Plaintiffs v Defendants [2006] VSC 283 | Case summary

Plaintiffs v Defendants [2006] VSC 283 | Case summary | Zoe

[21]

Introduction

1 In the year 2000 a complicated array of interwoven syndicates and joint ventures were formed for the purpose of redeveloping a four storey concrete framed brick building located in the heart of residential Kew. Large sums of money have changed hands and considerable work has been undertaken by architects and other consultants. But no building work has been done, and, although a planning permit for a redevelopment of the existing building has been granted, all plans to proceed with the development in accordance with that permit have been abandoned. In this proceeding the principal active participants in these transactions are, in effect, litigating over the consequences of this state of affairs.

2 The second defendant, Primelife Corporation Ltd ("Primelife"), is a publicly listed company in the business of developing and managing aged care residential facilities.

3 The third defendant, Mr Sudholz, is a former real estate agent. In 1991 he commenced employment with the chartered accounting firm Arthur Andersen. He became a partner of Arthur Andersen in 1993 and from then until 2002 he was the partner in charge of the Real Estate and Hospitality Services Group within Arthur Andersen's Melbourne office. He is not himself an accountant.

4 The first defendant, Madden Grove Developments Pty Ltd ("MGD"), is a company formed by Primelife and Mr Sudholz. The shares in MGD are owned equally by Primelife on the one hand and Mr Sudholz and interests closely associated with him on the other.

5 In early 2000, investments in retirement village developments were perceived to have taxation advantages. This perception was based primarily upon Taxation Ruling 94/24 which provided that where a developer constructed a retirement village with a view to selling the individual units on a strata title basis, the trading stock provisions of the Income Tax Assessment Act 1936 (Cth) would apply and expenditure incurred in acquiring and developing the village would be considered expenditure of a revenue nature, thereby allowing a deduction for that expenditure in the year in which it was incurred.

6 The two plaintiffs, Civoken Pty Ltd ("Civoken") and Stones Sharp Financial Services Pty Ltd ("SSFS"), are best described in these transactions as "intermediaries" between MGD, Primelife and Mr Sudholz on the one hand and a group of persons and entities who invested money in the venture on the other. The venture was presented to these investors as one warranting their consideration on the basis both of the returns realisable and of the taxation advantages thought to be available in accordance with Taxation Ruling 94/24. Officers of Civoken and SSFS conduct business as, or are associated with, firms of accountants and financial advisers.

7 Civoken has two directors, Terence George and Renato Penzo. Mr George is, amongst other things, a property development consultant. Mr Penzo is an accountant and is a director of Anthony De Luca Partners Pty Ltd which carries on an accounting practice under the name De Luca Partners.

8 SSFS is a company associated with an accounting firm named Stones Sharp. The directors of the company and the partners in the firm are Barry Stones, Ken Sharp Eric Cirulis and Peter Wilson.

9 The relevant officers of Civoken and SSFS introduced their clients to the proposal and those clients make up a substantial proportion of the investors. The investors are not parties to these proceedings.

Principal issues

10 There are two documents which are central to the case. The first is a contract of sale dated 28 June 2000 between Civoken and SSFS as purchasers and MGD as vendor. The second is a property information report published under the insignia of Primelife and Arthur Andersen in February 2000 which sets out information and projections concerning the Madden Grove project.

11 The contract of sale provided for a total purchase price of the land at Madden Grove of $40,800,000, of which $10,200,000 was payable as a deposit. The contract also contained provisions under which MGD was to apply for a planning permit and arrange the construction of a retirement village development on the land.

12 In 2004 Civoken and SSFS purported to terminate the contract of sale.

13 There are a large number of issues raised in the proceeding but the principal issues are:

[23]

14 The factual issues raised by the former questions principally concern the sequence of events relating to pursuit of planning approval. The factual issues raised by the latter questions principally concern the sequence of events relating to the establishment of the project.

15 The trial proceeded on issues of liability only.

Sequence of events - Establishment of the project

The Sudholz / Primelife joint venture, initial acquisition and early work

16 The chief executive officer of Primelife until October 2003 was Mr Eduard (Ted) Sent. Mr Sudholz and Mr Sent had known each other since about 1991. In 1999 they discussed the formation of a joint venture between Primelife on the one hand and interests associated with Mr Sudholz on the other in relation to two properties being sold by the University of Melbourne in Kew. One property was at 2-12 Madden Grove, Kew. The other property was in Studley Park Road. According to Mr Sudholz's evidence, Mr Sent and he agreed in 1999 that they would enter into a "50-50 joint venture for redevelopment" of the Madden Grove property. Eventually both sites were acquired by joint venture entities associated with Primelife and Mr Sudholz.

17 Meldrums Pty Ltd, trading under the name Meldrum Partners, was engaged by Primelife as the architect for the Madden Grove project. The architect at Meldrum Partners who was principally responsible for the project was Mr Tim Meldrum. Mr Meldrum began work in July 1999.

18 Early on, Mr Meldrum discovered what he described to Primelife as a "small legal problem" in relation to the Madden Grove site. The Madden Grove site is on three titles. The existing building, which occupies 6 - 12 Madden Grove, is on Lots 9 and 10 of the original plan of subdivision and is on its own certificate of title. There are no buildings on 2 or 4 Madden Grove, which are respectively lots 7 and 8 on the plan of subdivision and are each on their own certificate of title. There are restrictive covenants on 2 and 4 Madden Grove which prohibit the erection on the land of any building other than a single private dwelling. Mr Meldrum was working on a multi-unit redevelopment which would cover the entire site. He alerted Primelife to this issue by a facsimile transmission of 30 July 1999.

19 In the latter half of 1999 Mr Meldrum prepared the first concept sketches. He showed them to officers of the Boroondara Council, which was the responsible authority for the purposes of s.47 of the Planning and Environment Act 1987 (Vic).

20 By a contract of sale dated 21 December 1999 Primelife purchased the Madden Grove property from the University of Melbourne for the sum of $3,625,000.

Introduction of the intermediaries

21 In 1996 Mr George was introduced to Mr Sent by Mr Anthony De Luca, an accountant, who was at that time a director of Primelife. Mr George assisted Primelife in obtaining finance and was also involved in arranging a syndicate to invest in a Primelife project in Burwood. Mr Penzo of De Luca Partners formed a syndicate which invested in that project.

22 In December 1999 Mr Sent introduced the Madden Grove project to Mr George. Mr George discussed the proposal with Mr Penzo and they decided to work together. In due course Civoken was formed by Mr George and Mr Penzo for the sole purpose of the Madden Grove project. Mr George and Mr Penzo are the two directors of Civoken.

23 The process by which SSFS became involved is less clear. SSFS was initially formed by the partners of the accounting firm Stones Sharp to establish a financial services division for the firm's clients. As matters have transpired, SSFS has undertaken only two tasks. The first concerned an insurance product, and the second is the Madden Grove project. The directors of SSFS are the four partners in Stones Sharp. The only two directors who gave evidence were Mr Cirulis and Mr Sharp.

24 Mr Sharp in his witness statement did not say how it was that he came to be aware of the Madden Grove project. In cross-examination, Mr Sharp indicated that a Mr David Sandground had introduced the Madden Grove development to him as an investment opportunity. Mr Sharp said he had met Mr Sandground approximately two years earlier. Mr Sharp described his relationship with Mr Sandground as being "more or less as a business associate." He said Mr Sandground was introduced as a person who had "various business interests". Mr Sharp then said: "He obviously knew we were a firm of accountants and made us aware of the retirement village industry and in particular, that prospective retirement village."

25 According to Mr Sharp, Mr Sandground provided Mr Sharp with reasons why the Madden Grove development would be a good investment. Although the two discussed the potential tax benefits of the investment, Mr Sharp said that he was already aware of those benefits (as set out in Taxation Ruling 94/24) prior to the Madden Grove proposal. He was not certain when he had become aware of the ruling but indicated that it had arisen in relation to earlier proposed investments in retirement villages brought to Stones Sharp's attention.

26 In his witness statement Mr Cirulis said that the proposal was introduced to him by Mr Sharp. In cross-examination Mr Cirulis said he was introduced to the development as a possible investment by Mr Sandground prior to Mr Sharp doing so.

Production of the property information report

27 Mr Meldrum prepared a series of sketches in February 2000 which bear the date March 2000, and which depict a development across the entire site at 2 - 12 Madden Grove. Mr Meldrum's evidence was that these drawings were prepared on the assumption that the restrictive covenants on 2 and 4 Madden Grove would be removed.

28 According to the evidence of Mr Sudholz, Mr Sent told him at some point early in 2000 that Primelife was under "resource pressure" and that he wanted Arthur Andersen to put together a number of reports for proposed investments, including the Madden Grove proposal.

29 A report described as a property information report was then prepared within Arthur Andersen. I will return to the issue of who prepared the report. Mr Meldrum's drawings dated March 2000 were incorporated into the report.

30 One issue of significance in the proceeding is when the property information report was completed. This is because Civoken and SSFS claim that their relevant officers relied on the property information report when they made an offer to Primelife on Monday 14 February 2000. The oral evidence given by the two witnesses who were concerned in the report's production did not assist in identifying exactly when the document was completed. There is a document in evidence which does assist. On Friday 11 February 2000 Mr Sandground faxed detailed comments on a draft of the report to the then deputy chief executive officer of Primelife, Ms Sandra (Sandi) Porter. The machine notations on this fax record the time of transmission as being 10.38am. Most of the 10 matters raised in that facsimile transmission are reflected in the final version of the report. This leads me to conclude that the final version of the report was completed some time on Friday 11 February 2000 at the earliest.

Receipt of the property information report by the plaintiffs

31 Mr Sharp's first witness statement contained the following passage:

[31]

In his cross-examination Mr Cirulis said that the receipt of the report "would have been no later than the Friday which was 11 February". When asked why he picked that date he said it was because he recalled Mr Sharp and he reviewing the report on the Saturday. This aspect of Mr Cirulis's evidence was not reflected in those terms in the evidence given by Mr Sharp, and was not set out in those terms in the relevant part of Mr Cirulis's witness statement.

35 Mr George in his witness statement said he could no longer recall precisely when he received the Arthur Andersen report "but I believe, it was prior to 14 February 2000". His witness statement said that to the best of his recollection he received a copy of the report from either Ted Sent or Sandi Porter at the offices of Primelife. In his cross-examination he said that he had previously received a draft copy of the report. He said he believed he received the final version on the weekend prior to 14 February but "I'm not 100 per cent sure". He also said he believed he received it "on the Friday". He said there was no record of receipt in his files.

36 In Mr Penzo's witness statement he said that to the best of his recollection "sometime in February 2000" he received a telephone call from Ms Porter's assistant, Ms Shona Holzer, advising that there was documentation available for collection, that he attended the offices of Primelife, and that he obtained a copy of the Arthur Andersen report. In his cross-examination he said that he knew he had the report on 14 February because he and his co-director made a decision based upon the report to go ahead on 14 February and commit to purchase 50 percent of the village. He also has no record of when he obtained the property information report.

Representations in the property information report

37 The property information report bears superficial similarity to a prospectus. It describes the proposed development and summarises the terms of the proposed contracts. It sets out anticipated cash flow and estimated tax savings. It gives information in relation to Primelife and in relation to MGD. There are a number of statements throughout the document to the effect that it had been prepared by Arthur Andersen on the basis of information provided by Primelife. Early in the report there is a detailed disclaimer.

38 The property information report describes an asset which is offered for sale "by MGD". The asset is the following:

[42]

" ... the information is not intended to provide any recommendation either expressly or by implication with respect to the proposed sale.

...

The information and material contained in this document has been provided to Arthur Andersen by PLC and has been relied upon by Arthur Andersen in its preparation of this document. Arthur Andersen has not made any independent enquiries, searches or investigations in relation to the subject of this PIM. Arthur Andersen has relied solely on information provided by PLC. Primelife Corporation have advised Arthur Andersen that every care has been taken in the preparation of the information and that all statements are based on information believed by PLC to be accurate and reliable. However, neither Arthur Andersen nor the Vendor make any guarantee, representation or warranty, either express or implied concerning:

(a) The accuracy or completeness of the information; or

(b) The future performance of Madden Grove Village.

Specifically, Arthur Andersen does not warrant or represent that the information has been audited, checked or verified by them except where specifically stated otherwise.

Recipients must make their own independent investigations and rely upon their own inquiries as to the accuracy or completeness of any of the information. Recipients should seek appropriate professional advice in reviewing the information and evaluating the suitability of the investment.

The information provided by PLC to Arthur Andersen and the information in this PIM includes certain statements, estimates, calculations and projections which reflect various assumptions which have been made by PLC. Those assumptions may or may not prove to be correct. For that reason, Arthur Andersen does not accept any responsibility or liability in relation to the accuracy of those statements, estimates, calculations and projections and the Recipient must make and rely solely on its own assessment of the investment.

. . .

PLC does not guarantee any particular rate of capital or income to be returned from the investment. All figures in the document are estimates only. Potential purchasers should independently verify all of the information contained in this PIM."

[55]

60 This statement is the same untrue statement as that contained in the third paragraph of Section 10 at page 27 of the final report, which I have quoted earlier.

61 Mr Sudholz in his cross-examination did not accept that all of the handwritten notes that Ms Madden had identified as his were definitely his. Some he said "could be" his, the rest he acknowledged were his. Whilst his witness statement had professed a belief that he had had no involvement in the report's preparation, in his cross-examination he said he believed that he had read it only in part. He was consistent in characterising his evidence as to his involvement in the report as being evidence of his "belief".

62 Mr Sudholz suggested that the erroneous statements concerning the proposed vendor company may have been the result of the replication in this report of sections of another report concerning a project named "Red Bluff".

63 Mr Sudholz said that if he had read the erroneous statements concerning the proposed vendor, he would have corrected them. Although later, he also expressed the view that the errors were not significant.

64 I was impressed by Ms Madden's evidence. My assessment was that she was doing her best to recall accurately what had occurred.

65 My impression of Mr Sudholz was less positive. My impression was that he was only prepared to concede any involvement in the report's preparation when confronted with his own handwriting on a draft of the report and on Ms Porter's fax. Whilst due allowance must be made for the elapse of time, it seemed to me that Mr Sudholz was consciously seeking to minimize his role.

66 Mr Sudholz was the partner at Arthur Andersen responsible for the report. An employee reporting to him substantially drafted it. His handwriting is on a draft and on a fax setting out detail of the proposed contents. Ms Madden's evidence was that he reviewed the drafts and made or recommended changes.

67 I cannot accept Mr Sudholz's evidence in so far as it was to the effect that he did not read the erroneous statements concerning the proposed vendor. This is because:

[60]

References to the "Property Report" are references to the property information report prepared by Arthur Andersen.

74 Two matters concerning these offers need to be noted.

75 First, whilst the document refers to "MGD", the first defendant had not been incorporated on 14 February 2000. It was incorporated the next day, 15 February 2000. I will return to this issue.

76 Secondly, the plaintiffs' case was that the plaintiffs' officers believed that they were bound on 14 February upon acceptance of the offers they made that day. Mr Sharp in cross-examination accepted the proposition that SSFS undertook an obligation on 14 February which was unconditional, as did Mr Cirulis. Mr George's evidence was that he told Civoken's solicitor, Mr Woodhams, in the context of preparation of a brief to counsel in June 2000, that Civoken had a contract to purchase the property constituted by the offer made and accepted on 14 February.

77 The plaintiffs made submissions in relation to Masters v Cameron,[1] and suggested that the circumstances were likely to fall within the "so called fourth category added to those set out in Masters v Cameron". I note in this context that there was no evidence that the purchasers received the statement required by s.32 of the Sale of Land Act 1962 (Vic) prior to acceptance of the offers made on 14 February 2000.

78 The issue of whether the plaintiffs were legally bound when the offers made on 14 February were accepted by Ms Porter on behalf of Primelife is not one which needs to be determined. They certainly became bound when they executed more detailed agreements thereafter, and those agreements then governed their contractual position. Their officers' belief that the plaintiffs were bound does have potential significance in the context of reliance and causation. In the circumstances I accept that the plaintiffs' relevant officers believed they were bound when the offers they made on 14 February 2000 were accepted. The commercial decision to commit to the investment was made then. It was still necessary under the terms of the offers made to "in due course" execute the more detailed contracts referred to in the offers and in that respect the plaintiffs were, under the express terms of the offers, entitled to insist that those contracts be "generally in accord with the criteria" in the property information report.

Evidence as to analysis of the property information report by the plaintiffs prior to the offers

79 Mr Sharp in his witness statement said that he reviewed the property information report in detail and that he, Mr Cirulis and Mr Stones conducted a detailed analysis of it. He said that there was "a particular focus on the commencement and completion dates of the various stages, the consequential cashflow and what impact this would have on investors". Having undertaken this analysis, he said a decision was made to invest. In cross-examination he said the analysis was reading the document and undertaking "calculations on cashflow for the clients based on the information report". He said that there "wasn't necessarily a document" created by this process and that the results were communicated to the clients orally in the days after 14 February 2000. He denied that the analysis was done after the offer of 14 February was sent. Mr Sharp said there was no document of any kind recording his analysis, not even a copy of the report with his notes on it, and that there had never been such a document.

80 Mr Cirulis in his witness statement said that he closely examined the report, and that he "particularly reviewed the information in the Arthur Andersen Report relating to cashflow aspects". In his cross-examination (not in his witness statement) he said he recalled he and Mr Sharp going through the report "on the Saturday" (14 February being a Monday). He rejected the suggestion that it might have been on the following Saturday. No record now exists of the analysis he described.

81 Mr Stones did not give evidence, although a witness statement by him had been filed. An explanation for his absence was given from the bar table, but no evidence was led concerning that explanation.

82 The evidence of Mr Penzo and Mr George concerning their analysis of the report is fairly described as broad brush.

83 In his witness statement Mr George said he reviewed the report in detail and he set out what he said were the "critical parts" by reference to the tab headings in the report. He identified chapters 1, 2, 5, 6, 8 and 10. In his cross-examination Mr George seemed to me to be unable to differentiate between discussions he had with Ms Porter, Mr Sent and Mr Penzo concerning earlier drafts of the report, reviews he conducted with others after 14 February 2000, and his consideration (if any) of the final report prior to making the offer on 14 February.

84 Mr Penzo's witness statement on this issue is in exactly the same words as Mr George's, save that his list of "critical parts" by reference to the tab headings differs from Mr George's list. Mr Penzo does not include "Chapter 1 - Introduction", "Chapter 8 - Demographic Overview" or "Chapter 10 - Primelife Corporation Limited" in his list in contrast to Mr George. His list adds "Chapter 14 - Project Assumption". In his cross-examination Mr Penzo said that he and his co-director (Mr George) made the decision "to go ahead on the 14th and commit to 50 per cent of the village" based on the report. He said there was no note or record of any meeting with Mr George in relation to the report.

Intermediaries' dealings with investors

85 Mr George of Civoken prepared a document entitled "Madden Grove Village Kew Syndicate - Executive Summary" for the purposes of introducing the investment to prospective investors. The proposal set out in that executive summary document broadly reflected the proposal set out in the property information report save that a new entity was interposed named the "Syndicate Manager". In analysing the financial arrangements, additional costs of $1,500,000, said to include syndicate management and administration fees, are added to the purchase price of $40,800,000. The executive summary referred to, and assumed that the recipient had, the property information report. It sought the completion of "offers to purchase" which were in terms which substantially replicated the offer executed by Civoken on 14 February 2000.

86 There are in evidence 25 letters from SSFS to Stones Sharp's clients bearing the date 14 February 2000 (Exhibit D2). The letters are in a standard form and read as follows:

[62]

87 Each letter contains provision for the client to sign and date the letter under an acknowledgment of agreement. Most of the letters seek a cheque for $2,550 and specify the balance as $124,950. Nine of them specify different amounts; some specify more, some less.

88 The letters are all signed and dated by the clients. They each have on them a date stamp, indicating the date and time of the return of the signed letter to SSFS.

89 One letter, to a Mrs Bert, was dated by the client 14/02/2000 and was returned to SSFS at 11.00 a.m. on 15 February 2000. Three letters dated by the client 15/02/2000 were returned on 16 February 2000. Eight letters dated by the client 16/2/2000 were returned on 17 or 18 February 2000. All of the letters save for three were returned within a week of 14 February 2000.

90 The conclusion which I draw from these letters is that by 14 February 2000 SSFS had specific quantified commitments from at least 25 clients to invest in the venture. Unless the letters were prepared during the night, SSFS had prepared letters for these clients seeking payment and acknowledgement of agreement before SSFS faxed its offer for 50 percent of the venture to Primelife at 17:58 on 14 February 2000.

91 Mr Penzo, in his witness statement, gave a confusing account of the documents provided to prospective Civoken investors; they may have been given a copy of the property information report or the executive summary or both. Mr Penzo in his oral evidence said that he sent a copy of the property information report to prospective investors who requested it. In oral evidence Mr George said that he gave the property information report to the investors or their representatives that he met with concerning the proposed investment. Mr Sharp stated that: "All of the clients that came into the investment were given the opportunity of reading and taking a property information report." I assume that the reference to "opportunity" means that it was available and its availability was made known. The possible inconsistency between this position and the 25 letters in Exhibit D2 was not put to him.

92 Clients of the officers of Civoken and SSFS, and others, subscribed to the venture up until 28 June 2000, the date the formal contracts bear, and continued to subscribe well beyond that date.

Withdrawal of Taxation Ruling 94/24 and advice as to consequences

93 According to an advice from counsel which is in evidence and to which I will refer, with effect from 19 April 2000 Draft Taxation Ruling 2000/D5 replaced Taxation Ruling TR94/24. This was perceived to be a negative development from prospective investors' point of view. Draft Taxation Ruling 2000/D5 provided that the prior ruling, TR94/24, would continue to apply in circumstances where a retirement village owner fell within TR94/24 and "was irrevocably committed to building or acquiring a retirement village prior to the date of withdrawal of Taxation Ruling TR94/24," that is, prior to 19 April 2000.

94 Civoken's solicitors in the transaction were Woodhams O'Keeffe & Co ("Woodhams"). SSFS's solicitor was Mr Martin Durkin.

95 Woodhams obtained advice from Mr Edward Power of counsel and from Mr Brian Collis QC on the application of TR94/24 and the effect of Draft Taxation Ruling 2000/D5 on the investors and prospective investors. In substance, on the material provided and the instructions given to counsel, the advice was that TR94/24 should apply.

96 The evidence as to the material upon which that advice was based raised some troubling issues.

97 Mr Power's advice set out the material with which he had been briefed. One item which he set out was "Copy Contract of Sale, dated 14 February 2000,... between Civoken and Stones Sharp, as bare trustees for the Syndicate as the Purchaser and Madden Grove Developments Pty. Ltd. . . ., as Vendor. . ."

98 The only executed contract of sale between Civoken and SSFS as purchasers and MGD as vendor in evidence is dated 28 June 2000.

Evidence as to the material provided to counsel

99 When first asked by senior counsel for the first and second defendants about the reference to a contract of sale, apparently dated 14 February 2000, in Mr Power's advice, Mr George professed ignorance. I refer to the following passages in his cross-examination:

[68]

106 Mr George said he could not remember the conclusion of the telephone conversation with Mr Woodhams, but he said he could recall telling Mr Woodhams that the documents he had given him were wrong and should not be included in the brief to counsel.

107 Mr George said that he had been well aware that Taxation Ruling 94/24 had been withdrawn on 19 April 2000. He said he had also been aware that if it could be demonstrated that there was an "irrevocable commitment" prior to 19 April 2000 then the ruling could still be relied upon. Mr George said he believed that the offer to purchase would have provided such proof. Upon being questioned as to why he did not then include a copy of that offer in the brief to counsel, Mr George replied, "I didn't have one and [Mr Woodhams] didn't ask me to go back and get it." He claimed that he was not aware whether Mr Woodhams had a copy of the offer or not.

108 Mr George said that in early June, because of the uncertainty created by the withdrawal of Taxation Ruling 94/24, before receiving counsel's advice, he would "not have accepted any others [investors] without a positive opinion."

109 It was put to Mr George that he must have realised the purported contract of sale dated 14 February 2000 had not been withdrawn from the brief to counsel when he read counsel's advice expressly referring to it. Mr George's response was that he only "read part of the advice". The material on which the advice was based was set out in the first few paragraphs of the memorandum. Included are details extracted from a contract of sale and a syndicate agreement both said to be dated 14 February 2000. Mr George claimed he did not read this part of the advice. He claimed that he read the parts that he "wanted to read" and what he "wanted to read was the opinion on whether the investors could still join the Madden Grove syndicate and enjoy whatever tax concessions were available under tax ruling 94/24."

110 Mr George denied the suggestion put to him that by annotating the various agreements as noted, he deliberately set out to mislead counsel into assuming that there was an "irrevocable commitment" to the project, thereby attracting the exception to the withdrawal of Taxation Ruling 94/24. When it was put to him that he was lying to the Court when he suggested he did not know the agreements had not been executed when he sent them to Mr Woodhams, he said he had been unsure at the time and he had rectified things as soon as he could.

111 Mr George accepted that, at the end of June 2000, his "primary concern was to attract investors into the syndicate..." and that his remuneration was "commission based".

112 Mr George's evidence was that the opinion of counsel on the status of the project with regard to the withdrawal of Taxation Ruling 94/24 was sought for the purpose of passing it on to "intermediaries" of Mr George's who dealt with potential investors, so that those intermediaries could decide whether to recommend that their clients invest or not. Mr George agreed that these intermediaries were authorised to show the advice to potential investors if they wished.

113 Mr George's evidence on the issue of the provision of documents to counsel for the purposes of the advice was incredible and I reject it without hesitation. The contrast between his initial lack of recollection and the evidence he gave on his recall was stark. His account of his conversations with Mr Woodhams and his assertions concerning the parts of Mr Power's advice which he read bordered on the absurd.

114 I record that counsel for the first and second defendants sought leave to recall Mr Woodhams (who they had called) on this issue. I would not permit that. I did give counsel for the plaintiffs two opportunities[4] to apply to recall Mr Woodhams for further cross-examination. No such application was made.

[72]

117 As matters transpired, what occurred was that Primelife and Mr Sudholz "took up" the shortfall by becoming investors in the SSFS syndicate themselves.

118 These arrangements are the genesis of a dispute, which did not emerge as a pleaded issue until during the trial, concerning how much of the deposit has been paid by Civoken and SSFS. The dispute concerns the correct characterisation of the arrangements and the steps taken to give effect to them.

The relevant contracts

119 Civoken on the one hand and the investors which it successfully introduced to the project on the other entered into an agreement entitled the "Madden Grove Syndicate Agreement". The agreement bears the date 14 February 2000. Mr Penzo in his evidence said that the only "member" of the syndicate on 14 February 2000 was the DP Unit Trust, an entity used as an investment vehicle by the partners of De Luca Partners. There are many more entities which are parties to the agreement. One of the investors which is a party to the agreement is Trendy Corporation Pty Ltd. The agreement sets out Trendy Corporation Pty Ltd's ABN. According to an extract of ASIC records tendered in the trial, this number was not allocated to it until 10 June 2000. Mr George said that the agreement was executed progressively as investors joined the syndicate. The execution pages of the agreement are laid out in a manner which is consistent with that evidence.

120 It is clear that Civoken's "Madden Grove Syndicate Agreement" was not executed by all the parties to it on 14 February 2000. It seems to me to be most unlikely any party executed it on 14 February 2000, the very day of the offer to purchase. The handwritten date on the agreement is Mr Penzo's. My conclusion is that the agreement has been backdated.

121 Civoken's "Madden Grove Syndicate Agreement" establishes a "syndicate" of which Civoken is the "manager". It provides that Civoken will enter into agreements "ostensibly as principal but in reality as agent for . . . the syndicate". Under the agreement Civoken is entitled to a management fee of 5 percent of gross income and upon future realisation is entitled to a fee of 5 percent of the realisation price. Civoken is also entitled to a full indemnity for liabilities it incurs.

122 The investors introduced by SSFS executed a joint venture deed with SSFS which bears the date 28 February 2000. The SSFS joint venture agreement establishes a joint venture to be named the "SSFS Investment Syndicate" of which SSFS is the "Manager". As manager SSFS is entitled to such fees and expenses as may be approved by a special resolution of the "joint venture" and is entitled to indemnity for liabilities incurred.

123 The SSFS joint venture deed records Primelife and Andrew Sudholz as having contributed $621,562.50 each. These contributions represent the shortfall previously referred to. Primelife and Mr Sudholz never made any cash contribution to SSFS. The matter was instead dealt with internally within Primelife, in a manner which I will address in detail separately. The presence of Primelife and Mr Sudholz as joint venture participants reveals that the SSFS joint venture deed was also backdated, and indicates it was in fact executed in late June 2000 at the earliest. This is because the letter confirming an arrangement concerning the shortfall is dated 27 June 2000.

124 The DP Unit Trust (the investment vehicle for Mr Penzo's firm) took up a small percentage share in the Civoken syndicate (2.941176 percent). Mr Stones, Mr Sharp, and Mr Cirulis respectively invested $127,500, $127,500 and $63,750, of the total sum of $5,865,000 subscribed to the SSFS syndicate. Mr George did not directly or indirectly invest in the project himself.

125 Civoken and SSFS executed a joint venture agreement establishing a joint venture between the two of them. This joint venture agreement bears the date 14 March 2000. It was backdated too. It refers in one of the definitions to a marketing and management agreement "entered into on the date hereof". That agreement bears the date 28 June 2000. In its second schedule, the joint venture agreement sets out the contributions made. The contributions are said to be Civoken: 42.5 percent $4,335,000 and SSFS: 57.5 percent $5,865,000. The offers made on 14 February 2000 were for interests of 50 percent each. The difference between 50 percent each, and the contributions set out in the joint venture agreement, reflects the amounts actually raised and the shortfall taken up by Primelife and Mr Sudholz through the SSFS syndicate. The shortfall was dealt with by increasing SSFS's proportion and by the shareholders in MGD, Mr Sudholz and Primelife, taking up that increase. The Primelife letter confirming an arrangement about the shortfall, to which I have previously referred, was dated 27 June 2000. My conclusion is that the joint venture agreement between Civoken and SSFS was executed after 27 June 2000.

126 Civoken and SSFS as purchasers, and MGD as vendor, executed a contract of sale of the land at 2 - 12 Madden Grove Kew which is dated 28 June 2000. It will be necessary to consider the terms of this contract in some detail subsequently. For present purposes it suffices to say that the contract contains detailed provisions concerning an application for a planning permit and the construction of a retirement village by MGD.

127 The contract of sale refers to annexed plans. No plans are annexed to the copy which is in evidence. Counsel for MGD and Primelife submitted early in the trial that there are sufficient references in the definitions in the contract of sale to conclude that the plans contemplated by the parties to the contract of sale were the plans annexed to the property information report. I accept that. All parties conducted the trial on that basis.

128 Primelife and Mr Sudholz formalised the joint venture arrangement between them by an agreement entitled "The Madden Grove Joint Venture Agreement". MGD was not the company named as the joint venture vehicle in that agreement. The company so named had a different ACN. I will return to this issue. For present purposes it is clear that eventually MGD did become the joint venture vehicle.

129 The final agreement to which reference should be made at this point is a document also dated 28 June 2000 entitled "Memorandum of Understanding" ("MOU"). It was executed by Mr Sent and Ms Porter on behalf of MGD, by Mr George and Mr Penzo on behalf of Civoken, and by Mr Sharp and Mr Stones on behalf of SSFS. It is a short document. It provides for termination of, or renegotiation of the price in, the contract of sale in certain eventualities concerning the outcome of the planning permit application or applications. Its subject matter is a topic which is one of the central issues in the case concerning MGD's performance of the contract of sale. It is also relevant as its terms are particularly relied upon by MGD in relation to one controversial aspect of construction of the contract of sale. Its existence was revealed by MGD in the course of the interlocutory steps in the proceedings in circumstances which prompted the plaintiffs' witnesses to proffer explanations in their witness statements for the plaintiffs' prior failure to reveal it. The evidence given by the witnesses for the plaintiffs in this respect was extraordinary. The MGD officers who signed the MOU, Mr Sent and Ms Porter, were not called.

130 In his witness statement Mr Sharp acknowledged that he had signed the MOU, but said he had forgotten about it until early 2005, when the first and second defendants applied to amend their defences and counterclaims in this proceeding. In cross-examination, Mr Sharp professed to have no recollection of the MOU or any of its terms. While now acknowledging its importance, he said he could not recall the provision that allowed the plaintiffs to terminate the contract if the planning permit was not procured. He said he could not recall whether he read the MOU before signing it, but he agreed with suggestions put to him to the effect that he did "think" that he had read it before signing it and had understood it. Mr Sharp could not recall receiving a letter from Primelife enclosing various contractual documents but not the MOU. Mr Sharp could not remember whether he had questioned why the MOU was not enclosed in this letter. He could not remember executing the MOU on the day it was dated, being 28 June 2000. Mr Sharp said he did not recall turning his mind to the potential consequences the MOU would have had on the tax structure of the transaction.

131 In his witness statement, Mr Cirulis said that he did not recall ever seeing the MOU until early 2005 when the first and second defendants applied to amend their defences and counterclaims in this proceeding, and could not recall reading or reviewing it. Mr Cirulis did not sign the MOU. In cross-examination, Mr Cirulis said he did not believe that he had reviewed the MOU prior to its execution, and whilst he conceded that it was possible he had but had now forgotten it, his basic position was that he "didn't even know about it until it came up in discovery".

132 In his witness statement, Mr George stated that he could not recall executing the MOU. Mr George said he was not aware the MOU was relevant until the first and second defendants applied to amend their defences and counterclaims in this proceeding. In cross-examination, he said he could not recall reading the MOU before signing it, but said that he "would have read everything [he] signed at the time." He then agreed that he later forgot about the terms of the MOU.

133 In his witness statement Mr Penzo said he had not recalled signing the MOU on 28 June 2000 until he saw the proposed amended defence and counterclaim of MGD. In cross-examination, he conceded that it would be surprising for him to have executed the MOU without reading it and appreciating the importance of the provisions contained within it. Mr Penzo agreed that he had never previously encountered a memorandum of understanding used in a situation such as this one, and he said that he could not recall for what reason it was used in this case.

134 The plaintiffs' solicitors, Mr Woodhams and Mr Durkin, also gave evidence concerning the MOU. They had not had witness statements prepared for them. They were called as witnesses by the first and second defendants. Mr Durkin had acted for SSFS and Mr Woodhams had acted for Civoken.

135 Mr Durkin's recollections were limited, and privilege was not waived, which reduced his capacity to answer questions. He did identify a copy letter from Primelife's solicitors to Ms Porter which referred to the MOU (Exhibit D16), and also two drafts of the MOU on which numbers had been written by him (Exhibit D17 and Exhibit D18), as all being documents from his file on the matter.

136 Mr Woodhams said he could recall very little. A draft of the MOU from his file was tendered (Exhibit D25). He said that upon receipt of such drafts, he would have reviewed them with Mr George.

137 The advice from counsel obtained by Mr Woodhams had said that TR94/24 would only continue to apply where the investors were "irrevocably committed" before 19 April 2000. The MOU, amongst other things, provided for termination of the contract and for renegotiation or recalculation of the purchase price in certain eventualities.

138 I cannot accept the evidence of the plaintiffs' witnesses on this issue. I do not accept that those who signed the MOU all forgot about it. I make no finding as to whether the MOU was deliberately kept secret because that was not put to the witnesses who gave evidence about it.

Commissions earned by the intermediaries

139 The various intermediaries associated with the plaintiffs earned substantial commissions or fees as a result of their involvement in these transactions.

140 The evidence of Mr George and Mr Penzo, in cross-examination, was that they had made an agreement with Mr Sent of Primelife under which they would receive commission of 3 percent of the amount the investors they introduced "took up in that investment". The 3 percent was calculated on the relevant proportions of the total price ($40.8m), not on the cash payable as the deposit. The commission was 12 percent of the cash paid.

141 According to the evidence of Primelife's National Finance Manager, Mr Daniele, supported by MGD's tendered accounting records (Exhibit D13), the total commission payable by MGD to the Civoken intermediaries as at November 2001 was $520,200, of which $367,200 had been paid to De Luca Partners and $107,100 to Mr George's company, Bizcorp Properties Pty Ltd. The documentary evidence indicates a further payment of $45,900 to Bizcorp was approved on 18 April 2002.

142 According to Mr Daniele and MGD's accounting records, Mr Sandground earned $449,437.50 in commission, calculated, in his case, at the rate of 2.5 percent of the relevant proportions of the total price. Of this sum $98,175.00 was paid by direct debit in July 2000 and sums of $265,200.00 and $36,975.00 were set off against investment contributions due from him. The balance of $49,087.50 was paid by cheque in October 2000.

143 Mr Sharp rejected the suggestion that he had earned any commission or fee as a result of his involvement in these transactions, either from Primelife directly or through Mr Sandground. On being asked whether Stones Sharp had received a share of Mr Sandground's commission as a result of introducing clients to the investment, Mr Cirulis responded: "Not to my knowledge". Senior counsel for the plaintiffs submitted that SSFS did not receive any commission from Primelife or Mr Sandground.

144 Stones Sharp, Mr Sharp and Mr Cirulis's accounting firm, invoiced Sandground Group Pty Ltd for the sum of $182,325. The invoice was for professional services described as:-

[83]

150 The invoice itself was produced when Mr Sharp's partner, Mr Cirulis, gave evidence.

151 Mr Cirulis gave evidence that the invoice sum was based on research and other work undertaken by Stones Sharp on the Montclair Village project, the Madden Grove project, the Glenvale Village project, briefings on the retirement village industry generally, and meetings with Mr Sandground and others.

152 Mr Cirulis said that the invoice sum would have been calculated on an hourly rate basis. He was not able to produce any records supporting the invoice even though he said the firm's usual practice was to keep records of the time spent on a matter. He said that he had not foreseen the significant amounts of time eventually spent working with Mr Sandground. The consequence, Mr Cirulis maintained, was that the firm had not kept records in the usual manner.

153 Mr Cirulis went on to say that the work undertaken on the Madden Grove project was in order to investigate it as a potential investment for Stones Sharp and its clients. Mr Cirulis said that Mr Sandground wished to take advantage of SSFS's client base. Mr Cirulis denied that SSFS issued the invoice to Sandground Group in order to share in the commission paid by Primelife to Mr Sandground for bringing clients of SSFS to the investment. Upon being asked why the clients of Stones Sharp who eventually agreed to invest in the project were not charged instead of Sandground Group, Mr Cirulis replied that he did not know, "it's not the way we did it."

154 Mr Cirulis made it clear in his evidence that Mr Sandground was not a client of Stones Sharp. Mr Sharp said he thought Mr Sandground was a representative of Primelife. The plaintiffs' counsel described him as the agent of Primelife.

The role of Mr Sandground

155 A significant aspect of the plaintiffs' case concerns the circumstances which led them to make the offers they did on 14 February 2000, and the factors which they took into account in deciding to make those offers and to then enter into the various agreements which are dated 28 June 2000.

156 In this respect evidence was led on behalf of SSFS from two of its officers, Mr Sharp and Mr Cirulis. They each adopted two witness statements. None of those four statements referred to Mr David Sandground.

157 It was accordingly a surprising feature of their cross-examination that the following emerged:

[85]

158 My conclusions on the balance of probabilities are that the fee charged by Stones Sharp to Sandground Group Pty Ltd was, in commercial terms, participation in the commission earned by Mr Sandground, and that Mr Sandground played an important role in SSFS's commercial decision to participate in the project.

Sequence of events - Pursuing planning approval

Early dealings with council and advice on the restrictive covenants

159 From the outset it was anticipated that the Madden Grove project might encounter opposition from the Boroondara Council and the local community.

160 Primelife engaged a town planner, Urban Edge Consultants Pty Ltd. The person at Urban Edge Consultants Pty Ltd responsible for the matter was Mr Peter Barber. Mr Barber gave evidence in the proceeding. In his witness statement he said that his role was to "oversee the obtaining of relevant statutory planning approvals from the Boroondara City Council ... and liaise with Tim Meldrum of Meldrum Partners, Architects, who had day to day responsibility for obtaining the permits."

161 I have earlier referred to the fact that Mr Meldrum began discussions with Council officers at an early stage. Further discussions were held early in 2000. A meeting was held on 28 February 2000 with Mr Stuart Draffin, the "Manager Statutory Planning" at the Boroondara Council. Mr Barber reported on the outcome of that meeting, and on matters to be followed up as a consequence of it, in a facsimile transmission of 1 March 2000.

162 One of the allegations made by the plaintiffs in this proceeding is that there was a failure on the part of MGD to use its best endeavours to obtain a planning permit for the development as described in the property information report. One matter to be dealt with in that context is the effect of the restrictive covenants on 2 and 4 Madden Grove.

163 By a letter dated 25 May 2000 addressed to Mr Gary Thompson at Primelife, the solicitors' firm, Phillips Fox, advised Primelife in relation to the restrictive covenants. The advice was prepared by a partner in the firm, Mr Mark Bartley, who gave evidence in the proceeding.

164 Mr Bartley's advice in May 2000 was that there were three methods available to vary or remove a restrictive covenant. The first was an application to the Supreme Court which Mr Bartley advised was "difficult and costly". The second was an application for a planning permit varying the covenant, but Mr Bartley advised that in practice this was "extremely difficult to utilise ... as if there is one objection on bona fide grounds under the provisions of the Planning and Environment Act 1987 this approach cannot be used." The final approach which Mr Bartley said was "frequently used successfully" was an application for a planning scheme amendment. Mr Bartley advised that in the past the approach had been to obtain a permit for the proposed development and then to "exhibit an amendment for the variation of the covenant sufficient to allow the proposed development to proceed." He advised that it would be possible to commence the planning scheme amendment process "concurrent with" the application and appeal process concerning the planning permit. In his summary of his advice he indicated that when the design was finalised a decision could be made as to whether to apply for a planning permit and wait to amend the covenant until after the determination of that application, or to proceed to modify the covenant "in parallel" with the town planning application.

165 Mr Bartley's advice concluded:

[123]

211 The March 2002 drawings went so far as to depict a specific 2 storey single residence on 4 Madden Grove with floor plans, elevations and shadow diagrams. The evidence of the only Council officer called, Mr Nicholas Helliwell, was that this depiction was requested by the Council so they could assess what "could" be built and what the impact of the retirement unit development would be on that residence.

212 By letters dated 11 April 2002 Primelife reported to Civoken and SSFS. The letters advised that "final adjustments" had been made to the project drawings and that an "amended application" had been submitted to Council. The letters contained no reference to the nature of the changes which had been made, and in particular no reference was made to the reduction in the number of units, or to the confining of the retirement unit development to 6 to 12 Madden Grove.

213 An amended application was submitted to Council under cover of a letter of 22 May 2002. The land affected by this amended application was now described as "4 - 12 Madden Grove, Kew".

214 By letters dated 7 June 2002 Civoken and SSFS were advised by Primelife that the amended application had been submitted, and were told that Council officers had verbally indicated support. The letters contained no description of the alterations which had been made.

Meeting on 12 November 2002

215 A meeting of participants in the Madden Grove project was held on Tuesday 12 November 2002. According to a written agenda, the purpose of the meeting was to receive a report from Mr Sent in relation to the application for a planning permit, to receive an update on the timing of construction, and to discuss the future benefits of the project with the members of the Madden Grove Syndicate.

216 The meeting on 12 November was attended by Mr Sent and Mr Sudholz as directors of MGD and also by Mr Daniele and Mr Paul Turner from Primelife, and by Mr Peter Barber and Mr Tim Meldrum. Mr George, Mr Sharp, Mr Penzo and Mr Cirulis attended, as did Mr Sandground and a number of investors. Minutes of the meeting were prepared and subsequently circulated. Generally, the witnesses before me agreed that they were accurate.

217 According to the minutes, Mr Daniele welcomed all present and "introduced the Madden Grove development management team". That introduction included Mr Sudholz. According to Mr George, Mr Sudholz was introduced as "Primelife's partner".

218 The minutes record the fact that the "current plans" were displayed. The plans displayed were the March 2002 plans.

219 According to the minutes, Mr Barber presented an overview of the town planning process to date and Mr Daniele presented the current design layout of the 78 independent living units, planned for "stage one of the development". The minutes continue:

[126]

220 Mr Sharp, Mr Cirulis, Mr George and Mr Penzo all gave evidence that they were not concerned that stage 1 now contained 78 units, whereas previously 69 had been planned. They all said they believed, as a result of what they were told, that stage 2 was going ahead, it was simply a question of when.

221 Mr Daniele's account of the events at that meeting was generally in accordance with the minutes prepared by him. Mr Daniele said that there were no concerns expressed or objections raised as to the proposed design of stage 1 of the development as set out in what he said were the November 2002 plans. Mr Daniele said that the revised number of units in stage 1 was discussed, and that stage 2 would be "looked at at a later stage." Mr Daniele gave evidence that he then said that stage 2 "was to proceed pending resolution of stage 1 being approved." Mr Daniele said that this methodology was based on previous developments undertaken by Primelife, whereby permits are obtained in "staged orders". That is, once approval for the first stage was obtained, an application for the next stage would be sought, and so on. Mr Daniele could not recall any discussion to the effect that Primelife was not proceeding with stage 2 at this particular meeting. Mr Daniele said that he introduced Mr Sudholz as Madden Grove's "joint venture partner."

222 In cross-examination, Mr Daniele agreed that he was mistaken in his evidence when he said that the November 2002 plans were on display. He agreed that the March 2002 plans were those displayed at the meeting.

223 Mr Barber said that he did not have a clear recollection of the 12 November 2002 meeting. He said that a set of plans were shown to those present at the meeting, but he could not be certain whether they were the March 2002 plans or not.

224 Mr Meldrum gave evidence that the March 2002 plans were the plans presented to those present at the meeting, and said that they represented "the scope of the development which Primelife [was] proceeding with."

225 Mr Sudholz had little independent recollection of the meeting. He observed that the depiction of stage 1 (now 78 units) at the meeting was consistent with a stage 1/stage 2 development of 102 units.

Revised plans: November 2002

226 Meldrum Partners prepared further revised plans in November 2002. Mr Meldrum in his witness statement described these plans as follows:

[130]

228 The November 2002 plans provided for a significant configuration change within the development on 6 to 12 Madden Grove. The number of studio apartments was increased from 45 to 70 when compared to the March 2002 plans.

229 Mr Meldrum's evidence was that he would have commenced working on these changes at around the time of the 12 November 2002 meeting. There was no suggestion in the evidence that the plaintiffs were advised of them at this time.

Planning permit and VCAT appeal

230 The November 2002 plans were submitted to the Council as "amended plans" on 2 December 2002.

231 Under cover of letters dated 3 December 2002 the minutes of the meeting of 12 November 2002 were forwarded to Civoken and SSFS. No reference was made in the letters to the variations made between the March 2002 plans, displayed at the 12 November meeting, and the November 2002 plans, submitted to Council on 2 December.

232 On 16 December 2002 Council granted a planning permit based on the November 2002 plans but with a number of conditions, one of which was that the third floor be removed. This condition (among others) was unacceptable to MGD and Primelife, who decided to appeal to VCAT.

233 By letters dated 18 February 2003 Primelife reported to SSFS and Civoken on the fact that Council had handed down a decision, and that a condition had been imposed that the third floor be removed. No indication was given of the changes which had been made between the March 2002 plans and the November 2002 plans.

234 By letters dated 17 June 2003 SSFS and Civoken were advised that an appeal had been heard by VCAT on 5 and 6 June 2003.

235 VCAT's decision was delivered on 7 August 2003. In substance, the appeal succeeded and an order was made granting a planning permit for the proposed development as depicted in the November 2002 plans with some amendments.

236 By letters dated 14 August 2003 Primelife reported to Civoken and SSFS in relation to the VCAT decision. Amongst other things, the letters advised:

[133]

Mr George's evidence was that he made this note because he assumed that the permit for an 82 bed facility was for the entire site. He said he made this assumption prior to speaking to Mr Daniele. When he spoke to Mr Daniele he was told "that's only the first part, stage 1 of the facility".

238 Mr Sharp initially said he could not recall noticing the reference to "an eighty two bed facility". Mr Cirulis said it was possible that he noticed it and has since forgotten. Mr Sharp suggested that he interpreted it as only referring to stage 1.

Primelife reviews the development

239 In June 2003 Mr Paul Walec commenced employment with Primelife. In about August 2003 Mr Peter Clarke, then the General Manager - Construction and Development at Primelife, asked him to take on a development role in relation to the Madden Grove development. Mr Clarke asked Mr Walec to investigate and analyse whether the proposal to build 84 serviced apartments at Madden Grove was a commercially viable proposition, and, accordingly, in September and October 2003 Mr Walec familiarised himself with various aspects of the development. Mr Walec gave evidence before me. Mr Clarke did not.

240 In about September 2003 Mr Walec requested Mr Meldrum to prepare amended plans for his consideration involving a development of a fewer number of larger units when compared with the plans which were the subject of the planning permit obtained as a result of the VCAT decision. In his cross-examination Mr Meldrum said that from that point onwards he effectively ceased all work on documentation of a development in accordance with the planning permit and focused his attention on the new proposal for a development with a fewer number of larger units.

Sent and Porter leave Primelife

241 Mr Sent and Ms Porter are no longer officers or employees of Primelife.

242 The only witness to give any evidence about the departure from Primelife of Mr Sent and Ms Porter was Mr Daniele. In his witness statement, Mr Daniele stated that Mr Sent's employment was terminated in October 2003, and Ms Porter's in September 2003. The first and second defendants also tendered (Exhibit D14) Primelife's Statements of Financial Performance for the year ended 30 June 2005 which included a reference to legal action brought by Mr Sent and by Ms Porter against Primelife for wrongful dismissal and to counterclaims by Primelife alleging serious misconduct.

Primelife decides on fewer larger apartments

243 In October 2003 Mr Walec presented the results of his analysis of the development to the Executive Committee of Primelife, comprised of Mr Gary Cobbledick (then Acting CEO), Mr Peter Clarke, Mr Kelvin Heath (General Manager Sales), Mr Daniele and Mr Greg Flood (then General Counsel and Chief Operating Officer). He set the analysis out in a document entitled "Executive Presentation" dated October 2003.

244 Mr Walec's analysis assumed that there would be no development of retirement units on the site other than on 6 to 12 Madden Grove. The "nett potential sales revenue" was calculated on the basis of a revised mix of fewer larger units and upon the sale of "surplus land". There was no reference made to any intended application to remove or vary the restrictive covenants. It is obvious that the "surplus land" is 2 and 4 Madden Grove.

245 Mr Meldrum sent area calculations for various alternative developments to Mr Walec by e-mail on 24 October 2003. These calculations also made no reference to any stage 2 development, and also assumed, in my view, that no such development would occur.

246 In his witness statement Mr Walec said that on 28 October 2003 he sent an e-mail to Mr Clarke seeking his approval to proceed to develop a proposal for approximately 44 independent living units. In or about early November 2003, according to Mr Walec, he was told by Mr Clarke that he approved him proceeding "to develop a proposal" comprising approximately 44 independent living units.

247 Amongst other things, at this time Mr Walec obtained concept designs and project costings for the construction of houses on what he described in his contemporaneous correspondence as "two surplus blocks of land at 2 - 4 Madden Grove Kew".

248 Officers of Primelife, particularly Mr Walec, and Mr Sudholz then engaged in a process accurately described in one of their working documents as "price re-calculation". The price in question was the price the plaintiffs had agreed to pay in the contract of sale. The re-calculations were based upon a project in which there would be no stage 2 and there would be no development in accordance with the existing planning permit. Instead the development would be of fewer larger units, approximately 48 in number.

249 The re-calculation process they undertook established, in my view, that the revised development could not justify the purchase price provided for in the contract of sale. This is hardly surprising. The scale of the development had been significantly reduced. One of their written re-calculations set out three alternatives resulting in prices of $26.8 million, $25.9 million, and $30.06 million. That document then contained the following conclusion:

[142]

261 The investor representatives rejected this approach. The investor representatives were particularly irritated at the item "New Capitalised Value" which seemed to them to be simply a device to produce an outcome resulting in a figure at $40m or above. Mr Walec in his oral evidence agreed that this was a "rounding" figure.

262 The evidence of Mr Penzo, Mr George, Mr Sharp and Mr Cirulis was that the 2 February 2004 meeting was the occasion upon which they were told, or realised, for the first time that there would be no stage 2.

Attempted renegotiation

263 The plaintiffs were prepared to proceed with the revised development, but they were not prepared to do so at the existing contract price. Attempts were made to renegotiate the price. Mr Sudholz said in his oral evidence that he offered to agree to a reduced price. No agreement on a reduced price was ever reached. Without agreement on price, in my view it cannot be said that there was agreement on the new proposal.

264 Notwithstanding the absence of agreement, Primelife sought an amendment to the planning permit already obtained in accordance with the new proposal. I have already referred to the fact that Mr Meldrum had ceased work on the development as depicted on the plans the subject of the planning permit in September 2003. Meldrum Partners submitted a request to amend the planning application with supporting architectural drawings under cover of a letter of 12 March 2004. Mr Walec's evidence was that the instruction to take this step was given by Mr Peter Clarke. Mr Walec's evidence also was that during 2004 he was involved in the preparation of building documentation for the revised 48 unit development.

265 In early May 2004 Mr Meldrum was informed by Mr Walec that Primelife was conducting a review of the feasibility of the project and that he should "hold off on work except work in relation to the quantity surveyors".

266 In April and May 2004 Mr George sent e-mails to Primelife expressing increasing dissatisfaction with the development, and with Primelife's attitude to it and to the investors.

267 At the same time Mr Sudholz on the one hand and Primelife on the other began attempting to negotiate a basis for their separation. These negotiations involved both the Madden Grove development and the other Primelife development in Kew on Studley Park Road. No agreement was reached.

268 On 25 June 2004 the Council advised that it did not consider that the revised project constituted an amendment to the approved plans and that a new planning application would be required.

Rescission notice

269 Under cover of a letter dated 13 August 2004 to MGD from the plaintiffs' solicitors, Herbert Geer and Rundle, Civoken and SSFS served a "Rescission Notice". The notice gave particulars of the default as being:

[144]

270 The notice stated that the purchasers intended to exercise their rights unless the default was remedied within 14 days and gave notice that unless the default was remedied the contract might be rescinded under general condition 6(2) of Table A of the Seventh Schedule of the Transfer of Land Act 1958 (Vic). Notwithstanding these aspects of the notice, the covering letter asserted that it was "apparent" that MGD would not be able to remedy the default and required that the deposit of $10,200,000 be returned upon the expiration of 14 days together with interest.

Two further issues

271 Before completing this review of the sequence of events, it is necessary to return to the beginning to address two issues: the identity of the prospective vendor and the payment of the deposit.

"Madden Grove Developments Pty Ltd": The first defendant and Nationwide

272 MGD, the first defendant, was not incorporated until 15 February 2000. Its ACN is 091 587 209. The property information report refers to a company named Madden Grove Developments Pty Ltd with the ACN 063 888 817. There are two companies which have been named "Madden Grove Developments Pty Ltd"; one is still named Madden Grove Developments Pty Ltd and has the ACN 091 587 209. It is the first defendant. The other was for a few days in February 2000 named "Madden Grove Developments Pty Ltd" but for most of the rest of its existence was named Nationwide Retirement Services Pty Ltd. It is the company with the ACN 063 888 817. I will refer to this company as "Nationwide". It is necessary to trace the history of these two companies, not only to clarify confusion that would otherwise exist in certain documents central to this proceeding, but also because one of the matters raised by the plaintiffs is that they were entitled to rescind the contract of sale because the true vendor, being the first defendant MGD, never gave them a statement under s.32 of the Sale of Land Act which was signed by it, as the s.32 statement which was given, was given and signed by Nationwide.

273 Nationwide was incorporated on 16 March 1994. It was deregistered on 4 February 2001. Prior to deregistration one of its directors was Anthony De Luca, a member of the accounting firm which included Mr Penzo, and a director of Primelife. Prior to deregistration the company secretary was Ms Porter. The shareholders prior to deregistration included "Anthony De Luca and Associates" of 691 High Street, Thornbury (the address of Mr Penzo and Mr De Luca's firm). Primelife is not recorded as having been a shareholder at any time.

274 I earlier referred to a facsimile transmission which Ms Porter sent to Ms Madden whilst the property information report was being prepared. That facsimile transmission was dated 9 February 2000. One of the things referred to in that fax was that the details for "MGD" would be confirmed and the ACN for "Madden Grove Developments Pty Ltd" would be advised. There is a handwritten notation on the facsimile transmission which reads "ACN 063 888 817". This is the ACN of Nationwide.

275 According to an ASIC historical extract which is in evidence, from 10 February 2000 to 13 February 2000 Nationwide's name was "Madden Grove Developments Pty Ltd". The property information report was completed some time on 11 February 2000 at the earliest. On that day the company which was named "Madden Grove Developments Pty Ltd" was Nationwide. The plaintiffs made their offers on 14 February 2000. On that day there was no company which was named "Madden Grove Developments Pty Ltd". Nationwide had changed its name. The first defendant MGD had not yet been incorporated.

276 The property information report itself refers to the proposed vendor as "Madden Grove Developments Pty Ltd . . . (ACN 063 888 817)". The ACN is that of Nationwide. It is clear that the representations made about the company are representations about the proposed vendor. As matters transpired that was not Nationwide, it was the first defendant, MGD.

277 The first defendant MGD was incorporated under the name "Madden Grove Developments Pty Ltd" on 15 February 2000. The directors were at all relevant times for these purposes Mr Sudholz and Mr Sent. Between 15 February 2000 and 27 September 2000 the secretary was Ms Porter. From inception its shareholders have been Primelife, holding 50 of the 100 shares, Mr Sudholz, holding 25 shares, and a company controlled by Mr Sudholz named Marma Pty Ltd, holding 25 shares.

278 Thus, between 15 February 2000 and 30 June 2000 Ms Porter was secretary of both Nationwide and MGD. Mr Sent was a director of MGD but was not a director of Nationwide.

279 The purported statement under s.32 of the Sale of Land Act is dated 16 March 2000. It names the vendor as "Madden Grove Developments Pty Ltd ACN 063 888 817". As at 16 March 2000 the first defendant was the company named "Madden Grove Developments Pty Ltd". Thus, the vendor has the first defendant MGD's name and Nationwide's ACN.

280 The signatures which the s.32 statement bears on behalf of the vendor appear to be those of Mr Sent and Ms Porter. The plaintiffs maintained that there was no evidence that they were in fact the signatures of Mr Sent and Ms Porter. They appear to me to be their signatures and in that respect I refer to the signatures on the contract of sale itself. There is no suggestion of any forgery, and notwithstanding the absence of evidence identifying the signatures, I am prepared to conclude that Mr Sent and Ms Porter signed the purported vendor's statement dated 16 March 2000. At that date Ms Porter was secretary of both MGD and Nationwide. Mr Sent was a director of MGD. He was not a director of Nationwide. The s.32 statement bears an acknowledgement of receipt dated 21 March 2000.

281 By a letter of 14 February 2000 from Mr Sudholz to Mr Sent, Mr Sudholz referred to the "Ownership Company" as being "Madden Grove Developments Pty Ltd ACN 063 888 817". The ACN is Nationwide's. Its name was not Madden Grove Developments Pty Ltd on 14 February 2000, but it had been the day before. The first defendant was not incorporated under the name Madden Grove Developments Pty Ltd until the next day.

282 By a letter dated 31 March 2000 Mr Sudholz wrote to Mr Sent requesting "registration documents" for the "ownership company" for Madden Grove. By a facsimile transmission from Mr Sudholz's solicitors, Banks & Associates, to Primelife's solicitors, Bickmores, also dated 31 March 2000 Mr Banks, on Mr Sudholz's behalf, raised queries which were clearly referable to Nationwide and were apparently prompted by an assumption on his behalf that it was, or was to be, the joint venture vehicle. By a further facsimile transmission to Bickmores on the same day Mr Banks indicated that he had "worked out what has happened" and referred to the incorporation of the first defendant, MGD.

283 Notwithstanding this apparent "working out" of what had happened, the Madden Grove joint venture agreement between Primelife on the one hand and Mr Sudholz's interests on the other, names the joint venture vehicle, referred to as "the Custodian", as "Madden Grove Developments Pty Ltd (ACN 063 888 817)". The ACN is that of Nationwide. The agreement has no date.

284 The purchaser under the contract of sale of the land from the University of Melbourne was Primelife. There is in evidence a nominee statutory declaration, apparently signed by Ms Porter but with the declaration and witness details blank and with no date. This declaration purports to record the nomination by Primelife of "Madden Grove Developments Pty Ltd ACN 063 888 817" as purchaser of the land from the University of Melbourne. The ACN is that of Nationwide. Copies of the transfers of the land (remembering there are three titles) are also in evidence. The copies in evidence do not bear dates. The transferee as typed is "Madden Grove Developments Pty Ltd ACN 063 888 817". The typed ACN is that of Nationwide. In each transfer the typed ACN has been crossed out and a handwritten number has been inserted and initialled, that number being 091 587 209, the ACN of the first defendant, MGD.

285 The contract of sale itself is clear in specifying the vendor as the first defendant, MGD. The first defendant MGD is also the named party to the MOU and the profit share agreement. The joint venture agreement entered into by the plaintiffs incorporates reference to the first defendant MGD. But another of the formal contracts, the management agreement, defines "MGD" to mean "Madden Grove Developments Pty Ltd (ACN 063 888 817)". As at the date which that agreement bears (28 June 2000) that description is the first defendant's name and Nationwide's ACN.

286 The persons most likely to be able to explain all of this are Mr Sent and Ms Porter. They did not give evidence.

287 Mr Sudholz was asked about these matters. His evidence did not assist. In substance, he indicated that this was a matter left entirely to Primelife. He did not display any knowledge or understanding of the matter beyond that contained in the documents themselves.

288 The only clarification of the matter which emerged from the oral evidence came from Ms Shona Holzer, who was executive assistant to Ms Porter between 1999 and 2003. Her recollection was that Nationwide was the company initially intended to be the nominee under the contract of sale from the university and the vendor to the plaintiffs. She said that Nationwide's name was changed with this in mind, but that she believed, as a result of communications to her by Ms Porter, that it was then decided that "they wanted a new company, a clean company rather than an old company that had been used previously".

289 The issue is perplexing. The association of Nationwide with Mr De Luca and with "Anthony De Luca and Associates" is one aspect of the matter which remains unexplained. The question of which company was nominated and whether there was more than one nomination also remains unexplained. Whilst Ms Holzer gave some assistance in this regard, the timing of, and the reasons for, the shifting between the two companies remains unclear.

Payment of the deposit

290 The total of the payments made on account of the deposit was, according to Mr Daniele's witness statement, $8,956,875.[6] All of the payments were made to Primelife. According to Mr Daniele, MGD's accounts recorded an obligation by Primelife owed to MGD for the amounts received. The defendants contend that only $8,956,875 of the deposit was ever paid and that $1,243,125 remained outstanding.

291 The explanation for the difference between the total payments said to have been received ($8,956,875) and the sum required to be paid under the contract ($10,200,000) is two amounts of $621,562.50 which were the initial contributions to the SSFS Syndicate required to be made by Primelife and Mr Sudholz. These sums were never paid in cash. Mr Daniele explained the position in his witness statement as follows:

[154]

298 The Investor Presentation document presented to the meeting with the plaintiffs' officers and others on 2 February 2004 advised that the deposit of $10,200,000 had been paid.

299 It is necessary now to say something of the payments which were made to Primelife.

300 Mr Daniele in his witness statement set out the payments which were made. In total $8,657,250 was paid in cash and $302,175 was set off against Mr Sandground's commission entitlements.

301 Very little was paid on or by 28 June 2000.

302 Civoken had paid a deposit of $50,000 on 14 February 2000, but this sum was returned to it on 6 July 2000. SSFS paid $102,000 on 14 February 2000. An investor named Technologies 2000 Pty Ltd paid Primelife $117,500 on 28 June 2000. Otherwise, no further part of the deposit was paid on or by 28 June 2000. Counting for these purposes the $50,000 deposit paid by Civoken which was later returned, the total amount payable towards the deposit of $10,200,000 which had been received on or by 28 June 2000 was $269,500.

303 By 30 June 2000 the total amount received by way of payment of the deposit was $5,722,025 (including the $50,000 paid by Civoken which was refunded on 6 July 2000). By the end of 2000 the total sum paid (excluding setoffs) was $8,144,700. Two additional sums were received in January 2001 and four additional payments were made in early 2002. The last payment made in reduction of the deposit was on 8 April 2002. It was a direct payment by an investor named Bus Queensland Pty Ltd.

304 Of the cash payments made, $1,119,450 came from Stones Sharp; $2,972,500 came from Civoken's solicitors, Woodhams; $3,202,800 came from Mr Sandground; and $1,362,500 was paid direct to Primelife by investors whom SSFS and Civoken had introduced. Even if the payments by Mr Sandground are ignored, a significant proportion of the payments were made directly by investors to Primelife. MGD in its defence (para 13(a)) describes the amounts paid as having been paid by "the plaintiffs and the Investors collectively".

305 My conclusions are as follows:

[158]

Some principal findings of fact

306 Before turning to the relevant contractual provisions, the claims and counterclaims made, and the specific findings necessary to determine them, I set out below some principal findings of fact as a result of the detailed review of the evidence which I have undertaken. It is desirable to take this course so as to impose some limit on the range of submissions made concerning the claims and counterclaims in the proceeding.

Establishment of the project

307 The property information report was prepared within Arthur Andersen from information provided by Primelife and was published under the insignia of Arthur Andersen and Primelife. It was finalised and distributed on Friday 11 February 2000 at the earliest.

308 There is no documentary record now, and it seems that there never has been any documentary record, of the receipt of the report by the plaintiffs or any of the plaintiffs' officers on or prior to 14 February 2000. There is now no documentary record of any review or analysis of that report by any of the plaintiffs' officers.

309 SSFS already had commitments from a significant number of clients (at least 25) by 14 February 2000.

310 The property information report contained at least one representation which was untrue and was known to be untrue, namely that the proposed vendor was a wholly owned subsidiary of Primelife. That was not the case, and it was never the intention of either Primelife or Mr Sudholz that that would be the case.

311 Mr Sudholz did read the property information report, including the passages which erroneously stated that the proposed vendor was a wholly owned subsidiary of Primelife.

312 Otherwise, the property information report relevantly contained statements of intention, projections, and representations, which were expressed to be sourced from Primelife, and which were subject to a detailed disclaimer.

313 The issue of whether the representations were, in the context, misleading and deceptive, and the issue of whether the plaintiffs have proved reliance, are issues to which I will specifically return.

Pursuit of planning approval

314 Neither MGD, nor Primelife acting on its behalf, ever applied for a planning permit for a development as depicted in the March 2000 plans which were annexed to the property information report and were incorporated into the contract of sale.

315 The first application for a permit in December 2000 was for a development of a different number of units, 88 in total rather than 102, of a different configuration.

316 Thereafter, MGD and Primelife's officers and agents made amendments to the plans as a result of which the project moved further away from that depicted in the March 2000 plans. The existence of restrictive covenants on 2 and 4 Madden Grove, which it was always known would present an obstacle to completion of the development as originally depicted in the March 2000 plans, was a factor in this movement but the most significant factor was the perceived need to compromise with resident objectors.

317 The steps taken to compromise with objectors were such that by mid-2001 stage 2 of the proposed development had been reduced to a mere "possibility" at best and one which objecting residents had been told would not occur. By late 2003 stage 2 had been abandoned by Primelife and MGD.

318 The number of units planned for stage 1 increased throughout this process. The increased density of stage 1 reflected the receding prospect of stage 2 ever occurring.

319 The gradual process whereby MGD and Primelife moved away from the March 2000 plans continued until a dramatic alteration in course in early 2004 whereby what had been stage 1 was fundamentally reconfigured.

320 MGD and Primelife's officers and agents implemented this final fundamental revision to what had been stage 1 by ceasing all work on a development as depicted in the planning permit which had been obtained, by applying for an amendment to the planning permit reflecting the new proposal, and by undertaking other work in relation to the new proposal including the preparation of building documentation. They took this course notwithstanding their inability to persuade the plaintiffs to agree to an arrangement under which the new proposal would replace what was provided for in the contract of sale. Agreement could not be reached because the parties could not agree on a revised price.

321 The plaintiffs were given broad and general advice from time to time as to the process of amendment to the plans which occurred between June 2000 and February 2004. There were only two instances prior to February 2004 where they were potentially given any meaningful insight into what was happening.

322 The first was when SSFS officers received a copy of the letter which had been sent to Mr Stones as a resident on 18 May 2001. The letter referred to 90 retirement units. I cannot tell from the evidence to what plans the reference to 90 units relates. It is closest in number to the 88 units depicted in the plans which were part of the application in December 2000 but it could also be a reference to an early compromise proposal. Further, the letter itself is ambiguous. The reference to 90 units could be read as being 90 units apart from the "new two storey buildings". There was no evidence led by Primelife or MGD which clarified those issues. Even if the letter might have alerted the plaintiffs to the possibility that significant amendments had been made to the plans, it did not do so in fact.

323 The second occasion was at the meeting on 12 November 2002. In final submissions what occurred at this meeting became the cornerstone of Primelife and MGD's justification of their conduct. At that meeting the plaintiffs' officers were shown the plans which had been prepared in March 2002 (not the plans lodged with Council shortly thereafter) and were told that stage 2 would be deferred. The plaintiffs' representatives did not complain about this position. MGD and Primelife maintain that as a consequence the contract of sale was orally varied or amended, or that an election, waiver or estoppel occurred or arose.

Relevant contractual provisions

The contract of sale

324 The contract of sale between MGD as vendor and Civoken and SSFS as purchasers provides for both the construction of the retirement village on the property at Madden Grove and the transfer of the constructed village to the purchasers.

325 The price provided for is $40,800,000. The deposit provided for is $10,200,000 which is

[182]

349 Special condition 21 provides that the Purchaser shall "simultaneously" with the execution of the contract also execute and exchange a marketing and management agreement, a profit share agreement, and a V Mortgage. Those documents were executed and exchanged. The first two mentioned agreements are dated 28 June 2000. The V Mortgage is undated. Special condition 21 of the contract of sale does not list the MOU amongst the documents to be simultaneously executed.

Memorandum of understanding

350 The MOU is also dated 28 June 2000. No party has sought to rely on the provisions of the MOU, other than as an aid to construction of the provisions of the contract of sale. In substance, and making allowance for some inevitable inaccuracy as a result of an attempt to summarise, the MOU provides for the following regime.

351 As to stage 1, if a planning permit substantially as provided for in the contract of sale is not obtained by 30 June 2002, or any agreed extension date, then either party is entitled to terminate the contact of sale and the deposit is to be repaid. If a planning permit is obtained but it permits less than 69 apartments then the parties are to negotiate in good faith as to the viability of proceeding and, if they decide they shall proceed, the MOU provides for a price reduction by a sum "not exceeding" an amount of $120,000 per apartment below 69.

352 As to stage 2, if the planning permit for stage 2 provides for less than 34 apartments then the parties are to again negotiate as to the viability of proceeding. If they do decide to proceed, then the price is to be reduced by a sum of $120,000 per apartment below 34. If no planning permit at all is issued for stage 2 prior to 1 October 2003, or any agreed extended date, then the stage 2 balance provided for under the contract of sale, $9,980,000, is cancelled and the purchaser is to pay to the vendor the value of the stage 2 land as determined by an independent valuer, and the vendor is to pay to the purchaser the sum of $4,080,000.

Other agreements

353 As indicated, special condition 21 of the contract of sale referred to other agreements to be executed simultaneously with the contract of sale.

354 I have already referred to the V Mortgage which was to secure all or part of the stage 2 payment in certain circumstances.

355 The parties also executed a management and marketing agreement pursuant to which Primelife Management Services Pty Ltd agreed to manage the retirement village upon completion of the works for a period of 25 years in consideration of management fees payable by the plaintiffs, who would at that point be the owners of the retirement village.

356 The plaintiffs in turn entered into a profit share agreement with MGD pursuant to which they promised to share their profit on operation of the business, as managed by Primelife Management Services Pty Ltd.

357 These arrangements gave effect to the proposals set out in the property information report under which Primelife Management Services Pty Ltd would manage the business on behalf of the purchaser under a 25 year marketing and management agreement and the "sustainable annual EBIT at full occupation", projected to be in excess of $2,661,700, was to be shared equally with MGD.

Contract claims

Construction issues

358 The plaintiffs allege that special condition 7.2 imposed upon MGD an obligation to commence the stage 1 works by 1 June 2001 and an obligation to commence the stage 2 works by 1 October 2003.

359 In argument, the plaintiffs particularly relied upon the proviso to special condition 7.2. They submitted that the proviso made it clear that clause 7.2 did impose an obligation to commence works by the specified dates because otherwise there would be no point in providing for agreement in writing in order to vary the dates, or for providing that any such agreement was to be referable to the occurrence of an Intervening Event.

360 Whilst there is force in the plaintiffs' submission concerning the proviso, I cannot accept their construction of special condition 7.2.

361 First and foremost, the plaintiffs' construction requires one to ignore the three express references to intention in the provision. Each reference to commencement of the works is qualified by a statement that what is provided for is what is intended.

362 Secondly, sub-paragraph (a) creates an overarching obligation which is to commence the works "as soon as practicable in all the circumstances". In my view this supports a construction under which the provisions dealing with specified dates record an intention then existing and not a contractual obligation to commence by the specified dates.

363 Finally, the MOU, executed at the same time as the contract of sale, makes express provision for circumstances which are inconsistent with a contractual obligation to commence the respective stages by the specified dates. The MOU provides for circumstances where a planning permit for stage 1 is not obtained by 30 June 2002 and where a planning permit for stage 2 is not obtained by 1 October 2003. These provisions are inconsistent with an obligation imposed upon MGD to commence construction of the stage 1 works by no later than 1 June 2001 and of the stage 2 works by 1 October 2003. Works cannot commence before a planning permit is obtained.

364 Accordingly, whilst this construction necessarily creates a circumstance where the substantive obligation does not sit comfortably with the proviso, my conclusion is that special condition 7.2 imposed upon MGD an obligation to commence works as soon as practicable in all the circumstances and records an intention to commence the stage 1 works by 1 June 2001 and the stage 2 works by 1 October 2003 but otherwise does not impose a contractual obligation to do so.

365 The plaintiffs also contend that MGD was under an obligation to lodge an Application (as defined) pursuant to special condition 6.1 of the contract of sale, alternatively pursuant to an implied condition.

366 Special condition 6.1 creates uncertainty in this respect as it is expressed to be an acknowledgement by the purchaser that the vendor will make the application. As a matter of construction it seems to me that special conditions 6.1, 6.2, 7.1 and 7.3 do impose upon MGD the obligation to apply for a planning permit in accordance with the Application (as defined).

367 The defendants did not make submissions which were contrary to this conclusion, but counsel for the first and second defendants did submit that the terms of the MOU make it clear that the Application (as defined) might be progressed in stages, as the MOU has different trigger dates for the stage 1 planning permit (or its absence) and the stage 2 planning permit (or its absence). It is correct, I think, that the contractual obligation in the contract of sale might be performed by two or more separate applications which together constitute the Application (as defined), and the MOU reflects that possibility. But those matters do not otherwise detract from, or qualify, the obligation which is imposed on MGD in that regard.

368 The plaintiffs also contend for a term implied by law to the effect that each party must do all such things as are necessary on its part to enable the other party to have the benefit of the contract of sale. The defendants did not admit the existence of this implied term. The term is said to be implied by law and I assume that nothing more is contended for in this respect than the implied terms referred to in authorities such as McKay v Dick[7] and Butt v McDonald.[8] In this proceeding all of the matters in contention are the subject of express terms.

Alleged breaches of the contract of sale, absent variation, amendment, estoppel, election or waiver

369 The defendants contend that if there were any breaches of the written terms of the contract of sale, those breached terms were the subject of oral variation or amendment which obviated the breach, or the breaches were the subject of estoppel, election or waiver. It is first necessary to determine whether the plaintiffs have established breaches of any of the written terms of the contract of sale.

370 The plaintiffs' allegations of breach are set out in paragraph 14 of the fifth further amended statement of claim.

371 In para 14(a) to (c), it is alleged that MGD breached the contract of sale by failing to construct the Building, failing to commence stage 1 of the works by the specified date, and failing to commence stage 2 of the works by the specified date. The allegations are founded upon a construction of special condition 7.2 which I have rejected. The plaintiffs have not established breach on these grounds.

372 In para 14(d), the plaintiffs allege MGD breached the contract of sale by failing to lodge the Application (as defined) with the City of Boroondara.

373 Absent the matters relied upon by the defendants as referred to above, the plaintiffs have established this breach. No Application (as defined) has ever been lodged. In final submissions counsel for MGD conceded that the initial application for a permit was not the Application (as defined) provided for in the contract of sale, as the differences between the plans forming part of the application as lodged and the Plans (as defined) were not a result of any amendment falling within special condition 7.5. MGD conceded that it could not be said that those changes were necessary to accommodate an Intervening Event, and there was no written agreement to the amendments.

374 What counsel for MGD submitted was that whilst there was initial non-compliance with the contract of sale in this respect, this breach was "remedied" prior to service of the rescission notice and was not by that time "a current breach". The argument in this respect was that the contractual arrangements contemplated that the stage 1 application would precede stage 2. During 2002 applications for stage 1 (as set out in the March 2002 plans and the November 2002 plans) were made which provided for a greater number of units, respectively 78 and 84, than those shown on the Plans incorporated in the contract of sale. It was contended that, in so far as stage 1 was concerned, the differences between the Plans incorporated in the contract of sale on the one hand, and the March 2002 and November 2002 plans on the other, were necessary to accommodate an Intervening Event, being the requirements of the Boroondara Council or its requests, and did not substantially and detrimentally affect the property. In November 2002 the parties agreed, so it was contended, that stage 2 would be deferred. Thus, by 2004 there was no current breach.

375 I reject this analysis of the position.

376 The initial application covered stage 1 and stage 2, and it is conceded that that application was not in accordance with MGD's obligations under the contract of sale. Accordingly, MGD was then in breach. What subsequently occurred was not a return to compliance with the provisions of the contract of sale, but a progressive movement further away from them. Stage 2 was, over the period up until late 2003, abandoned by MGD. This abandonment was not clear and unqualified until late 2003, but movement in that direction began much earlier. A decision was made by Primelife and MGD to defer steps towards obtaining planning approval for stage 2 in mid-2001. Compromises involving a development without stage 2 were presented to the resident objectors in July and August 2001. Even if Primelife's officers preserved in their own minds the possibility of reviving stage 2, it was, on Mr Barber's own evidence, only that, a possibility. By late 2003 Primelife and MGD's abandonment of stage 2 was clear. When Primelife's officers reassessed the project in late 2003, stage 2 was not referred to and the land on which it had originally been intended to be constructed was regarded as "surplus".

377 Primelife's officers, acting on behalf of MGD, took the final step in the complete departure from the Plans provided for in the contract of sale when MGD applied to amend the planning permit in March 2004 so as to pursue the revised version of stage 1. They did not have the plaintiffs' agreement to this course in any relevant sense.

378 All of this may have been done for sound commercial reasons. The contract, however, permitted MGD to only amend in the circumstances provided for in special condition 7.5. MGD ignored that provision. The defendants contend that the plaintiffs orally agreed to what was done, or are estopped from now complaining about it. That is a separate issue which I will address. In the present context, the point is that MGD was obliged to lodge an Application (as defined) and to pursue it to VCAT if necessary. It never did so. Under the contract MGD was entitled to amend, and to pursue an amended proposal, only in specified circumstances. MGD amended as and when it saw fit regardless of those specified circumstances. On at least three occasions, the amendments prior to the initial application, the amendments in November 2002, and the amendments in March 2004, those specified circumstances clearly did not exist. So much was conceded in relation to the initial amendment. There was no relevant Intervening Event (as defined) which occasioned either of the other two amendments. There was no agreement in writing by the plaintiffs to any of the amendments.

379 In para 14(e), it is alleged that MGD breached the contract of sale by failing to exercise its best endeavours to procure a grant of the Planning Permit (as defined).

380 There are three aspects to this allegation.

381 First, it is said that MGD did not make any endeavours to procure the grant of the planning permit because what was done was done by Primelife. I reject this analysis of the position. I accept that MGD delegated the task to Primelife.

382 The second manner in which this allegation is put is that MGD was at all relevant times exercising its best endeavours to procure an outcome which was not the outcome provided for in the contract. This is the argument concerning the Application (as defined) put a different way. For the reasons already given, I accept that MGD was in breach in this respect.

383 Finally, it was contended that MGD and Primelife pursued the applications which were made in a manner below the standard required by the exercise of best endeavours. This latter aspect of the claim occupied a considerable amount of time at the trial. Evidence was given relevant to this aspect of the matter by the architect, Mr Meldrum; the town planner, Mr Barber; by an expert engaged on behalf of the plaintiffs, Mr Black; by an expert engaged on the part of the defendants, Mr McGurn; and, to a limited extent, by one Council officer.

384 In my view the plaintiffs failed to establish this aspect of their complaint.

385 MGD and Primelife were endeavouring to procure an outcome which was not the outcome provided for by the written terms of the contract of sale. They were, however, exercising their best endeavours in that attempt.

386 Mr Meldrum gave detailed evidence as to the steps taken throughout the course of the application processes. I found Mr Meldrum to be a witness upon whom I could rely in this respect. I accept his evidence as to the steps that were taken and the reasons why he took them.

387 The plaintiffs and Primelife and MGD each called expert evidence on the planning issues raised by the allegation that MGD had failed to use its best endeavours in the planning process.

388 The plaintiffs called Mr Jason Robert Black. Mr Black graduated with a Bachelor of Applied Science (Planning) from RMIT in 1999. He held positions with two councils between 1999 and 2005. Since 2005 he has been a senior planning consultant with a company named Macroplan Australia Pty Ltd.

389 Primelife and MGD called expert evidence from Mr Stuart Andrew McGurn from a company named Fulcrim Town Planners Pty Ltd. Mr McGurn obtained a Bachelor of Arts degree in 1984 and a Graduate Diploma of Urban Planning in 1986. Between 1986 and 1998 he was a town planner in various councils. For a period he was Principal Planner at the City of Melbourne. Since 1999 he has been a town planning consultant and director of Fulcrim Town Planners Pty Ltd.

390 Counsel for MGD and Primelife were critical of Mr Black's evidence. It was submitted that he was inexperienced and that he made some "egregious" errors. Mr Black did make an error in relation to a letter from the solicitors' firm Russell Kennedy dated 25 September 2003. The error made did appear to have occurred because Mr Black had not read the letter, or had not read it sufficiently carefully. The criticism that he was relevantly inexperienced was also not without substance. He has been a town planner for only seven years and has spent the majority of that time working for councils. He did not appear to have had much experience in dealing with planning applications for retirement village developments.

391 In final submissions the grounds upon which the plaintiffs submitted that there had been a failure to employ best endeavours were as follows:

[189]

395 Mr McGurn took up the same issue in his cross-examination observing that the decision to undertake a master planning process is a "vexed issue". This is because it is a significant exercise which takes a particularly long time to do properly. The difficulty which Mr McGurn emphasised was that the master plan has "no statutory weight", as a consequence of which one can undertake the process prior to lodging a planning application and then have to go through it all again after the application has been lodged.

396 Mr McGurn has had considerable planning experience. It seemed to me that his evidence was reliable. He was of the view that even if it had been known that a master plan was required it was still a valid alternative to "plough on", meaning that one would lodge the application and then deal with the Council in relation to the master planning process. This is the alternative Mr Meldrum took. I do not consider that the plaintiffs' criticism of it was justified.

397 In all the circumstances I do not consider that the plaintiffs have established that there was a failure on the part of MGD to exercise its best endeavours as a result of the approach Mr Meldrum and Mr Barber took in relation to the master plan and community consultation issue.

398 The suggestion that MGD had failed to take other steps suggested or required by Council officers was founded in large part upon the letter of 19 January 2001 which the Council forwarded to Meldrum Partners after receiving the application. Mr Black's evidence was that if one consulted adequately with Council officers before lodging the application, requests for additional information, such as those contained in the letter of 19 January 2001, can be avoided. Mr McGurn was of the opinion that such requests are usual and that prior consultation does not necessarily eliminate them.

399 There was prior consultation here. I do not consider that it has been established that that consultation was inadequate or that its outcomes were ignored by MGD or Primelife. In any event, given the need to undertake a master plan/community consultation process, there was no additional delay which was occasioned by the need to comply with the other requests set out in the letter of 19 January 2001.

400 The plaintiffs originally alleged that there had been a failure to employ a town planner at all. When Mr Barber's expertise and role were revealed, the complaint changed to a failure to employ a town planner to supervise the "day to day" planning process. Mr Barber was a town planner and was involved in the planning process. I do not accept that any justifiable criticism can be made as to the extent of his involvement. In any event I accept that Mr Meldrum was well qualified to undertake the steps required (other than the restrictive covenant issue which was removed from his area of responsibility). As Mr McGurn indicated in his evidence, if he had a choice between a recent graduate qualified as a town planner and an architect with 20 or 25 years' experience then he would "always plump for the architect".

401 It is true that the planning process here took much longer than would usually be the case. Mr Meldrum set out the steps that he took in some detail. It was not put to him that he was inordinately slow in undertaking any particular step or that MGD and Primelife delayed the process by not giving him proper instructions or some other circumstance. The only positive matter put forward as possibly producing a faster outcome, other than preparation of the master plan prior to lodging the application, was an appeal to VCAT before the Council decision, relying upon the Council's delay. As Mr McGurn and Mr Meldrum both explained in their evidence, a decision on such an issue is a matter of judgment. Whilst there were prospects that the Council might approve the application, the decision to wait was an appropriate one. I cannot find that there was a failure to exercise best endeavours because an appeal to VCAT was not instituted prior to a Council decision.

402 This application did take a long time. But there were a number of exceptional features of this development which were explained by Mr Meldrum. Amongst those features were: considerable delay within the Council itself, which might in part have been explained by an illness which Mr Lancashire suffered during the course of the process, or other circumstances internal to the Council; the existence of an active, well-organised and well-resourced resident opposition group (which itself may have caused or exacerbated the delays within the Council); and the difficulties which the site posed in town planning terms as it was a large institutional building in an affluent residential area.

403 The plaintiffs allege in paras 14(f) and 14(g), that MGD failed to do all things necessary on its part to enable the plaintiffs to have the benefit of the contract of sale and that they failed to do or refrain from doing things necessary or desirable to give full effect to the provisions of the contract of sale. The complaints in this respect were in substance a repetition of complaints made in relation to the other alleged breaches. MGD's conduct in this regard is to be judged by reference to the express written terms which deal with the relevant matters. No additional breach of contract has been established.

Variation, amendment, estoppel, election or waiver

404 The case put on behalf of MGD in resisting a conclusion that there were breaches of the terms of the contract of sale as a result of the failure to lodge an Application (as defined) and to pursue it, substantially rested upon the meeting on 12 November 2002. It was submitted that as a result of the events at that meeting the parties "orally amended" the contract of sale "by agreeing to proceed with the development in respect of stage 1 for 78 units instead of 69 units in accordance with the March 2002 plans" and by agreeing to defer stage 2. In the alternative, it was submitted that the plaintiffs' conduct at that meeting and thereafter gave rise to an estoppel or an election or waiver as a consequence of which they were, and are, not entitled to rely upon the breach of the written terms of the contract of sale.

405 In my view there was no oral variation or amendment. It is not suggested that any of the representatives of the plaintiffs said anything at the meeting on 12 November 2002 which might constitute either an offer of, or an acceptance of, a variation. The variation or amendment is alleged to arise as a result of an absence of complaint. This is in circumstances where the agreement to be varied or amended expressly provides that no variation or amendment is to be effective unless it is in writing and signed by the duly authorised representative of both MGD and the plaintiffs. The contention that there has been an oral variation or amendment is untenable.

406 Similarly, in my view the contentions concerning election (and waiver in this sense) are also untenable. Election, or waiver in this sense, requires unequivocal words or conduct whereby the promisee elects to continue performance in the knowledge of a right to terminate for breach or with knowledge of the circumstances which gave rise to the right to terminate; or whereby the promisee waives the breach with knowledge of the right waived, or the facts which gave rise to the right.[9] There is no evidence of knowledge on the plaintiffs' part that there had been the breaches I have found occurred, or of knowledge of the circumstances entitling them to terminate. There is no evidence of unequivocal conduct on their part to waive the breaches or to elect not to terminate.

407 I turn then to the estoppel defence.

408 In its defence at para 14(d)(viii)-(xiv) MGD alleges that an estoppel arises, which precludes the plaintiffs from relying on any of the various breaches they allege. The estoppel is alleged to arise by virtue of the following circumstances.

[197]

415 Subject to those observations, I accept MGD's formulation of the applicable principles.

416 MGD has failed to establish an equitable estoppel.

417 First, MGD has not established that it, or the Primelife officers or agents acting for it, adopted or relied upon any relevant assumption as a consequence of the plaintiffs' conduct. My assessment of the evidence is that it establishes that MGD and Primelife's officers and agents proceeded in every step they took in precisely the manner they thought best and had no regard to the plaintiffs' conduct whether by way of absence of expressions of concern or otherwise. Even if the plaintiffs had discovered the relevant facts and made complaint, I am not persuaded MGD and Primelife would have adopted any different course.

418 Secondly, there is no clear and unambiguous conduct by the plaintiffs which can be said to have played a part in the adoption by MGD and Primelife of any relevant assumption.

419 All of the conduct relied upon is essentially passive. It amounts to an alleged failure to complain.

420 The failure to complain about the initial contravening application cannot give rise to any estoppel. The plaintiffs' officers did not know of it at any relevant time.

421 The plaintiffs' failure to complain in response to the various written advices they were given concerning amendments cannot found any relevant assumption. The letters were in very general terms and omitted relevant matters.

422 The stage 1 plans displayed at the meeting on 12 November 2002 were the March 2002 plans, which MGD significantly amended without further consultation almost immediately after the meeting, and those plans in isolation were in any event not inconsistent with compliance with the contract.

423 The discussion of stage 2 at that meeting, as recorded in the minutes, was ambiguous.

424 There is no evidence that the plaintiffs were told at that meeting that stage 2 was then only a "possibility" or what had been presented to the objecting residents. Thereafter, they were not told of stage 2's abandonment until they were asked to agree to an entirely new configuration for stage 1 in February 2004.

425 I do not accept that the plaintiffs were at any relevant time in sufficient possession of the facts to enable any conclusion of assistance to MGD in this context to be drawn from their absence of complaint.

426 Even if MGD had established that it adopted and relied upon some assumption, in the adoption of which the plaintiffs' conduct had relevantly played a part, in my view, in the circumstances of this case, no more would be required to avoid MGD's detriment than to make due allowance for its expenses and other costs from the point at which the assumption was adopted.[16]

427 It seems to me that underlying the submissions of MGD in this context were the propositions that all of the changes made were commercially sensible, that it was all left to MGD and Primelife by the plaintiffs, and that the plaintiffs never showed any interest in what the amendments were.

428 This may be so, but MGD had contracted to lodge and pursue the Application (as defined) and very substantial sums of money were paid to it pursuant to that contract; sums far in excess of what Primelife had itself agreed to pay for the land. The contractual plans depicted a development of 102 units. The purchase price of $40,800,000 had been calculated on the basis of those plans (102 x $400,000). The contract provided that those plans could only be amended with the plaintiffs' written consent, unless the amendments did not substantially and detrimentally affect the Property (as defined) and were necessary to accommodate an Intervening Event (as defined). If there was no Intervening Event and if amendments were thought to be commercially sensible, MGD ought to have sought to persuade the plaintiffs to agree. Among other things, that would have given the plaintiffs the opportunity to assess the commercial consequences and to seek to renegotiate the terms of their purchase. This is what they did on the one occasion when their agreement to amend was sought, and what Mr George foreshadowed doing in the note he made on the letter of 14 August 2003 when he was advised the permit had issued for 82 units ("Reduced number of units = price adjustment to be negotiated") before Mr Daniele told him that that was for stage 1 only. MGD's approach from the outset denied the plaintiffs this opportunity. There is no sense in which MGD is, or has been, "victimised" by the plaintiffs' reliance on MGD's breaches. In my view there is nothing unjust or oppressive in the plaintiffs' reliance upon the terms of the written contract and MGD's failure to comply with them.

Condition 5 of Table A.

429 Condition 5 of Table A of the Seventh Schedule of the Transfer of Land Act, incorporated into the contract of sale by general condition 9.1, provides as follows:

[200]

Characterisation of MGD's conduct in breach

430 Civoken and SSFS have purported to terminate the contract of sale. The notice which they gave on 13 August 2004 relied upon breaches they have failed to establish, principally because I have found that the terms allegedly breached were not terms of the contract.

431 I have found that MGD was in breach of the contract in another respect, however. MGD breached its obligations in that it failed to lodge and pursue the Application (as defined). As a consequence of the same conduct it failed to exercise its best endeavours to procure the grant of the Planning Permit (as defined). These breaches are pleaded breaches relied upon by the plaintiffs. In the course of the same conduct MGD purported to amend the Plans (as defined) in a manner which contravened the express provisions governing amendment.

432 Civoken and SSFS now seek to justify their purported termination relying on these breaches. They are entitled to justify their purported termination on grounds other than the erroneous grounds upon which they relied at the time, including upon grounds of which they were unaware at the time.[17]

433 In addition to relying on condition 5 of Table A, the defendants contend that the breaches in issue were not breaches of conditions, but rather were breaches of intermediate terms and that those breaches were not sufficiently serious to justify termination.

434 A condition is a term of which it can be said that the promisee would not have entered into the contract unless he had been assured of strict performance (or, if no time is expressed for performance, of substantial performance), and that this ought to have been apparent to the promisor.[18] Breach of a condition gives rise to an automatic right to rescind. Courts are "not too ready" to construe a term as a condition.[19]

435 I do not consider that the terms breached here are conditions. As was submitted by counsel for MGD, the contract does not expressly provide that the relevant provisions are conditions, no express time limitations are provided for, and the range of potential breaches is very wide and could include, for example, inconsequential amendments to the Plans (as defined). I accept that the terms breached are intermediate terms.

436 The breaches are serious, however. In my view they are sufficiently serious to justify termination.

437 MGD was obliged to pursue a project depicted on specified plans. The plans depicted a development of 102 units over the entire site of 2 to 12 Madden Grove. The price had been calculated on the basis that there would be 102 units ($400,000 x 102). Under its contract, MGD was not entitled to amend those Plans except to the extent that the parties agreed in writing, or to the extent necessary to accommodate an Intervening Event (as defined) and then only where the amendments did not substantially and detrimentally affect the Property (as defined).

438 MGD acted as if these obligations did not exist. It never made an Application (as defined). It amended the Plans, ignoring the express provision governing amendment, before the initial application to the Council was lodged. It thereafter repeatedly amended the Plans. It never sought or obtained the plaintiffs' agreement in writing. By 2004 the project had been utterly transformed. It was then a substantially different development to the one the plaintiffs had contracted for. This transformation had been effected by MGD's conduct in breach of its obligations.

439 Subject then to the effect of Condition 5 of Table A, my conclusion is that Civoken and SSFS's purported termination on misconceived grounds was justified by MGD's other breaches.

440 Civoken and SSFS also contend that MGD's conduct amounted to repudiation and that the contract was terminated by their acceptance, in the relevant sense, of that repudiation.

441 Repudiation is a serious matter, not to be lightly found or inferred,[20] particularly in the context of the sale of land.[21]

442 The issue is not subjective intention.[22] The issue has been articulated in various ways in different contexts. It seems to me that, in this context, the following passages from the judgment of Deane and Dawson, JJ in Laurinda[23] are apposite:

[202]

443 There is, of course, an important conceptual distinction between a person whose attitude to an obligation is that they will perform "as and when it suits" as opposed to someone whose attitude is that they will perform "only if and when it suits."[24] It is difficult to draw that distinction when, as is the position here, the allegedly repudiating party was never confronted with a demand to perform. Civoken and SSFS say, and I have accepted, that they were not aware of MGD's relevant breaches until their expert revealed them in the course of preparing for trial.

444 In all the circumstances my conclusion is that, viewed objectively, MGD's conduct, from its initial contravening application, through its various contravening amendments and the incomplete explanations given to the plaintiffs in relation to them, to its eventual amendment application to the approved plans which it submitted to Council knowing it did not have Civoken and SSFS's agreement which on this occasion it had sought, does convey that MGD was simply not prepared to take its relevant obligations seriously.

445 The plaintiffs were unaware of much of this when they purported to terminate. But they can now rely on repudiation, even though they wrongfully relied upon other grounds at the relevant time.[25]

446 Whilst reference is often made to the need to "accept" a repudiation, suggesting a requirement for some communication to that effect, all that the law requires is that the innocent party demonstrates that they treat the contract as at an end, declining to perform their part and declining to accept performance from the other party.[26] The plaintiffs have done so. They did so in August 2004 and have continually done so ever since.

Effect of Condition 5 of Table A (General Condition 9.1)

447 Civoken and SSFS have not complied with condition 5 of Table A. In so far as their claim is founded upon repudiation, the contractual notice provision is irrelevant.[27] MGD accepted this. It is only in the context of termination for breach that the non-compliance with condition 5 of Table A is relevant.

448 On its terms, condition 5 of Table A precludes the exercise of rights consequent on default unless the specified notice is given and the default is not remedied.

449 The plaintiffs had two answers to this position.

450 First, they submitted that special condition 18.7 expressly provides that the rights and remedies provided for in the contract are not exclusive of rights and remedies otherwise provided by law, and that to the extent of any inconsistency between special condition 18.7 and condition 5 of Table A (incorporated by general condition 9.1), special condition 18.7 has priority pursuant to general condition 10.

451 Secondly, they submitted that condition 5 applied only where the default in question was remediable, which they submitted was not the position here.

452 Condition 5 of Table A needs to be read with condition 6. Condition 6(2) provides:

[206]

458 Condition 5 does not provide for any right or remedy (in contrast to condition 6(2)), rather it restricts the exercise of rights and remedies provided by the contract and the law. It seems to me that condition 5 can and does operate without any relevant inconsistency with special condition 18.7. Special condition 18.7 preserves all rights and remedies provided by law, but condition 5 requires a notice before certain of them can be exercised.

459 Turning to the plaintiffs' second argument, a notice provision such as condition 5 of Table A, which is directed to giving the defaulting party an opportunity to remedy, cannot have any operation if the default is incapable of remedy. The most obvious example of such an irremediable default is breach of an obligation of non-disclosure of confidential information. Once disclosed, nothing can remedy the breach.[29]

460 Use of the expression "remedied" ordinarily means to "put matters right for the future" rather than to obviate or nullify the effect of a past breach.[30] Thus, breaches involving non-payment of money would very rarely be irremediable.[31]

461 MGD contends here that the relevant breaches were remediable. It says that if a notice had been given, MGD could have immediately lodged an Application (as defined) with the Council.

462 I do not accept MGD's contention. Lodging an Application (as defined) in 2004 would not have "put matters right for the future". The contract required that an Application (as defined) be made by MGD for the 102 unit development depicted on Mr Meldrum's March 2000 plans, with such amendments as were agreed in writing or which were necessary to accommodate an Intervening Event and which did not substantially and detrimentally affect the Property. The contract required that MGD exercise its best endeavours to procure a Planning Permit in respect of that Application. By the middle of 2004 MGD had pursued a different course for four years. It had submitted a different application, it had amended it otherwise than in accordance with the contract, and it had exerted itself to obtain a planning permit before the Council and VCAT on that different application as so amended. After obtaining a permit it then amended again; again in a manner not provided for by the contract, and so as to produce a proposal even further removed from the contractual plans. It then pursued a planning permit on that amended application.

463 To say that all of this could be put right for the future by lodging in August 2004 an Application as provided for by the contract and (presumably) telling the Council to ignore all that had happened over the prior four years does not reflect a realistic appraisal of the position.

464 The issue never arose in 2004 because Civoken and SSFS did not know then that the relevant breaches had occurred. The issue now is whether they are precluded from relying on these breaches to justify their purported termination in 2004 because they did not then give, and have never given, a notice under condition 5. My conclusion is that they are not so precluded because, in the words of Lord Reid in Wickman, it is a misuse of language to say such a breach could be remedied,[32] or, in the words of Lord Kilbrandon in that same case, what has occurred is a truly irremediable breach, the consequence of which is that the notice provision is a term incapable of being fulfilled.[33]

Conclusion on the contract claims

465 My conclusions on the issues of liability raised in the contract claims are:

[208]

Misleading and deceptive conduct

The alleged representations, ignoring the "disclaimers"

466 The plaintiffs allege that a series of misrepresentations were made by MGD and Primelife, which are contained in or are to be inferred from the property information report and the "proposed" contract of sale. They allege that these misrepresentations were misleading and deceptive in contravention of s.52 of the Trade Practices Act 1974 (Cth) and that Mr Sudholz aided, abetted, counselled or procured those contraventions.

467 As previously indicated, the defendants rely upon the disclaimer in the property information report, upon the terms of the offers made on 14 February 2000, and upon the terms of the contract of sale, in contesting these allegations. Before considering the effect of that disclaimer and those provisions, it is necessary to determine which of the alleged representations were made.

468 The representations allegedly made are set out in paragraph 20 of the fifth further amended statement of claim. I will deal with each alleged representation separately.

469 Madden Grove Developments was a wholly owned subsidiary of Primelife: 20(a)(i). A representation to this effect concerning the proposed vendor was expressly made in two places in the property information report. I have previously quoted each passage.

470 Primelife would maintain its 100 percent interest in Madden Grove Developments to ensure the successful implementation of the development as well as the successful operation of the business: 20(a)(ii). It is alleged that this representation was contained in or to be inferred from the express statements concerning the proposed vendor as a wholly owned subsidiary to which I have previously referred. The representation alleged was not expressly made. In my view it cannot be inferred either.

471 Apart from Primelife and its wholly owned subsidiaries, no other person or entity had any direct or indirect interest in the investment opportunity relating to the proposed development and the business: 20(b). Again, it is alleged that this representation was contained in or to be inferred from the passages in the property investment report concerning the proposed vendor to which I have referred. The representation alleged was not expressly made. In my view nothing further can be inferred in relation to this issue than what was expressly stated concerning the proposed vendor, which I have previously quoted.

472 The Kew property was worth $7.5m: 20 (c). It is alleged that this representation was contained in or to be inferred from the property information report and special condition 9.1 of "the proposed sale agreement". Paragraph 5.2 of the property information report is particularly relied upon. Relevantly, paragraph 5.2 states that the contract "will apportion the purchase price between the land and other assets to appropriately reflect the values and assist in the calculation of stamp duty . . ." There is no "proposed contract of sale" in evidence. Special condition 9.1 of the contract as executed provides:

[210]

The passages relied upon do not in my view amount to the representation alleged.

473 Primelife would use its resources to bring about the removal of the restrictive covenant on Lot 7 and 8 of the Kew property . . . prior to the commencement of stage 2 of the development alternatively prior to December 2002: 20(d). All that the property information report relevantly represents is that MGD intended making an application to the council to remove the covenants (page 8). A representation in the terms alleged was not made.

474 Stage 1 of the works would commence on or by 1 June 2001: 20(e). It is alleged that this representation was contained in special condition 7.2 of "the proposed contract of sale". No proposed contract of sale is in evidence. Special condition 7.2 of the executed contract did contain a representation. The representation was that MGD, as the party responsible for construction, intended to commence stage 1 by 1 June 2001.

475 Stage 2 of the works would commence on or by 1 October 2003. The analysis of this alleged representation is the same as that concerning stage 1. The representation made was that MGD intended to commence construction of stage 2 by 1 October 2003.

476 All of the units would be occupied by June 2005, thereby enabling Civoken and Stones Sharp to derive income from resident licence fees in the amount $40,800,000: (20g). This representation is alleged to have been contained in or to be inferred from the property information report. The property information report contained a representation by Primelife that it expected the retirement units to be fully occupied by June 2005 (p.13), that the purchasers would receive all revenue from the first time sale of licences up to $40.8 million (p.12), that residents would pay a once only licence fee upon entrance to the village (p.15), that based on the standard of accommodation to be offered the proposed vendor "proposed" that the licence fee for a unit would average $400,000 (p.15), and that the development then proposed would contain 102 units thereby indicating total licence fees of $40,800,000 (p.1, 4, 5, 6, 9, 12, 13, 14). I do not accept that a representation was made in the terms alleged by the plaintiffs. Representations were made in the terms I have set out.

477 On the full occupation of the units, the business would generate a sustainable annual EBIT in excess of $2,661,700: 20(h). The plaintiffs allege that this representation was contained in the property information report. The property information report contained a statement that Primelife had advised the investment was expected to generate sustainable annual EBIT at full occupation in excess of $2,661,700 (p.6), a statement that the proposed vendor anticipated that the ongoing conduct of the facility would generate EBIT in excess of $2,665,000 per annum upon full occupation (p.16), and a statement that Primelife expected the retirement units would be fully occupied by June 2005 (p.13). I do not accept that a representation was made in the terms alleged by the plaintiffs. Representations were made in the terms I have set out.

478 Primelife would do any act or thing necessary or desirable to give full effect to the proposed sale agreement: 20(i). This representation is alleged to be contained in special condition 18.4 of "the proposed contract of sale". There is no such representation. Each of the parties to the executed contract, MGD, Civoken and SSFS, have undertaken a contractual obligation in the terms of special condition 18.4. In my view there is relevantly no representation at all. In any event, Primelife is not a party to the contract.

479 The retirement facility would comprise 102 retirement apartments: 20(j). The property information report makes this representation at a number of places.

480 In so far as representations were made with respect to future matters, the plaintiffs rely upon s.51A of the Trade Practices Act pursuant to which such a representation is taken to be misleading if the corporation does not have reasonable grounds for making the representation and the corporation is deemed not to have had reasonable grounds unless it adduces evidence to the contrary.

Effect of the disclaimer and other provisions

481 I have previously quoted passages from the disclaimer in the property information report. Relevantly, the effect of the disclaimer was to advise the reader of the following matters:

[217]

484 The defendants placed considerable emphasis in their submissions concerning the misleading and deceptive conduct claims on the disclaimer contained in the property information report and upon the other provisions to which I have referred.

485 The potential impact of disclaimers in this context has recently been considered by the High Court in Butcher & Anor v Lachlan Elder Realty Pty Limited.[34]

486 In Butcher the High Court considered a claim against a real estate agent in relation to a brochure which the agent had provided to prospective purchasers. The brochure included a survey diagram which showed the property's boundary at a particular location. That diagram was incorrect. The purchasers brought proceedings against both the vendor and the agent. The purchasers succeeded against the vendor, but failed against the agent. The High Court treatment of the issue substantially concerns the position in relation to the claim against the agent.

487 The High Court was divided. Gleeson, CJ, Hayne and Heydon, JJ in a joint judgment upheld the New South Wales Court of Appeal decision that the agent had not engaged in misleading and deceptive conduct. McHugh and Kirby, JJ dissented in separate judgments.

488 It seems to me that the various judgments do not differ on the principles to be applied.[35] The majority differ from McHugh and Kirby, JJ in the application of those principles to the particular case.

489 All of the judgments emphasise that it is important to consider the relevant conduct in its entirety, including the effect of disclaimers if any, so as to determine whether the conduct as a whole is misleading or deceptive or likely to be so.[36]

490 Further, all of the judgments proceed on the basis that conduct which amounts to no more than communicating or passing on representations made, or information provided, by another, without endorsing or adopting it, is not misleading conduct by the person acting for these purposes as the "conduit", because the information is incorrect or the representation is untrue.[37]

491 The circumstance where the person making the communication does not contravene the Act because they are acting as a "conduit" is, it seems to me, a different aspect of the same analysis which applies where a disclaimer is found to render conduct otherwise misleading not misleading. The issue is accurate characterisation of the conduct. If a person makes it clear that all they are doing is repeating what someone else has said, then the representation that person makes is not misleading unless in fact the other person did not say it. Similarly, a projection which is optimistic and based upon assumptions and estimates is not misleading if a disclaimer makes it clear that the projection is optimistic and is based upon assumptions and estimates.

492 As Kirby, J observed, in this area each case depends on its own facts.[38] In the particular facts of Butcher, the majority found that the provision of the diagram with the erroneous boundary was not misleading and deceptive conduct by the agent in the circumstances given the nature of the parties, the character of the transaction, and the contents of the brochure, including the disclaimers which the brochure contained. In substance, the majority found that the agent's conduct as a whole simply communicated to the purchasers that the diagram recorded what a particular surveyor had found, that the agents were not the surveyors, that they believed in the accuracy of the survey but could not guarantee its accuracy, and that the purchasers should make their own enquiries.[39]

493 McHugh, J dissented because he disagreed with the majority's analysis of the brochure and the facts. He found that there was an assertion of accuracy of the diagram by the agent. In this respect he was particularly influenced by the fact that the source of the diagram was unidentified.[40] McHugh, J found that the conduct of the agent at on-site meetings endorsed the diagram in the brochure.[41] He also referred to the fact that the brochure in question had been produced by the agent and that it contained no disclaimer of belief on the part of the agent.[42] McHugh, J found that the disclaimers in that case did not relevantly modify the conduct and that formal disclaimers would rarely have that effect.[43]

494 Similarly, Kirby, J rejected the suggestion that this was a case where the agent did no more than convey representations by others and found instead that the agent had affirmed the correctness of the brochure.[44] He also referred to the fact that the agent had produced the brochure.[45] Kirby, J was dismissive of the disclaimers, referring to what he described as their "tiny" size, their different typeface, and their presentation which he described as being calculated to create the impression that they were unimportant.[46] Kirby, J observed " ... to be effective, written disclaimers must be clear, detailed and prominent".[47]

495 The disclaimer here does relevantly qualify the projections by advising the reader of the matters I have previously set out.

496 The plaintiffs plead that all the alleged representations were unqualified and did not disclose any risk of non-fulfilment. I reject that.

497 The disclaimer also discloses the source of the information and the projections. It is Primelife.

498 I turn then to the provisions of the offers and the contract which are relied upon by the defendants.

499 Parties cannot contract out of liability under Part V of the Trade Practices Act: s.68. Further, if misleading conduct has induced the contract, that fact cannot be negated by the circumstance that there is a statement in the contract or elsewhere which is to the contrary.[48]

500 The provisions of the offers of 14 February 2000 alert the offeror to the fact that forecasts may not be achieved. It is difficult to imagine any prospective purchaser in a transaction of this kind who might have thought otherwise. In so far as the offers purport to negate reliance, whilst that might be relevant in assessing whether there was reliance in fact, the terms of the offers cannot be determinative of that issue.

501 Likewise, special condition 15.2(a) cannot be determinative on the reliance issue, for the reasons already given concerning the offers and because the critical commercial decisions had been made before then. In so far as it is suggested there was reliance upon anticipated amounts of licence fees, deferred management fees and service fees, subject to the qualification that those anticipated amounts are said to be "achievable in optimum market place conditions", the special condition suggests that it was expected and appropriate that the purchaser would have relied on the representations made as to those matters.

502 Special condition 15.2(b) cannot place the purchaser in a position as if it had made its own inquiries and investigations, and sought and obtained independent advice, if it did not do so. It does act as a warning against unqualified reliance, but that adds little in the circumstances here.

Contraventions of Section 52 Trade Practices Act

503 It is necessary to consider each of the representations which I have found were made separately in order to determine whether contraventions of s.52 have been established.

504 The prospective vendor was a wholly owned subsidiary of Primelife. The representation as to the prospective vendor contained in the property information report was misleading and deceptive. It was untrue and was known to be untrue. Save for the statements made as to the source of the information, in my view the disclaimer, and the other provisions, do not have any relevant qualifying effect upon this representation. In the context of all of the material and all of the conduct, it does not seem to me that the reader of the property information report was relevantly put on notice that this statement, not about the project but about who the proposed vendor was, was relevantly qualified or was presented as something not to be relied upon.

505 As to the other representations which I have found were made, four general points need to be made.

506 First, MGD and Primelife did not call Mr Sent, Mr Thompson, Mr Flood or Mr Clarke to give evidence. They led no evidence which was specifically directed towards establishing that those representations which were made with respect to future matters were made upon reasonable grounds. In that regard, they relied instead upon evidence which was primarily directed to other issues, and they focused their submissions upon lack of reliance rather than upon justification of what was represented.

507 Secondly, given the fact that MGD was not incorporated until 15 February 2000, given the representation that "MGD" was a wholly owned subsidiary, and given the terms of the property information report (particularly the statement that the source of the information was Primelife, the constant references to Primelife throughout the report, and the fact that the offers sought were said to be offers to Primelife) statements as to the state of mind of "MGD" must be interpreted as statements as to Primelife's state of mind.

508 Thirdly, the representations made concerning intention, expectation and anticipation were representations of a state of mind. Such representations can be, and often are, representations with respect to a future matter and thereby attract the operation of s.51A. It is conceivable that a representation could in a sense concern a future matter but, in the particular circumstances, be no more than a representation of a present state of mind, thereby not attracting s.51A. This issue was not raised before me. It has arisen in a number of cases.[49] Where this issue does arise the Court is required to identify the character of the representation so as to determine whether it is with respect to a future matter or with respect to a matter which is present or past.[50] It would be an unusual case where a representation as to state of mind concerning matters in the future would not attract s.51A, but I accept the possibility that it could occur.[51] All of the state of mind type representations which I have found were made here say more than merely what was the representor's present state of mind. They each involved an element of prediction and were directed towards supporting a conclusion that there were prospects that the matter which was the subject of the state of mind would occur. Accordingly, in this case, s.51A is applicable to the representations couched in terms of intention, expectation and anticipation which I have found were made.

509 Fourthly, I adopt the observations of Sheppard and Neaves, JJ in Cummings v Lewis,[52] quoted with approval in Moorna Constructions (NSW) Pty Ltd v Denmatu Pty Ltd,[53] concerning issues of evidence and proof when s.51A applies. Sheppard and Neaves, JJ said:

[224]

512 It seems to me that the evidence referred to, and the circumstances as a whole, do enable a conclusion to be drawn, which I do draw, that the relevant intention existed and that there were reasonable grounds for it.

513 If I had found that this representation was misleading in isolation, consideration would have had to be given to the effect of the MOU. The MOU provided for what was to occur, in substance, should the intentions expressed in special condition 7.2 not be realised.

514 Primelife expected the retirement units to be fully occupied by June 2005. This is a representation with respect to a future matter. Here, the evidence does not establish either the existence of the expectation or reasonable grounds for it. In the circumstances, given the provisions of s.51A, I must conclude that the representation was misleading.

515 The purchasers would receive all revenue from the first time sale of licences up to $40.8 million. Whilst this is also a statement with respect to a future matter, it is a statement which concerns the contractual entitlement of the purchasers. Under the contracts executed, the purchasers did have this entitlement. In so far as the statement is construed as a representation as to what the relevant contracts did, or would, provide for, in my view it was not misleading. In so far as it was otherwise a statement as to a future matter, in my view the evidence establishes that there were reasonable grounds for it.

516 Residents would pay a once only licence fee upon entrance to the village. This is a statement as to a future matter but, like the previous representation, it is a statement about what will be the legal arrangements. There were reasonable grounds for this statement. In my view this statement was not misleading or deceptive.

517 The proposed vendor proposed that the licence fees would average $400,000. This is also a statement with respect to a future matter. The total price of $40,800,000 was calculated by multiplying $400,000 by the number of units proposed at the time, being 102. The evidence does establish that there were reasonable grounds for this projection as the plaintiffs' officers themselves gave evidence that they assessed this projected licence fee to be reasonable. In the circumstances I conclude that this representation was not misleading or deceptive.

518 Primelife expected, and the proposed vendor anticipated, that upon full occupation the facility would generate EBIT in excess of $2,661,700, and $2,665,000, respectively. These are representations with respect to future matters. Here again, the evidence is simply not there to support a finding either that the expectation or anticipation existed or that there were reasonable grounds for them. In the circumstances I must conclude pursuant to s.51A that the representation was misleading.

519 The retirement facility would comprise 102 retirement apartments. This is a representation with respect to a future matter. The evidence of Mr Meldrum, and the circumstances as a whole, establish in my view that Primelife did intend the project to comprise 102 units. Mr Meldrum's evidence also establishes in my view that there were reasonable grounds for that representation. The representation is not misleading or deceptive merely because Primelife and MGD later pursued a different course.

Reliance

520 The misleading representations which I have found were made are a representation concerning who the prospective vendor was (a wholly owned subsidiary of Primelife) and representations about the future performance of the investment (full occupation by June 2005 and EBIT in excess of $2.6m).

521 The plaintiffs allege they were induced by the misleading conduct into entering into the contract of sale and the other agreements dated 28 June 2000. I have found that the commercial decision to commit to the project was made by the plaintiffs on 14 February 2000.

522 The principles which apply where it is alleged that misleading representations induced a particular course of conduct were set out by McHugh, J in Butcher.[54] He said the following principles apply:

[229]

526 Mr Cirulis in his witness statement also said that he closely examined the property information report and that he undertook a detailed analysis of it as a consequence of which "having discussed it with Barry Stones and Ken Sharp" a decision was made to invest. He referred to the offer to purchase on 14 February 2000 and said the property information report was "the only document that I had referred to and relied upon in making the decision together with Ken Sharp and Barry Stones that Stones Sharp should execute the Offer to Purchase".

527 It is noteworthy in this context that Mr Cirulis's witness statement was drafted in very similar language to that of Mr Sharp. Certain relevant portions of it were substantially identical.

528 Mr Cirulis in his cross-examination gave an account of an intensive review of the property information report on the Saturday prior to Monday 14 February 2000. His account of this Saturday review was not reflected in those terms in the evidence of Mr Sharp, and was not described in those terms in his witness statement.

529 I also cannot accept Mr Cirulis's evidence on this issue. The account which he gave is in my view not consistent with the overall timing or with the letters in Exhibit D2. Mr Cirulis has no record of receipt or of his analysis, like Mr Sharp. Mr Cirulis omitted from his evidence in chief reference to the role played by Mr Sandground and to the fee charged to Mr Sandground's company. Mr Cirulis's credit was undermined by these matters.

530 Mr George is the only one of the four officers of the plaintiffs who did not, directly or indirectly, invest in the venture himself. His company was paid substantial commissions as a result of his introductory work.

531 In his witness statement Mr George said he reviewed the report in detail and he set out what he said were the critical parts, being chapters 1, 2, 5, 6, 8 and 10.

532 In his cross-examination Mr George seemed to me to be unable to differentiate between the discussions he had concerning, and the consideration he gave to, prior drafts of the report (which are not relied upon and are not in evidence), the consideration which he gave to the report which is the sole basis of the plaintiffs' relevant claims, and any analysis which he carried out after 14 February 2000. He seemed to me to have no reliable recollection of when he received the property information report. He has no record of receipt or of his analysis. In my view his evidence did not establish any relevant reliance by him on the representations concerning the future performance of the proposed retirement village in the property information report. Mr George's credit was significantly undermined by his evidence concerning the documents provided to counsel in June 2000 and his evidence concerning the MOU.

533 Mr Penzo in his witness statement said that he reviewed the property information report in detail. His witness statement in this respect was virtually identical to that of Mr George save that the critical parts of the report which he identified were chapters 2, 5, 6 and 14. It seemed to me that the recollection he purported to have of receipt of the property information report was founded upon his asserted belief that he had based his decision to invest upon that report. Mr Penzo's firm, De Luca Partners, took up a small investment in the Civoken syndicate. That investment was considerably less than the sum De Luca Partners earned as commission. I cannot accept his evidence that he relied on the representations concerning the future performance of the proposed retirement village in the property investment report. Like all the others, he has no record of either the receipt of the report or of any analysis he conducted on the property information report. Mr Penzo's credit was undermined by his evidence concerning the MOU.

534 My conclusion is that the plaintiffs have failed to establish that they relied on representations concerning the future performance of the proposed retirement village in making the decisions which they made on 14 February 2000 to make the offers that were accepted that day. These aspects of the plaintiffs' misleading and deceptive conduct claims fail on that ground.

535 I do not consider that the terms of the offers made on 14 February are significant in this context. The "agreement" that a representation as to the future events is a forecast which may not be achieved, is an agreement to a proposition which was, in the context, obvious anyway. The formulaic "agreement" negating reliance would not have altered my conclusion if the plaintiffs had established that they had in fact relied on the representations as to the future performance which I have found were made and were misleading.

536 Special condition 15.2(a) would have fortified a conclusion that there had been reliance on the representations as to future performance, if I had been able to reach it on the evidence. Special condition 15.2(b) would not have altered a conclusion that there had been reliance on the representations as to future performance if I had been able to accept the plaintiffs' evidence in that respect.

537 I turn then to the representation concerning the proposed vendor.

538 Neither Mr Cirulis nor Mr Sharp made specific reference to this representation in their witness statements, although those witness statements stated that they relied upon all of the matters set out in the property information report.

539 In his cross-examination Mr Sharp was asked when he found out about Mr Sudholz's role. He said that he did not remember. He then agreed with the proposition that he had made no complaint about it to anyone when he did find out, and the following interchange then occurred:

[239]

543 On this issue I found the evidence of Mr Sharp and Mr Cirulis to be more reliable than other aspects of their evidence. Their responses to the questions put to them on this matter seemed to me to be credible. I have referred to reasons why I am unable to accept their evidence on other issues. There are two reasons why I can accept them on this issue. First, it seems to me to be improbable that persons in their position considering this transaction would have been indifferent to the issue of whether the other contracting party was a wholly owned subsidiary of Primelife or not. Secondly, their evidence on this issue appeared to me to be given in a frank and open manner.

544 I am satisfied that Mr Sharp and Mr Cirulis did think that they were dealing with the publicly listed company, Primelife, and with no one else. At the time when they say they discovered the truth, as a practical matter there was little or nothing they could do about it. It seems to me on the balance of probabilities that that time was the meeting in November 2002. The fact that the investment was presented as a dealing with Primelife and its wholly owned subsidiaries was a matter calculated to give persons in the position of Mr Sharp and Mr Cirulis confidence. I accept that it did do so in at least Mr Cirulis's case.

545 Turning to Civoken, it may be significant that Mr Penzo did not include chapters 1 and 10 in his list of chapters of the property information report which he considered to be significant. It is in those chapters that the statements as to the prospective vendor which I have previously quoted appear. Mr George did include those chapters in his list. The issue was not explored with Mr Penzo.

546 Of greater significance in this context is the executive summary which Mr George prepared. It was put to Mr George in cross-examination that the executive summary did not refer to the representation concerning the prospective vendor being a wholly owned subsidiary, the suggestion being that that was not seen by him to be a matter of importance. In my view the contents of the executive summary suggest the opposite conclusion. The executive summary was written, it seems to me, by a person who believed he was dealing with "Primelife" or "Primelife Corporation Limited" and no one else. There is no reference to any other entity in the relevant context.

547 In cross-examination it was put to Mr George that he had made no complaint at the meeting of November 2002 about Mr Sudholz's role and he agreed. The following interchange then occurred:[61]

[243]

552 On this issue I accept the evidence of Mr George and Mr Penzo. I do so notwithstanding my inability to accept their evidence on other issues, for the same two reasons as I gave in relation to Mr Sharp and Mr Cirulis. They appeared to me to be frank and open on this issue, and the inherent probabilities in my view support their account.

553 The plaintiffs made offers on 14 February. I am not persuaded on the balance of probabilities that they relied on the final version of the property information report (being the only document on which they rely in relation to this representation) on that day for the reasons given in relation to the representations concerning future performance.

554 The plaintiffs plead that all of the representations in issue were continuing representations and they allege that they were induced by them to execute the contract of sale dated 28 June 2000, and certain of the other agreements.

555 Whilst I am not persuaded the plaintiffs relied on the property information report on 14 February, it is clear that prior to execution of the contract of sale dated 28 June 2000, they used it to market the proposition to their clients and others.

556 The representations which I have found were made were of a continuing character. In my view that is not significant in relation to the representations about future performance of the investment. The plaintiffs made their commercial assessment and their commercial decision on or before 14 February. Whilst I have found that some of the representations about future performance were misleading (because of the application of s.51A) the plaintiffs have not established reliance, either on 14 February, or, in so far as the representations about projected performance were continuing, thereafter. They had committed themselves, and had commitments from clients, by 14 February. The evidence does not establish that the plaintiffs were induced to conduct themselves in a particular way by the representations about future performance either on 14 February or between then and execution of the formal contracts.

557 It seems to me that the representation that the vendor was a wholly owned subsidiary is different. This representation was also a continuing one. My conclusion is that the plaintiffs were induced to conduct themselves in a particular way by that continuing misrepresentation. What they were induced to do was to accept MGD as the contracting party, and as the sole contracting party, under the contract of sale. The offers they made on 14 February had provided that they agreed to be bound by formal contracts, but only if those contracts were in "accord" with the property information report. The formal contract of sale was not in accord with the property information report because the vendor was not a wholly owned subsidiary of Primelife.

558 The plaintiffs' witnesses did not say that if told the truth they would have refused to go ahead at all. I think that such a refusal would have been unlikely. If they had been told the truth, my conclusion is that, in the words of Mr Penzo, there would have been some reaction and the plaintiffs would have sought a "different format". Some of the plaintiffs' officers may have been more concerned than others. As a group they would have reacted. They may have sought a different vendor who was wholly owned, and insisted Mr Sudholz's interest be dealt with by Primelife in some other way. They may have sought guarantees or warranties from Primelife. They may have sought some other "different format". As a result of being misled they were deprived of that opportunity. The quantification of the loss suffered as a result of their being deprived of that opportunity will have to be determined in a subsequent hearing.

Who is the contravening representor?

559 The property information report was published under the insignia of Primelife and Arthur Andersen. Primelife was the source of the information in it. The document sought offers directed to Primelife. Primelife made all the misleading representations I have found were made.

560 As at 14 February 2000, the representor was Primelife alone. MGD was not incorporated on 14 February 2000. Arthur Andersen had made it clear in the disclaimer that they were not the source of the representations and were "passing on" representations made by Primelife without their endorsement. They did not assert the representations were accurate. They identified the source. They disclaimed responsibility. The disclaimer was at the front of the document and was presented in the same way as the rest of the document.

561 The representations made were continuing. The plaintiffs submitted MGD must be taken to have adopted the representations after its incorporation on 15 February and I think that is correct.

Aiding and Abetting by Sudholz

562 In the claim against Mr Sudholz the plaintiffs cannot rely on s.51A.[67] To establish liability, it is necessary for the plaintiffs to establish in relation to the contraventions of s.52 of the Trade Practices Act that Mr Sudholz knew:

[248]

Sale of Land Act

566 Pursuant to s.32(1) of the Sale of Land Act 1962 (Vic) every vendor under a contract of sale of land must give to the purchaser before he signs the contract a statement "signed by the vendor", and must include in the contract a statement containing the matters specified in s.32(2).

567 Amongst the matters specified in s.32(2) is the information set out in Schedule 2 which must be given where the contract is a terms contract.

568 A "terms contract" is relevantly defined in s.32(2) as an executory contract under which the purchaser is "obliged to make two or more payments to the vendor after the execution of the contract and before he is entitled to a conveyance or transfer of the land". Section 2(4) declares that for the purpose of determining whether a contract is a terms contract, payments made in relation to the contract on or before the execution of the contract or upon the making of which the purchaser becomes entitled to a transfer are not payments required to be made to the vendor after execution or before the purchaser is entitled to a transfer of the land.

569 Section 32(5) of the Sale of Land Act provides that where a vendor supplies false information or fails to supply all of the information required the purchaser may rescind.

570 In the first defendant's fifth amended defence and counterclaim it is alleged that the wrongful service of the rescission notice constituted repudiation (paragraph 44). In their second further amended reply and defence to counterclaim the plaintiffs allege that they were entitled to rescind, amongst other grounds, because of non-compliance with s.32 of the Sale of Land Act (paragraph 23). Notwithstanding that the issue was only pleaded in their reply, the plaintiffs sought to support their claim on this ground. Counsel for MGD did not seek to rely on this pleading deficiency.[69]

571 The plaintiffs say they were entitled to rescind under s.32(5) because the purported s.32 statement to which I have referred was not given by the vendor to the purchaser and was not signed by the vendor. They say it was given and signed by Nationwide.

572 Counsel for MGD submitted that the s.32 statement was given and signed by the vendor, MGD, even though it had the "wrong" ACN on it. In this respect counsel for MGD referred to the fact that the vendor is named as "Madden Grove Developments Pty Ltd" and that the only company of that name as at the date of the statement (16 March 2000) was the first defendant MGD; and to the fact that the statement was signed by Mr Sent, who was a director of MGD and not a director of Nationwide.

573 On the issue of who signed and gave the s.32 statement in March 2000, the plaintiffs referred to the fact that the ACN given is Nationwide's and to the fact that the statutory declaration concerning the nomination appears to nominate Nationwide. The plaintiffs submitted that there was no proper basis upon which to find that the signature on the statement was that of Mr Sent. I have already addressed the latter submission. I have concluded it is Mr Sent's signature.

574 MGD's incorporation under the name "Madden Grove Developments Pty Ltd" with Mr Sent and Mr Sudholz as directors and with Primelife and the Sudholz interest as shareholders as to 50 percent each on 15 February 2000, combined with Nationwide's change of name on 13 February 2000 (according to the ASIC historical extract, pursuant to a Notice of Resolution Changing Name received by ASIC on 14 February 2000), suggest that the proposed vendor was MGD from 15 February 2000 and that the use of Nationwide's ACN after that date in relation to the prospective vendor was a typographical error.

575 The reappearance of Nationwide's ACN on documents apparently created after 15 February 2000 is troubling, as is its appearance on the undated nomination.

576 Despite these troubling aspects of the matter, on the balance of probabilities, I conclude that the s.32 statement dated 16 March 2000 was signed by MGD and given to the purchasers by it. I reach this conclusion because of the circumstances referable to MGD's incorporation and Nationwide's change of name as referred to above and because Mr Sent, who signed the statement, was a director of MGD and was not a director of Nationwide. It seems to me to be more likely that the error is that Nationwide's ACN was put on the s.32 statement rather than that it was erroneously signed by Mr Sent who was not a director of Nationwide.

577 I now turn to the argument based on the proposition that the contract of sale is a "terms contract". The plaintiffs contend the contract obliges the purchaser to make two or more payments after execution and before being entitled to a transfer.

578 The contract of sale provides for a total price of $40,800,000. Of that sum $10,200,000 is described as the deposit and $30,600,000 is described as the residue. The deposit is said to be "payable on or before the day of 2000 of which the sum of $204,000 has been paid". As a matter of fact, the sum of $204,000 had not been paid, but that payment does not relevantly count in any event by virtue of s.2(4).

579 The plaintiffs submitted that the contract of sale did not provide for payment of the deposit on or prior to execution, and that most of the deposit was in fact paid after execution. They submitted the purchasers were "clearly obliged to pay the deposit after the execution". MGD submitted that reference could be had to the property information report which indicated in two places (page 5 and page 11) that the deposit would be payable at the time of signing of the contract.

580 I have already set out what in fact occurred in relation to payment of the deposit. Almost all of it was paid after 28 June 2000; some of it was paid well after 28 June 2000. My conclusion is that the contractual provision was deliberately left blank because it was known that the deposit would not be paid on the day the contract was signed. Thus, the parties determined not to fix any time for payment of the deposit. Where a contract does not expressly or by necessary implication fix any time for performance the law implies that it shall be a reasonable time.[70] Accordingly, the purchasers were obliged to pay the deposit within a reasonable time after execution of the contract. It is the first such payment. It is not excluded by s.2(4).

581 The residue of $30,600,000 is payable pursuant to special condition 11. Pursuant to special condition 14 the purchaser is not entitled to a transfer until the residue has been paid in full.

582 The final residue payment is the sum of $9,980,000 which is payable pursuant to special condition 11.2. The plaintiffs submitted that on the proper construction of special condition 11.2 it provided for two payments. I do not accept that. Provision is made in relation to the sources of the final payment, but in my view that provision does not transform that payment into two payments. As the purchasers are entitled to a transfer on making the payment under special condition 11.2 that payment does not count by virtue of s.2(4).

583 There is a prior payment which the purchasers are required to make before the entitlement to a transfer arises, however.

584 Pursuant to special condition 11.1 the purchasers are required to pay the sum of $20,620,000, being part of the residue, 30 days after practical completion of stage 1 or 14 days after notification of a specified level of pre-sales, whichever is the later. Again, the plaintiffs contended that on the proper construction of special condition 11.1 it provided for more than one payment. I reject that construction for the same reason as I rejected the plaintiffs' construction of special condition 11.2. Special condition 11.1 does require one payment, however. It is a payment which the purchasers are obliged to make after execution and before they are entitled to a transfer. It is the second payment of that character which is provided for in the contract. As a consequence the contract is a terms contract as defined in the Sale of Land Act.

585 As the contract is a terms contract, s.32 required that the vendor's statement include the information set out in schedule 2. The vendor's statement here did not do so. There was accordingly a failure to supply all the information required.

586 The purchasers were entitled to rescind pursuant to s.32(5), but this entitlement is subject to a statutory qualification upon which MGD relies.

587 Pursuant to s.32(7) of the Sale of Land Act the purchaser is not entitled to rescind "if the court is satisfied that the vendor has acted honestly and reasonably and ought fairly to be excused for the contravention and that the purchaser is in substantially as good a position as if all the relevant provisions of this section had been complied with."

588 In Fifty-Eighth Highwire Pty Ltd v Cohen & Anor[71] the Court of Appeal held that s.32(7) will avail a vendor if, but only if, the court is satisfied of four things. First, that the vendor has acted honestly. Secondly, that the vendor has acted reasonably. Thirdly, that the vendor ought fairly to be excused for the contravention. Fourthly, that the purchaser is substantially in as good a position as if all the relevant provisions of s.32 had been complied with. The Court must be affirmatively satisfied of each of these four elements.

589 I am satisfied that the purchasers here are in substantially as good a position as if all the relevant provisions of s.32 had been complied with. I am not satisfied that the vendor has acted honestly. I am not satisfied that the vendor has acted reasonably. I am not satisfied that the vendor ought fairly to be excused for the contravention. The vendor has contravened s.32 as a result of a decision made to leave the date for payment of the deposit blank. I do not find that MGD acted dishonestly, or unreasonably. My finding is that I am not affirmatively satisfied that it acted honestly, reasonably, and ought fairly to be excused. It is most unlikely that any court could feel affirmatively satisfied of those matters without hearing from Mr Sent and Ms Porter. MGD has failed to call evidence which satisfies the requirements of s.32(7).

590 I adopt the observations made obiter by Brooking, JA, in Fifty-Eighth Highwire, which received the qualified support of Charles and Callaway, JJA, that s.32(5) does not import a requirement that the relevant failure induced entry into the contract.[72]

591 If I am wrong in my conclusion that MGD did sign and give the purchasers a s.32 statement, then that failure also entitled the purchasers to rescind pursuant to s.32(5), subject to the potential application of s.32(7).[73] If a contravention had been established in that respect I would not have found that MGD was entitled to relief under s.32(7). Assuming non-compliance by a failure to give a signed s.32 statement at all, I am satisfied that the purchasers are in substantially as good a position as they would have been if s.32 had been complied with. I am not satisfied on the evidence that the vendor acted honestly. I am not satisfied the vendor acted reasonably. I am not satisfied the vendor fairly ought to be excused for the contravention. The change from MGD to Nationwide is substantially unexplained. Again, it is most unlikely that any court could conclude the requirements of s.32(7) were satisfied without hearing from Mr Sent and Ms Porter.

Other Issues

Managed Investment Scheme

592 The plaintiffs plead that the investment proposed in the property information report constituted a managed investment scheme within the meaning of s.9 of the Corporations Law (Vic). They also allege that the representations which they allege contravened s.52 of the Trade Practices Act, also contravened s.995 and s.999 of the Corporations Law.

593 Included amongst the documents in the Court Book (but not eventually tendered in evidence) were copies of Court documents in two Federal Court proceedings in which the Australian Securities and Investments Commission alleges against the plaintiffs and the defendants in this proceeding, other than Mr Sudholz, and against other entities that the Madden Grove arrangements constituted an unregistered managed investment scheme. The plaintiffs' counsel told me that ASIC was aware of this proceeding, but as a result of concerns which I nevertheless raised, the plaintiffs communicated with ASIC and during the course of the trial a representative of ASIC attended the hearing. That representative indicated that ASIC was aware of the allegations made in this proceeding and did not wish to be heard. I was at one stage told that undertakings had been given in the Federal Court proceedings which concerned this proceeding, but I am not aware of the content of those undertakings.

594 In the course of final submissions I asked senior counsel for the plaintiffs what the claims under ss.995 and 999 of the Corporations Law added to the claims under s.52 of the Trade Practices Act. Senior counsel's response included the following observations:[74]

[250]

595 Counsel for the first and second defendants submitted that it was unnecessary to decide the issues under ss.995 and 999 of the Corporations Law as those claims would necessarily succeed or fail as a result of the conclusions reached in relation to the s.52 claims and, if they succeeded, the relief would be the same.

596 In my view it is neither necessary nor desirable for me to deal with these claims. It is not necessary because the claims add nothing to the claims made under s.52 of the Trade Practices Act. It is undesirable because there is a risk of inconsistent findings and because there are parties to the Federal Court proceedings who are not parties to these proceedings. The explanation senior counsel for the plaintiffs gave as to why I ought to determine the issues raised in this context appeared to be that that would or might assist the plaintiffs in defending the Federal Court proceedings. That seems to me to be an inappropriate course to follow.

Breach of Fiduciary Duty

597 The plaintiffs plead that each of MGD, Primelife, and Mr Sudholz owed them a "fiduciary duty of disclosure". Whilst the pleading is not entirely clear in this respect, the breach of that duty, which the plaintiffs allege, seems to me to be the failure to reveal Mr Sudholz's involvement in MGD. The untruth the plaintiffs were told in relation to that matter has already been dealt with in the context of the s.52 claims. MGD and Primelife proffered no real explanation for the untruth. Mr Sudholz proffered explanations which I have rejected.

598 In their final submissions the plaintiffs contended for the existence of a fiduciary duty on the basis that Primelife, MGD and Mr Sudholz were promoters of an investment opportunity with a consequent obligation of candour or a duty to "lay bare the essentials" of the proposal. In this context they relied upon Directors of Central Railway Company of Venezuela v Kisch[75] and Hill v Rose.[76] In this analysis the plaintiffs cast themselves in the role of "investors". In my view the plaintiffs are miscast in that role. They are more akin to promoters themselves than they are to investors. In my view the position is to be analysed, not by reference to principles applicable to dealings between promoters and investors but by reference to the principles applicable to dealings between commercial parties acting in their own interests, as laid down in Hospital Products Limited v United States Surgical Corporation.[77]

599 I do not consider that the plaintiffs have established a fiduciary relationship between themselves on the one hand and the defendants on the other, or any of them. The relevant officers of the plaintiffs are sophisticated commercial men. Both plaintiffs had solicitors acting for them in the transactions. In my view there is no sense in which the defendants, or any of them, undertook to act in the interests of the plaintiffs.[78] The arrangements between the parties were purely commercial and it seems to me that they were undertaken on an equal footing.[79] There was nothing inherent in the relationship between the parties whereby the plaintiffs were in a position of disadvantage or vulnerability in the relevant sense.[80]

Counterclaims

600 It necessarily follows from the findings I have made and the conclusions I have reached that MGD's counterclaims, and the various counterclaims of Primelife and Mr Sudholz, save for one, are dismissed.

601 The counterclaim of Primelife and Mr Sudholz which is not dismissed is a claim made arising out of the dispute concerning the issue of whether the deposit was paid in full or not.

602 Prompted by MGD's pleading that $1,243,125 of the deposit (being $621,562.50 × 2) was unpaid, SSFS, by notices dated 12 November 2004 to each of Primelife and Mr Sudholz purported to act under deemed transfer provisions of the SSFS joint venture agreement so as to transfer their respective "joint venture shares" for the sum of $1. This course was taken on the assumption that there had been a failure by each of them to pay the $621,562.50 required. The plaintiffs counsel accepted that if I found that the deposit had been paid in full, as I have, then Mr Sudholz and Primelife were entitled to declarations, which each of them seek in different terms in their respective counterclaims, to the effect that the notices of 12 November 2004 were void and of no effect.

603 In due course I will make declarations to that effect. I will hear the parties on the appropriate form of those declarations and upon any consequential orders which are required.

Contribution Claims

604 Mr Sudholz made a claim for contribution against Primelife. In final submissions counsel for Mr Sudholz made it clear that contribution was only sought if Mr Sudholz was found liable as a consequence of breach of the alleged fiduciary duty of disclosure. As I have not found Mr Suzholz liable on that basis the claim for contribution does not arise.

Conclusions

605 The plaintiffs have succeeded in establishing liability on certain of their contract claims. They have established breaches of the contract of sale in that MGD failed to lodge the Application (as defined) and failed to exercise its best endeavours to procure a grant of the Planning Permit (as defined) because the permit it was pursuing was not what the contract provided for. They have established that their purported termination of the contract of sale in August 2004 was effective, but not on the grounds then given. I have found that the conduct in breach which they have established amounted to repudiation, and, in any event amounted to breaches of intermediate terms sufficiently serious to justify termination. The plaintiffs' failure to give notice under condition 5 of Table A did not preclude their entitlement to terminate as the relevant conduct was repudiatory and as the breaches were, in the relevant sense, irremediable.

606 The plaintiffs have not established liability on the claims they have made that there were contraventions of s.52 of the Trade Practices Act 1974 (Cth), save for one such claim. Their claims have failed because some of the representations they allege were not made, because some which were made were not misleading, and because they have failed to establish reliance upon those which were misleading.

607 The misleading conduct claim upon which the plaintiffs have established liability is the claim based on the representation that the prospective vendor of the land was a wholly owned subsidiary of Primelife. This misleading conduct induced the plaintiffs to accept MGD as the sole contracting party without complaint. It deprived the plaintiffs of the opportunity to insist that the contract of sale accord with the property information report in this respect or to seek some other "different format" in response to the true position. Mr Sudholz is also liable for this contravention on the basis that he aided and abetted the contravention.

608 The plaintiffs have also established that the contract of sale was a terms contract within the meaning of the Sale of Land Act 1962 (Vic) and that they were entitled to rescind pursuant to s.32(5) of that Act. The evidence does not establish the disentitling requirements of s.32(7).

609 I have not decided the claims based upon the allegation that the investment was a managed investment scheme within the meaning of s.9 of the Corporations Law (Vic). It is unnecessary to decide those claims as they add nothing to the claims under s.52 of the Trade Practices Act. It is undesirable to do so as they raise issues which are also the subject of proceedings in the Federal Court to which entities not before me are parties.

610 The plaintiffs' claims based upon breach of fiduciary duty fail as I have found no such duty arose.

611 The various counterclaims fail, save for the counterclaims seeking declarations concerning SSFS's notices dated 12 November 2004. I have found that the deposit provided for by the contract of sale was paid in full. Primelife and Mr Sudholz are entitled to declarations to the effect that the notices of 12 November 2004 are of no effect.

612 Given other findings Mr Sudholz's contribution claim does not arise.

613 I will hear the parties on the further disposition of the proceeding consequent upon these findings on the issues of liability.

Plaintiffs v Defendants

At a glance

Court

Decision date

Before

Source

Judgment (251 paragraphs)

Parties

Legislation Cited (1)

Cases Cited (15)