108 Mr White said that at the end of 5 May 2003 Mr Maxwell came to his office and he gave him a copy of the Heads of Agreement. He told Mr Maxwell that he had not read the document. Mr Maxwell signed the originals of the Heads of Agreement and then took them away for about ten or 15 minutes. When he brought them back Mr O'Keefe had signed. Mr White then took the documents to Mr Scott's office, where he signed. Mr White distributed the signed Heads of Agreement to Mr Scott, Mr Maxwell and Mr Mann.
109 In cross-examination, Mr White said that Mr Maxwell brought in the signed contracts and deposits for the 63 lots sold. A photocopy was made of the relevant portions of the contract and placed on a file. Every time there was a new contract, Mr Cleary was notified that the lot had been sold and a deposit received. Mr White said that he had nothing to do with the other 17 lots.
110 Mr White said that it was only after the Heads of Agreement had fallen through that he heard Mr Maxwell use the words "joint venture." According to Mr White, at the meeting at the Sheraton Hotel the main discussion was that Mr Maxwell said that he was entitled to 17.5% of the gross profit of the project and Mr Scott argued that it was 10% of the net profit. There was also discussion that some of the contracts that had been signed were signed for the purpose of obtaining finance from the NAB and that both Mr Maxwell and Mr Scott had agreed that contracts had been signed for the NAB.
111 It was Mr White's evidence that the Heads of Agreement were signed at the end of the day on 5 May 2003 - at "maybe four o'clock, four thirty." He was at Mr Scott's office at "probably 5.30 quarter to six."
112 Mr White said that when it was noticed that the contracts for the 63 lots did not have a guarantee attached, he gave a copy of a form of guarantee which his firm had used to both Mr Maxwell and Mr Cleary.
113 In re-examination, Mr White spoke about an occasion on 16 October 2002 when Mr Maxwell and Mr Cleary came to his office at "about 7.30." The three of them went through the 63 contracts checking the details with a list of sales. Mr White said that he saw Medley Close's name on the list, more than once, but he did not know how many times.
114 Mr White was subsequently recalled because of concerns he had raised with the plaintiff's solicitor about some of what he had said in his evidence. He wanted to clarify the evidence he had given about a draft of the Heads of Agreement. He also said that on reflection he was not sure that Mr Maxwell had agreed with what Mr Scott had said about contracts being signed for the NAB. Mr White also stated that he had omitted to mention that when things were running smoothly between the parties, Mr Scott and Mr Cleary had both said to him that "Mr Maxwell had purchased blocks."
The Evidence of David Scott
115 I turn then to the evidence given on behalf of the defendants. Mr Scott said in his affidavit sworn on 25 October 2003 that he first met Mr Maxwell in about April 1999 when Mr Maxwell joined the Geelong Super Rules Football Club. He said that in the following six months Mr Maxwell continually spoke to him about property deals, seeking to persuade him to buy property. Eventually, in November 1999 he did purchase four blocks of land in the Hidden Valley development on the outskirts of Melbourne. He sold them in October 2000.
116 Mr Scott gave evidence that from about April 2001, when football training resumed, he and Mr Maxwell had discussions in passing about property developments. Mr Maxwell would fax him documents in relation to different property scenarios and projections. He would follow up with telephone calls to Mr Scott's office or drop into his office. A seven page fax from Mr Maxwell to Mr Scott dated 12 June 2001 contained details on four different developments, including Lots 8 and 9 at Allenby Road, Hillside.
117 Mr Scott said that, after he split up with his de facto partner, for a short time he spent more time drinking after training at the football club. It was during this period that he did go to Mr Maxwell's home on one occasion in June 2001 for drinks, after some drinks at the football club after training and more drinks at the hotel where they met Ms Connoley and a friend of hers. Mr Scott said various potential investments in property were discussed on that evening but only at a very superficial level. The development at Hillside was definitely mentioned. Mr Maxwell was really keen for Mr Scott to look at the property, but Mr Scott was more interested in the LaTrobe Boulevard property because it was in Geelong. They talked mostly about this property.
118 In July 2001 Mr Maxwell contacted Mr Scott some ten or twelve times about the Hillside property development. Mr Maxwell told Mr Scott that he was acting as the project manager for the development at Hillside and that there was a potential for future subdivision of adjoining property. Mr Scott said that in late July 2001 he drove to Melbourne to inspect Lots 1 and 7. He met Mr Maxwell on site. After the inspection he told Mr Maxwell that he would buy the land. He knew that there would be three contracts because Lot 7 had two titles, each for an undivided half interest in the property. Mr Maxwell said that he would be willing to act as project manager and sales agent. He said that he would be prepared to be engaged on a fee of 10% of net profit and $2,000 sales commission on blocks of land sold, which was said to be his arrangement on the adjoining subdivision. This was the first time this proposal was mentioned. This conflicted with what Mr Scott had said in his affidavit which was that Mr Maxwell made his offer before Mr Scott decided to buy. However, Mr Scott said in evidence that until he saw the land and decided to buy there was no point in having any such arrangement.
119 Mr Scott said that he signed the contract with the Micallefs and the Attards on 3 August 2001 although it was dated 5 August 2001, and the contract with T.A. Maria Pty Ltd on 16 August 2001, although it was dated 22 August 2001. He said that he always intended to use a company vehicle. As an accountant he did not want to have assets in his name. There was never any suggestion that Mr Maxwell would be a purchaser.
120 Mr Scott said that after signing the first contract for Lot 7 Mr Maxwell told him that there might be a problem with the other title. After signing the T A Maria contract Mr Maxwell told him that the other title for Lot 7 had been bought by someone else. He denied receiving the letter from Mr Maxwell dated 21 September 2001.
121 In late October 2001 Mr Scott agreed with his accounting partner Mr John Cleary that Mr Cleary would invest in the project. They agreed that when the land was acquired Mr Cleary would become a director and shareholder of the corporate vehicle used to buy the land. In February 2002, Mr Scott's brother, Mr Robert Scott, also agreed to invest in the project.
122 On 1 March 2002 Mr Scott, Mr Cleary and Mr Maxwell met with Marner's representatives, Mr Baldwin and Mr Mauger. Marner agreed to nominate Moorabool as the purchaser under its contract. Shortly after this meeting Mr Scott received from Mr Maxwell the letter dated 3 March 2002.
123 The two contracts relating to Lot 7 were settled on 1 March and 4 April 2003 respectively. Mr Scott funded the purchase of this part of the Hillside land using 30 day bank bills from the NAB for $805,000. As further security Moorabool gave a debenture and the Scott brothers and Mr Cleary each gave a personal guarantee. Further funding had been hindered by the problem with the other title for Lot 7.
124 Mr Scott arranged to meet representatives of the NAB at his office on 11 June 2002. Mr Maxwell was to attend to make a sales presentation. On the morning of 6 June Mr Maxwell rang Mr Scott to ask him if he could sign some contracts. Mr Maxwell could not come to his office, so Mr Scott agreed to call in to 48 Queen's Park Road to see Mr Maxwell on his way to visit a client. They sat in the front of Mr Maxwell's car. Mr Maxwell told Mr Scott that he needed these nine contracts signed to get the number of sales up for the meeting with the bank. Sales were less than he had anticipated and contracts were coming back slower than expected. Mr Scott saw that the contracts were for purchases by Medley Close. Mr Maxwell agreed that these contracts were not intended to be permanent, they were only for the purpose of showing them to the NAB. Mr Maxwell did say that he would probably like to buy some lots but he had not worked out which lots and how many. Mr Scott told Mr Maxwell that perhaps four lots would be acceptable but he did not want to be in a position where he was exposed by being too reliant upon one purchaser if that purchaser could not settle. If the sales were at market price, he could not see a problem. Mr Scott signed nine original contracts and left them with Mr Maxwell. The contracts were dated before Mr Scott signed them. The nine lots were 1, 10, 26, 35, 46, 49, 56, 59 and 71.
125 The meeting with the NAB was postponed until 14 June. Mr Maxwell presented what was supposed to be the sales and marketing plan, but it mainly consisted of him telling the NAB that there would not be any problems with this good subdivision. Mr Scott said he was embarrassed about the presentation.
126 Mr Maxwell brought the nine original contracts to the meeting, but they were not shown to the NAB. Afterwards, they were left in a photocopy paper box on the boardroom table at Mr Scott's office. Mr Scott then put them in his filing cabinet. He spoke to Mr Maxwell later in the next week, after receiving a copy of Mr Maxwell's letter to the NAB. He told him that he was unimpressed with Medley Close being listed as a purchaser in the letter to the NAB and instructed him that he did not want the letter sent because it was not correct. He also told him that the nine contracts were now finished. Mr Maxwell did not object. The nine original contracts remained in Mr Scott's filing cabinet until he took them to his solicitors in July or August 2003.
127 Mr Scott said that, when litigation commenced, he inspected the copies of the 17 contracts relied on by Mr Maxwell. He had not signed these documents. His initials were not on the particulars of sale page and the contracts had directors' guarantees which he knew had not been in any of the contracts. He denied signing 17 contracts of sale. He only signed the nine as described above. He also denied signing the letter of authority dated 26 May 2002. He did not see this letter until after litigation commenced.
128 Prior to signing the nine contracts there had been no discussion between Mr Maxwell and Mr Scott about developing some of the lots as dual occupancies. Mr Scott had only recently seen the letter from Mr Maxwell to Mr Chiodo dated 16 May 2002. Mr Scott said that some time after February 2003 he became aware that dual occupancy permits had been lodged in respect of the 17 lots which were unsold. However, he agreed in cross-examination that Mr Maxwell's letter of 3 March 2002 and the appraisal from Mr Colman dated 11 March 2003 both referred to lots as "dual occupancy potential" and that he was aware of this.
129 After the meeting with the NAB, Mr Scott and Mr Cleary decided to seek finance elsewhere. They approached several finance brokers, including Mr Justin Taylor, who put them in touch with the eventual financier, Nova West and Rosslare. It was Mr Maxwell who introduced Mr Taylor to Mr Scott.
130 In May 2002 Mr Scott received what I have called, the first letter dated 23 March 2002. He denied receiving the second letter dated 23 March 2002. The first letter was left at his office. He read the letter but did not speak to Mr Maxwell about it until July 2002 when Mr Maxwell telephoned him. He saw the letter as an attempt by Mr Maxwell to change their agreement. He decided to wait until Mr Maxwell raised the topic with him. When Mr Maxwell called, Mr Scott told him that he did not see any need to change the original arrangement for his fee. Mr Maxwell said that it was a great project and that Mr Scott was going to get a lot of money from it and he should get more. Mr Scott did not agree. The matter was again raised by Mr Maxwell in a telephone conversation in early December 2002, which ended in an argument. They did not talk again until February 2003.
131 Following a call from Mr Maxwell, Mr Scott agreed to go to Mr Maxwell's house on 18 February 2003 to attempt to resolve things between them. They discussed a number of issues but did not reach any resolution. Mr Maxwell told Mr Scott that if he did not agree with his demands he would ruin Mr Scott by sabotaging the project and tying the funds up in legal proceedings for two years. He referred to another development in Deer Park where he had "screwed" the guy who had purchased it. Mr Scott subsequently received Mr Maxwell's letter dated 28 February 2003. There were further meetings and correspondence and discussions which ended with the signing of the Heads of Agreement. Mr Scott said that he signed four copies of the Heads of Agreement at around 5.30 p.m. They had already been signed by Mr Maxwell and Mr O'Keefe. Mr White signed straight after Mr Scott signed. Notwithstanding the Heads of Agreement, Mr Maxwell did not remove his caveat.
132 Two or three weeks after 5 May 2003, Mr Maxwell telephoned Mr Scott and claimed to be entitled to a half share of the profits. This was the first time, according to Mr Scott, that Mr Maxwell mentioned "joint venture" or claimed half of the profits. Mr Scott told Mr Maxwell that he was not a joint venturer.
133 In cross-examination, Mr Scott said that Mr Maxwell's initial approach was that he had land for sale on attractive vendor terms which Mr Scott should look at and purchase. Mr Scott believed Mr Maxwell was acting as a sales agent for the vendors. All of Mr Scott's dealings with Mr Maxwell up to this time were in regards to Mr Scott buying land. This proposal was no different. Mr Scott agreed that Mr Maxwell told him that other people were interested in being involved with Hillside. The figures Mr Maxwell put before Mr Scott varied between $1.5 million and $2.5 million gross profit. Mr Maxwell told Mr Scott that the time before settlement in the proposed contracts should enable sufficient time for a planning permit to be issued on the property so that when Mr Scott applied for finance to purchase the property it could be based on the increased valuation of the property not the purchase price.
134 Mr Scott said that there was no mention of a caveat being lodged by Mr Maxwell until 8 December 2002, when Mr Maxwell rang him seeking to increase his share from 10% to 17.5%. When Mr Scott said that there was no reason to increase it, Mr Maxwell threatened to put a caveat on the property if he did not agree with what Mr Maxwell wanted.
135 According to Mr Scott, the time for completion of the project more than doubled. Originally the expectation was that it would be completed around June 2002. After the problem with the third contract was resolved, completion was recalculated at 31 October. Then when contactors were engaged it was pushed back to 31 December, then 28 February 2003, then 15 May and finally early June 2003.
136 Mr Scott denied receiving the letter from Mr Maxwell dated 21 September 2001 either in the mail or personally from Mr Maxwell. There was no discussion about that letter.
137 When cross-examined about his letter to Mr White dated 8 April 2003, Mr Scott said that "the venture" referred to in the letter was a venture between Mr Cleary, Mr Robert Scott and himself through Moorabool. He denied that the reference to "a half profit share as offered to me" referred to the overall development. He said that it related to a proposal with respect to the 10 blocks put by Mr Maxwell the previous day.
138 Mr Scott rejected the suggestion that the work done by Mr Maxwell (such as negotiating away a fee for public space or negotiating about the payment of an upfront fee of $150,000 for a pipeline) went beyond that expected of a project manager. He denied that Mr Maxwell was a joint venture partner. He said that Mr Maxwell did not take the risk which he took in acquiring the properties.
139 It was agreed by Mr Scott that his brother's contribution of about $400,000 was needed to settle the Micallef/Attard contract. He also agreed that as at June 2002 he was under financial pressure both to settle the T A Maria contract and to get development finance. Whilst he reluctantly accepted that Mr Maxwell assisted in arranging finance for the development, Mr Scott did agree that this was not part of project management or sales duties.
140 Mr Scott said that he told Mr Maxwell after he received the letter dated 23 March 2002 that he would not agree to Mr Maxwell's request to increase his fee to 17.5% of net profit. He saw no reason to change the initial agreement. The episode with the second Lot 7 contract had cost him over $175,000 more than originally planned when he first decided to buy the land. Mr Scott denied that Mr Maxwell later told him in a telephone conversation that as Mr Scott had not performed his part of the agreement, Mr Maxwell was returning from 17.5% to 50% for his share.
141 According to Mr Scott, around September or early October 2002 he told Mr Maxwell not to sell any more lots. Costs had been covered by the sale of the other 63 lots and Mr Scott was hoping that the price would go up. That was when Mr Cleary went to Mr White's office to check sales.
142 It was emphatically denied by Mr Scott that he went to Mr Maxwell's house in about July or August 2002 to talk about the 17 contracts. He said that he only went to his house twice in 2002, in about May and it was a during the day to meet a finance broker. Mr Scott said Ms Connoley's evidence about a meeting at their house must relate to a meeting on 18 February 2003. At this meeting Mr Maxwell said that his share should be increased. Mr Scott rejected this. Mr Maxwell then said he had a right to take 17 lots from the venture. Mr Scott disagreed. Mr Scott said that at this meeting this development was discussed less than the other two Mr Scott and Mr Maxwell were involved in. Mr Scott said that it was not a coincidence that the nine contracts were part of the 17 remaining lots because Mr Maxwell had been instructed in about July 2002 to hold back the bigger, and better, blocks.
143 Mr Scott was asked about the list which Mr Maxwell sent to him with the letter to the NAB dated 20 June 2002. Medley Close's name appeared in the list 13 times not nine. Mr Scott agreed that he had seen that Medley Close's name appeared. Mr Scott was also asked about other lists which had been prepared by one or other of the parties. He said that he only worked from one list on his computer. There were 17 lots unsold on this list and Medley Close's name did not appear as a purchaser. Another list, produced by the plaintiffs on discovery, had Medley Close's name appearing as purchaser of the 17 lots in question. Fifteen times the name was typed, but for Lots 12 and 38 it was handwritten. A third list, produced by the defendants on discovery, had Medley Close's typed name appearing as purchaser of 15 of the 17 lots, but there was a blank for Lots 12 and 38. In addition, with Lot 52, the typed name of Medley Close had been crossed out and replaced in handwriting with the name "Delaware Nominees", which was one of Mr Scott's companies. Mr Scott thought that it was Mr Cleary's handwriting. Mr Scott said the lists prepared in his office would have been typed from information provided by Mr Maxwell. He did not see any of these lists at the time.
144 Mr Scott denied that at the mediation he talked about Mr Maxwell conceding some of the 17 lots. It was not about "getting back blocks." If he wanted to resolve the dispute on a business basis he needed to find out how many blocks he would have to give up. Mr Scott said that there was no mention of Mr Maxwell's profit share. There was discussion about his 10% project management fee which Mr Maxwell wanted to increase to 17.5%. Because it was becoming an issue, Mr Scott said that he tried to define it in dollar terms. They came to some sort of agreement on $300,000. Mr Scott said that there had never been any dispute about the $2,000 commission on each of the 63 lots sold by Mr Maxwell.
145 His use of the phrase "7 blocks are returned to the property venture" in his without prejudice letter to Mr White dated 8 April 2003 did not mean anything, Mr Scott said, other than "we were to take seven." Mr Maxwell was to take ten not the 17 that he was claiming.
146 According to Mr Scott, the prices of the 11 blocks, which he eventually agreed to offer to Mr Maxwell, were never agreed even though the Heads of Agreement were drawn up and signed. He thought Mr Maxwell had not been honest with him in telling him those blocks were worth somewhere between $110,000 and $120,000 when they were actually worth $150,000. When he found this out, he felt that he had been conned by Mr Maxwell. He refused to continue talking, particularly as Mr Maxwell had not removed his caveat.
147 Mr Scott said that the original settlement negotiations concerned nine lots. Then in his letter of 8 April 2003 he suggested ten lots. Eventually there was a proposal on 11 lots. There were numerous discussions about price. If the Heads of Agreement had contained prices he may not have signed. It would have depended on the prices. Mr Scott denied that he kept putting up the prices on the unsold lots.
148 The last meeting between Mr Maxwell and Mr Scott, according to Mr Scott, took place on 16 June 2003. Mr Scott said all sorts of possible resolutions were discussed. He denied saying to Mr Maxwell that he might find out that the 17 contracts were not legal.
149 Mr Scott agreed that his statement in his letter to Mr Maxwell dated 9 May 2003 that "lots 12, 49, 10, 56, 26 and 53" had been sold was not correct. Nevertheless, that explained his reference to not selling the lots twice.
The Evidence of John Cleary
150 In his affidavit sworn on 25 October 2002 Mr Cleary said that he was an accountant in partnership with Mr Scott. He was also director of Moorabool.
151 Mr Cleary gave evidence that he had made several approaches for development funding. It was eventually obtained from Rosslare. Moorabool gave it a mortgage over the Allenby Road property and a debenture charge. Mr David Scott, Mr Robert Scott and Mr Cleary signed guarantees of the loan from Rosslare to Moorabool.
152 Mr Cleary said that he was responsible for the administration of the project. A printed table or list was created in Scott & Co's office and given in blank to Mr Maxwell in about April 2002 to fill in details of sales. He also created his own file or list to help with conveyancing. It recorded details of contracts received and deposits paid to Real Estate on Pakington and, later, matters such as settlement dates, adjustments and penalty interest were added.
153 According to Mr Cleary, he was aware that Medley Close's name appeared on Mr Maxwell's list and the list prepared by Scott & Co staff. In about September or October 2002 he spoke to Mr Maxwell about blocks remaining for sale and Mr Maxwell said that he was thinking of buying some of the unsold lots or the lots with Medley Close's name on them to put houses on.
154 Mr Cleary recalled an evening meeting in late October 2002 at Mr White's office where Mr Maxwell was also present. The three of them went through the list of sales, filling in any gaps, checking what deposits had been paid, and clarifying the identity of purchasers. He agreed that Medley Close's name appeared 15 times on the list they went through. Mr Cleary could not explain why Medley Close's name had not been deleted during this process when the intention was to try to obtain an accurate list. He did say, however, that he did not believe at that time that they had valid contracts or that those lots were in fact sold.
155 In cross-examination, Mr Cleary said that he had not seen either the letter from Mr Maxwell dated 21 September 2001 or the second letter dated 23 March 2002 before the litigation commenced.
156 Although Mr Cleary acknowledged seeing the faxed letter from Mr Maxwell dated 20 June 2002 and the enclosed list naming Medley Close as the purchaser of 13 lots at the time, he said that he did not think Medley Close was purchasing any lots. It was possibly going to be sent to the NAB. Mr Cleary knew nothing about the nine contracts signed by Mr Scott.
157 Mr Cleary agreed that obtaining finance was not one of Mr Maxwell's duties as project manager. He denied that Mr Maxwell obtained the finance, although he agreed he assisted by putting Moorabool in touch with Nova West. Thereafter, Mr Cleary did a lot of liaising with the financier and its solicitors.
158 When pressed about the fact that Medley Close's name appeared on the lists, Mr Cleary pointed out that 53 of the names on the list when first typed up did not finish up as the purchasers. The names constantly changed. He assumed Medley Close's name was left over from the original list or that it had been inserted on the instructions of Mr Maxwell.
The Evidence of Robert Scott
159 In his affidavit sworn on 25 October 2003, Mr Robert Scott said that he was a director of Moorabool. He had been a registered builder for 12 years and had been involved in a number of construction and development projects.
160 Mr Robert Scott said that in late January or early February 2002 he met Mr Maxwell at a subdivision in Allenby Road, Hillside where Mr Maxwell was then working to talk about some property which Mr Maxwell was trying to sell him. When they were driving to meet the owner of the property, Mr Maxwell suggested Mr Robert Scott should get involved in the development of the adjoining land in Allenby Road which was owned by Mr Robert Scott's brother. Mr Maxwell told Mr Robert Scott that his role was to project manage the development through to completion and to sell the subdivided lots. His payment was to be $2,000 per lot sold and 10% of the profit after expenses.
161 As a result of the conversation with Mr Maxwell, Mr Robert Scott spoke to his brother about the project, investigated it and decided to invest. He requested that his involvement be structured formally. By a letter dated 26 February 2002, Mr David Scott confirmed that in return for Mr Robert Scott contributing $400,000 he would be appointed a director of Moorabool and allocated one third of the issued share capital. The letter concluded by stating that: