
"At the settlement where documents were exchanged on 4th April 2001, representations were made by your clients' representatives that copies of the Deeds of Release signed by the Bendigo Bank Limited would be forwarded to us ..."
92 Copies of the Deeds of Release were provided to Comlaw by the solicitors for the Bank on the same day. The relevant releases were expressed so as to be conditional upon the registration of the plan of subdivision on or before 30 September 2001. I note that the Bank subsequently executed a Deed of Variation in effect extending that date to 30 April 2002.
93 As the plan of subdivision was not registered by 30 September 2001, the parties, and also the Bank, agreed to an extension of time for the registration of the plan of subdivision to 30 April 2002. This agreement was achieved by an exchange of correspondence between the solicitors for all relevant parties in early March 2002.
The defendant's claim for payment of outgoings - the submissions
94 The defendant submitted that the relevant conditions precedent[31] were met on 4 April 2001, alternatively the plaintiffs were not to be heard (whether because of waiver, election or estoppel) to contend otherwise.
95 The defendant said that the partial discharge of mortgage (to which cl.3.1.1. of the Heads of Agreement referred) was lodged with Deloittes to be held in escrow as referred to in Deloitte's letter dated 4 April 2001 which Comlaw had signed. The defendant relied on the evidence of Leonidas in cross-examination that he had attended at Deloitte's office with others and checked off the documents which Deloittes was to take and hold in escrow.
96 The defendant submitted that, as at 4 April 2001 the Heads of Agreement (as varied) provided for the termination of the Heads of Agreement if the plan of subdivision had not been registered by 30 September 2001 but the fact that the plan of subdivision was subsequently not registered until 5 April 2002 did not detract from the conclusion that the conditions had been satisfied on 4 April 2001.
97 Further, the defendant submitted (in answer to a contention by the plaintiffs) that it could not make any difference if the partial discharge of mortgage was handed over by the Bank on the basis of a stipulation that the discharge would become null and void at the end of the projected period. That did not make the discharge any less a valid instrument for the purposes of the Heads of Agreement.
98 Further, Deloitte's letter of 4 April 2001 referred to a release that had been prepared by the Bank's solicitors and executed by the Bank and that was inspected by Leonidas that day. The defendant submitted that the release satisfied the requirements of cl.3.1.2 and it was not rendered deficient by reason of the Bank's stipulation referred to above.
99 The defendant further submitted that the plaintiffs could not now raise the foregoing points, having proceeded with Deloittes and the other parties on the footing that the conditions had been met, and having also dealt with the parties to proceeding no. 7720 of 2000 on the same footing.
100 On the other hand, the plaintiffs submitted that the Bank's stipulation, contained in the letter attached to the second variation, meant that the conditions precedent could not be met before the plan of subdivision was registered. It was submitted that this was because the Bank's partial discharge of mortgage was "not operative" until that stipulation was satisfied, alternatively because the partial discharge of mortgage placed in escrow was "conditional" as a result of the Bank's stipulation.
101 The plaintiffs further submitted that Comlaw's conduct in agreeing to a discontinuance of the Harry Proceedings did not amount to an election to treat the conditions precedent as having been satisfied because it was not a notification to the defendant (and a not a notification to all of the parties to the Heads of Agreement) and was in any event based on the assertion to that effect by AWS.
102 The plaintiffs alternatively submitted that the defendant had provided no evidence to support the percentages adopted by it in its apportionment of the outgoings on an area basis, as required by cl.24.3 of the Heads of Agreement. In addition, the plaintiffs submitted that the insurance payment was not "an outgoing" within the meaning of cl.24.3, or that there was no evidence to show that it was an outgoing, or that it was correctly apportioned. In reply to these alternative submissions, the defendant said that it came as a complete surprise to them that the plaintiffs were challenging the percentages adopted for apportionment on an area basis and that they would seek leave, if necessary, to call evidence as to the areas of Lots J and K. I indicated that, if necessary, such leave would be granted. As regards the insurance payment, the defendant accepted, I think, that there was little evidence about the nature of the payment and in any event no justification for a different percentage apportionment to that adopted in relation to the other outgoings.
The defendant's claim for payment of outgoings - conclusions
103 In my opinion the defendant's submissions are to be preferred.
104 I consider that the conduct of Comlaw, on behalf of the plaintiffs, objectively shows an acceptance that the conditions precedent had been met on 4 April 2001. To the knowledge of all parties, Comlaw actively agreed and acquiesced in Deloittes' acceptance to be held in escrow of all relevant documents including the partial discharge of mortgage and the relevant deed of release. I think that the conduct of the parties evidences an agreement by all of them that the conditions precedent had been satisfied on 4 April 2001. The said conduct of Comlaw may also properly be viewed as an election, communicated to all parties, to treat the documents received by Deloittes as having satisfied the description required by the conditions precedent.
105 The Bank's stipulation that the relevant documents should be treated as null and void if the documents were not released from escrow by 30 September 2001 was not treated by Comlaw (or any of the other parties) as preventing the conditions precedent from having been met or as preventing Deloittes from commencing to hold the documents in escrow pursuant to the Heads of Agreement. On the contrary, as I have said, all parties accepted that the documents should be lodged with Deloittes and that the escrow period should commence.
106 In my opinion, events subsequent to 4 April 2001 are irrelevant to the proper interpretation of cl.24.3 of the Heads of Agreement. Once the conditions precedent were met, they were met. At any rate, that must be so provided that the Heads of Agreement were not subsequently terminated or unwound. The fact that the documents were not released from escrow by 30 September 2001 is, or at least becomes, irrelevant once it is seen that the documents were ultimately released from escrow and the plan of subdivision registered.
107 It is unnecessary to decide whether Comlaw's conduct in relation to the Harry Proceedings constitutes a further ground for the foregoing conclusions.
108 I am not satisfied as to the nature of the insurance payments[32] and I am not satisfied that they constitute outgoings within the meaning of cl.24.3 of the Heads of Agreement.
109 I think that the Court should grant a declaration that the plaintiffs are liable, pursuant to cl.24.3 of the Heads of Agreement, to bear a proper proportion of the outgoings totalling $959,177.15 and that the apportionment should be made on an area basis. If the plaintiffs (notwithstanding their submissions) are prepared to accept an apportionment of 23.28%, the sum already calculated can be made the subject of an order. Otherwise I will grant leave to the defendant to lead evidence as to the areas of Lot J and Lot K in order that this or some other percentage may be applied to the total outgoings in order to calculate the plaintiffs' liability.
The plaintiffs' claim in relation to the credits - the pleadings
110 The plaintiffs allege that the defendant was at all relevant times a trustee for the plaintiffs or otherwise acted in a fiduciary capacity pursuant to the Joint Venture Agreement dated 15 June 1999 and the Custodian Agreement of the same date and then under the Heads of Agreement.[33] The plaintiffs allege that as such the defendant was under duties to the plaintiffs to act honestly and in good faith towards the plaintiffs, not to make any secret profit or gain and to treat the plaintiffs equally with the defendant.[34]
111 The plaintiffs further allege that, as a result of the Heads of Agreement and the subsequent lodging of the plan of subdivision and execution by the defendant of a transfer of Lot J to the plaintiffs, the plaintiffs were entitled to all the profits of and incidental to Lot J.[35]
"8. The Plaintiffs were at all material times by virtue of the matters set out above -
(a) the equitable owners of Lot J, being entitled to the full beneficial interest therein, and
(b) entitled to all the profits of, and incidential to, ownership of -
(i) the Plaintiffs' Land; alternatively
(ii) the Pentridge Land held in gross in accordance with the Plaintiffs' proportionate entitlement in equity.
8A. The provision of water and sewerage services to the Pentridge Land is controlled by Yarra Valley Water Limited.
8B. By reason of:
(a) the Defendant's ownership of the Pentridge Land as trustee; and
(b) the existence of fixture units as defined in AS3500 National Draining and Plumbing Code on the Pentridge Land, including the Plaintiffs' Land; and
(c) the Defendant carrying out improvements for the benefit of the Defendant on that part of the Pentridge Land which is not the Plaintiffs' Land; and
(d) Yarra Valley Water's Developer Pricing policies;
credits with Yarra Valley Water Limited ("the Yarra Valley Water Credits") to a value of not less than $233,355 became available in relation to the Pentridge Land, or alternatively by reason of the ownership of the whole of the Pentridge Land by the Defendant at a date prior to or in June 2000.
PARTICULARS
The Yarra Valley Water Developer Pricing Policies are set out in the Yarra Valley Water, Developer Policy and Pricing Manual, 1998. The Plaintiffs also rely on s. 28 of the Water Industry Act 1984 (Vic).
8C. By reason of the matters set out in paragraphs 3 to 8B (both inclusive) hereof, at all material times the Yarra Valley Water Credits were held by the Defendant on trust for the benefit of the Plaintiffs and the Defendant in proportion to their interests in the Pentridge Land, or alternatively, insofar as they related to the Plaintiffs' Land, on trust for the Plaintiffs.
8D. The Yarra Valley Water Credits -
(a) arose out of the existence on the Pentridge Land and on the Plaintiffs' Land of certain specified fixtures and thereby constituted rights or entitlements accruing to the land; or alternatively
(b) arose out of ownership of the Pentridge Land and of the Plaintiffs' Land and thereby attached to ownership of the Plaintiffs' Land.
8G. By reason of the wrongful appropriation of the whole of the Yarra Valley Water Credits, or alternatively the misappropriation of the Plaintiffs' credits by the Defendant, the Plaintiffs have suffered loss and damage.
PARTICULARS
(i) The Plaintiffs refer to and repeat the particulars subjoined to paragraph 8F;
(ii) The Plaintiffs have been deprived of their share of the Yarra Valley Water Credits or alternatively have been deprived of the Plaintiffs' credits..."
113 In its defence to the Statement of Claim, the defendant substantially denies all of these allegations.
114 The defendant further says that, pursuant to cl.23.1 of the Heads of Agreement, upon the release of all the documents held in escrow, it was released from "all claims, actions, suits, damages, charges, costs and expenses of every description whatsoever which [the plaintiffs] may have or may have had but for the Heads of Agreement against the Defendant in respect of any debt, injury, loss, cost or expense of any kind suffered or incurred by them arising out of or in any way connected with the Joint Venture Agreement, the Custodian Agreement, the rights and obligations of the parties under such agreements, any conduct of the parties in purported performance of such agreements and the joint venture."[36]
115 As a result, the defendant says[37] that the plaintiffs have released and forever discharged the defendant from any claim relating to the credits.
The plaintiffs' claim in relation to the credits - the evidence
116 Darren Stewart Powell ("Powell"), a civil engineer and director of Beveridge Williams & Co Pty Ltd ("Beveridge"), testified that upon the demolition of the Pentridge Prison complex (in 1999) there arose sewerage and water credits as a result of the number of connections of toilets and hand basins that were removed and that "[t]he land holds the sewerage and water credits for having already had installed sewerage and water connections."
117 Powell went on to say that, with any residential subdivision, there was a requirement to pay "headworks" charges which applied to any new lot in a subdivision for the upgrading of external infrastructure and that it was from these charges that the sewerage and water credits were deducted.
118 Powell verified the total amounts, as alleged[38] by the plaintiffs, of the sewerage and water credits that were generated by the area that subsequently became Lot J.
119 In cross examination, Powell said that the credits were not payments made by Yarra Valley Water but were offsets used against future payments. The credits represented a reduction in the price that would otherwise have been payable if an application had been put in where no credits were attracted.
120 It appears that the above evidence amounted to a general description of the way in which Yarra Valley Water Limited exercised its statutory powers as a licensee[39] pursuant to the Water Industry Act 1994 (Vic). It was common ground that the relevant power was that contained in s.28 of the Water Industry Act which provides that a licensee providing services to a property may require the owner, in the circumstances therein defined, to make such payment as is "assessed by the licensee to be fair and reasonable in all the circumstances".[40]
121 As I understood it, it was also common ground that the credits had "arisen" prior to the date of the Heads of Agreement and had been utilised in part prior thereto and the balance were used up after the date of the Heads of Agreement. The defendant did not challenge the plaintiffs' calculation of the total credits involved but the evidence is somewhat unsatisfactory as to the various dates upon which the credits (and how much of them) were utilised.[41]
The plaintiffs' claim in relation to the credits - submissions
122 The defendant submitted that, as the fiduciary duties alleged by the plaintiffs were alleged by them to have arisen only in connection with the Joint Venture Agreement and the Custodian Agreement and not under the Heads of Agreement, the plaintiffs' claim was released by cl.23.1 of the Heads of Agreement.
123 The defendant submitted that, insofar as the credits had been used prior to the date of the Heads of Agreement, the plaintiffs had a claim (if any) in respect of a debt, injury, loss or cost or expense of some kind arising out of or in some way connected with the Joint Venture Agreement, the Custodian Agreement or the joint venture and that such claim was therefore released by cl.23.1 of the Heads of Agreement once the documents were released from escrow.
124 In relation to credits used after the date of the Heads of Agreement, the defendant made two submissions. First, it was submitted that, upon a proper construction, cl.23.1 applied to all claims of the kind defined existing as at the date of release of the documents held in escrow (5 April 2002). Secondly, it was separately submitted that, once the Heads of Agreement were executed, the parties were no longer conducting any activity in common and their relationship was governed only by the Heads of Agreement and, thus, the defendant no longer owed any or any relevant fiduciary obligation to the plaintiffs.[42]
125 On the other hand, the plaintiffs submitted that the credits were property interests referable to fixtures attached to Lot J. The basins and sewer connections in the former prison, it was submitted, had attracted rights which were attached to the land of the plaintiffs and would, at least theoretically, have been available for future use by the plaintiffs or their successors in title, had they not been used up by the defendants.
126 The plaintiffs submitted that a fiduciary relationship arose out of the Custodian Agreement and, further, that some fiduciary obligations had continued notwithstanding the termination of the joint venture and the execution of the Heads of Agreement. The plaintiffs conceded that, but for the existence of the Custodian Agreement, the defendant would not at any time have been liable to account to them for the benefit of the credits. It was submitted that the credits were joint venture property forming part of the fixtures on the land and that, upon dissolution of the joint venture, the defendant held the credits referable to Lot J on trust for the plaintiffs or had an obligation to account to the plaintiffs for their use without the plaintiffs' consent. The defendant had made a profit to which it was not entitled and equity would not permit the defendant to benefit from its unconscionable conduct.
127 Further or alternatively, the plaintiffs submitted that the defendant had continued to apply for and use the credits after registration of the plan of subdivision when it no longer even had any legal interest in Lot J.
128 The plaintiffs submitted that the release contained in cl.23.1 of the Heads of Agreement was inapplicable because the use of the credits was not a "loss .. incurred by them arising out of" the joint venture. Alternatively, it was submitted that the release could not apply to credits utilised after 5 December 2000 (the date of the Heads of Agreement), alternatively 4 April 2001 or 5 April 2002 (when the conditions precedent were satisfied).
129 In the course of argument I suggested to counsel for the plaintiffs that the credits that were used prior to the date of the Heads of Agreement were used by the defendant for the benefit of all of the joint venture parties, that there could have been no breach of duty at the time that they were used and that no provision was made in respect thereof by the Heads of Agreement. Accordingly, I suggested to counsel for the plaintiffs that the plaintiffs had no claim with respect to any of the credits used before 5 December 2000. Counsel for the plaintiffs responded by accepting those propositions but stated that the plaintiffs' claim related only to credits used after that date. There was then a discussion about the evidence contained in the attachments to Powell's witness statement - at the conclusion of that discussion, counsel for the plaintiffs conceded that the plaintiffs' claim was limited to the sum of $123,745, being the amount of the credits available for use as at 5 December 2000 and used after that date.
130 In reply, the defendant submitted that the credits clearly did not constitute any interest in land or item of incorporeal property. The phrase "sewerage and water credits" was simply a shorthand way of describing the means by which the statutory authority went about working out a fair and reasonable charge.
The plaintiffs' claim in relation to the credits - conclusions
131 As stated above, the plaintiffs' claim in relation to the credits became limited to the sum of $123,745, being the amount of the credits available for use as at 5 December 2000 and used after that date. In my opinion, that claim fails at two levels.
132 First, I consider that the credits did not constitute property of the plaintiffs of any kind. The credits did not "attach" to Lot J or to fixtures thereon. The owner of Lot J had no right, statutory or otherwise, to use or insist upon the use of the credits in the calculation of any payment demanded by Yarra Valley Water Ltd. The "credits" simply represented amounts that, as a matter of policy, Yarra Valley Water Ltd might taken into account in assessing a fair and reasonable payment. Accordingly, the defendant did not misappropriate any "property" of the plaintiffs.
133 Second, insofar as the plaintiffs' claim is not a proprietary claim but a claim for damages or compensation for breach of a fiduciary obligation, I consider that the defendant was under no relevant fiduciary obligation to the plaintiffs after the execution of the Heads of Agreement. I have found it unnecessary to refer to the terms of the Custodian Agreement or the Joint Venture Agreement because it was not seriously contended by the defendant that it did not have fiduciary obligations to the joint venture parties (including the plaintiffs) during the period during which those two agreements operated. Once the Heads of Agreement were executed, the parties were at arms' length and the relationship of the parties was governed by that agreement and not by the Custodian Agreement.[43] The parties (including the plaintiffs who were experienced developers) must be taken to have been aware of the manner in which a licensee such as Yarra Valley Water Ltd calculated its charges and must have been taken to have been aware of the availability or possible availability of the credits. In any event, the parties adopted the Heads of Agreement as the document governing their future commercial relationship and they made no provision in it with regard to the credits.
134 In relation to the defendant's reliance upon cl.23.1 of the Heads of Agreement, I think that defence would have been effective in relation to claims prior to the date of the Heads of Agreement because the plaintiffs' claim as originally pleaded (but only up to that date), whatever the cause of action, was, in my view, covered by the comprehensive description contained in cl.23.1, namely, "claims, actions, suits, damages, charges, costs and expenses of every description whatsoever which [the plaintiffs] may have or may have had but for these Heads of Agreement against [the defendant] in respect of any debt, injury, loss, cost or expense of any kind suffered or incurred by them arising out of or in any way connected with the Joint Venture Agreement, the Custodian Agreement, the rights and obligations of the parties under such Agreements, [and] any conduct of the parties in purported performance of such Agreements and the joint venture .." [emphases added]. However I do not think that the release was intended to cover any claims arising after the date of the Heads of Agreement. Consequently, once the plaintiffs' claim became limited to a claim arising after that date, the defence based upon the release in cl.23.1 was ineffective.
135 The plaintiffs' claim against the defendant fails and there will therefore be judgment for the defendant on the plaintiffs' claim.
136 On the counterclaim, there will be a declaration that the plaintiffs are liable, pursuant to cl.24.3 of the Heads of Agreement, to bear and pay to the defendant a proper proportion of the outgoings totalling $959,177.15 and that the apportionment should be made on a area basis as between Lot J and Lot K. If the parties are unable to agree on the resulting amount, I will grant leave to the defendant to call evidence as to the areas of Lot J and Lot K and as to the resulting calculation. Apart from and subject to the foregoing, the counterclaim will be dismissed.
137 I will hear submissions as to interest and costs.
[1] The undertaking given by Pentridge Village was superseded, on 7 January 2002, by an order of Beach J which restrained the defendant until further order "from executing a s173 Agreement or any other agreement pursuant to s173 of the Planning and Environment Act 1987 which affected the plaintiffs' land being Lot J of the Plan without the consent of the plaintiffs' first obtained" and "from otherwise encumbering, mortgaging, charging, hypothecating, pledging, or dealing with the plaintiffs' land without the consent in writing of the plaintiffs first obtained."
[2] Then called Grandview Square Developments Pty. Ltd.
[3] Known as the Grandview Square Joint Venture.
[4] Supreme Court proceeding no. 6915 of 2001.
[5] Namely, Harry One - 23%; Luciano - 23%; Piero - 23%; and Dallas Rise - 31%.
[7] See para. 54 of the second further amended counterclaim ("the Counterclaim").
[9] See paras. 56-58 of the Counterclaim.
[10] See para. 36 of the plainitffs' response to the second amended counterclaim ("the defence to Counterclaim").
[11] See para. 37 of the defence to Counterclaim.
[12] See para. 39 - 42 of the defence to Counterclaim.
[13] See para. 44 of the defence to Counterclaim.
[14] See paras. 46-48 of the defence to Counterclaim.
[15] Crema testified that Breese was a consultant both for the plaintiffs and the defendant at that time.
[17] Barbon was not called as a witness as apparently the commercial relationship between Crema and Barbon had terminated.
[18] For the attention of John Cicero, the member of Best Hooper dealing with the matter.
[19] This is a reference to a communication by Best Hooper to Comlaw stating that Johnson had arranged for Hawkins of Breese to meet with the Council's drainage engineer to discuss the issue which appeared to revolve around the capacity of the plaintiffs' lot to be drained through the balance of the site.
[20] This consent apparently emerged from or after a mediation between the parties.
[24] The outgoings comprised Council rates, water rates, and Land Tax.
[26] See para. 7 of the Defence to Counterclaim.
[28] See para. 4 of the defendant's Reply to the Plaintiffs' Amended Defence to Amended Counterclaim.
[29] It is convenient to refer to the financier as "Bendigo Bank Ltd" although a "division" of the Bank called "Cassa Commerciale" was involved.
[30] Leonidas said in his witness statement that the date was 5 April 2001 but his cross-examination seems to indicated that the date was 4 April 2001.
[31] Nothing turns on whether these conditions were correctly characterised as conditions "precedent."
[32] Some relevant documentation appears at pp.3078-3088 of the Court Book (Exhibit A) but there was no evidence explaining these documents.
[33] This is the gist of the allegations contained in paras 3 - 4A of the third amended Statement of Claim ("the Statement of Claim").
[34] See para 4A of the Statement of Claim.
[35] This is the gist of the allegiations contained in paras 5 to 8 of the Statement of Claim.
[36] See para 8H of the defence to the Statement of Claim.
[37] See para 8J of the defence to the Statement of Claim.
[38] See the particulars to para 8F of the Statement of Claim set out above.
[39] See ss.5 and 15 of the Water Industry Act 1994 (Vic).
[40] It was not suggested that s.28(2)(b) of the Water Industry Act, which requires the licensee to "take into account any payment that the owner has made" under other specified provisions of the Act, was relevant.
[41] There are in evidence some relevant attachments to a witness statement of Powell but the figures are not easy to understand despite attempts by counsel to explain them to me.
[42] Citing, inter alia, Hospital Products Limited v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41, 96-97.
[43] The plaintiffs' submission emphasised that their claim depended upon the terms of the Custodian Agreement and that without it they would have had no claim.
Harry One Pty Ltd & Anor
Pentridge Village Pty Ltd [2008] VSC 479
(1984) 156 CLR 41
Judgment for the defendant on the plaintiffs' claim. The defendant's drainage claim failed. On the counterclaim, the court declared that the plaintiffs must bear a proper area-based proportion of $959,177.15 in outgoings under cl.24.3 of the Heads of Agreement. If the parties could not agree on the resulting amount, the defendant had leave to call evidence about the areas of Lots J and K. The remainder of the counterclaim was dismissed, subject to that declaration. Interest and costs were reserved for submissions ([135]-[137]).
3.8 Crema and Barbon shall ensure that within fourteen days of the signing of these Heads of Agreement CBG Architects Pty Ltd
3.8.1 acknowledge in writing the copyright and intellectual property in all architectural plans and drawings in respect of any dwelling constructed on stage 1A of the plan of subdivision PS 430271T, being constructed on the Pentridge Land belongs to West Homes.
3.8.2 deliver up all plans and architectural drawings of all the said dwellings to West Homes (if any).
3.8.3 provide a full release in writing of all claims for any services provided by it to the Custodian, the joint venture, or West Homes.
3.9 Any party placing a transfer in escrow shall at the same time place the relevant share certificates of the Custodian in escrow or a statutory declaration that such party does not have in his or its possession the relevant certificate.
3.10 Within 14 days of the date of these Heads of Agreement Harry and Luciano will lodge in escrow a withdrawal of the caveat lodged pursuant to clause 30 in registrable form.
...
10.2 Upon satisfaction of all the conditions precedent the Harry proceeding be discontinued with no order as to costs, with the parties thereto releasing each other from the claims arising out of or connected with the pleadings or the subject matter of the pleadings.
...
8E. At a time unknown to the Plaintiffs but in or before June 2000, during the period when the Defendant was acting as Custodian for or on behalf of the parties, the Defendant became aware of the entitlement of the Plaintiffs and the Defendant to the Yarra Valley Water Credits, which had accrued to, or attached, to ownership of the Pentridge Land.
PARTICULARS
A copy of the letter from Yarra Valley Water to Breese Pitt Dixon Pty Ltd, dated 5 April 2000 and giving details of the credits may be inspected in accordance with the Rules of Court.
8F. Wrongfully and in breach of the Defendant's fiduciary obligations to the Plaintiffs, the Defendant progressively on dates unknown to the Plaintiffs but commencing in or after June 2000, appropriated for its own use and benefit -
(a) the whole of the Yarra Valley Water Credits to a value of no less than $233,355 which were available in relation to the Pentridge Land as at June 2000, and/or
(b) the whole of the Yarra Valley Water Credits which were available in relation to the Plaintiffs' land on and after 5th December 2000 (the Plaintiffs' credits"),
and thereby
(i) failed to act honestly and bona fide in the interests of the Plaintiffs as beneficial owners of part of the Pentridge Land;
(ii) failed to make full disclosure to the Plaintiffs of the Plaintiffs entitlement to share in the Yarra Valley Water Credits;
(iii) made a secret profit or gain;
(iv) failed to account to the Plaintiffs for the Plaintiffs' credits;
PARTICULARS