PAPADOPOULOS & ANOR. V. HRISTOFORIDIS [2001] NSWCA 368

New South Wales Court of Appeal

CITATION : PAPADOPOULOS & ANOR. V. HRISTOFORIDIS [2001] NSWCA 368 FILE NUMBER(S) : CA 40827/99 HEARING DATE(S) : 12 October 2001 JUDGMENT DATE : 12 October 2001

Sofia Papadopoulos - 1st appellant PARTIES : Dimitrios Tsesmetzis - 2nd appellant John Hristoforidis - respondent JUDGMENT OF : Spigelman CJ at 1, 39, 41; Sheller JA at 40; Hodgson JA at 2-38

LOWER COURT JURISDICTION : Supreme Court LOWER COURT SC 20951/95 FILE NUMBER(S) : LOWER COURT Wood CJ at CL JUDICIAL OFFICER :

COUNSEL : Mr. J. Berwick for appellants Mr. J. Stevenson for respondent SOLICITORS : Chrichton-Browne Crossley, East Sydney for appellants Phillips Fox, Sydney for respondent CATCHWORDS : EQUITY - Fiduciary obligations - Breach of fiduciary duty - Onus of proof. ND. DECISION : Appeal dismissed with costs

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL

CA 40827/99 SC 20951/95 SPIGELMAN CJ SHELLER JA HODGSON JA

Friday 12th October 2001 PAPADOPOULOS & ANOR. V. HRISTOFORIDIS

Judgment 1 SPIGELMAN CJ: I invite Hodgson JA to deliver the first judgment. 2 HODGSON JA: On 8 November 1999 Wood CJ at CL gave a verdict for the respondent, John Hristoforidis, in respect of a claim brought against him by the appellants, Sofia Papadopoulos and Dimitrios Tsesmetzis, for alleged negligent misstatements and breaches of fiduciary duty in relation to the development of a property at Wollongong. The appellants have appealed to this Court against that decision. 3 I begin by outlining the circumstances. For convenience, where it is necessary to do, so I will refer to the names of parties by their forenames. 4 On 23 March 1989 the appellants, Sofia and Dimitrios, who are brother and sister, contracted to purchase adjoining properties, 72 to 77 Corrimal Street, Wollongong, for $335,000. On 7 June 1989 a development approval was obtained for construction of ten home units on that site. On 21 July 1989 the purchase was completed. Sofia contributed $155,000 of the price, and the balance of $185,000 was provided by Mercantile Credits Limited on security of a mortgage. 5 It appears that the appellants had difficulties securing finance for the development, and in about September 1989 they approached the respondent, John, to join with them in the project. There were a number of meetings at which the project was discussed. 6 On 14 November 1989 the parties signed a letter of agreement on the letterhead of BCE Constructions Pty Limited, which I will call BCE, a building company owned and controlled by the respondent. The body of the letter contained the following: Below is a list of conditions and guidelines on which the construction of the above project shall be based. · B.C.E. Constructions Pty. Ltd. shall construct the project, as builders, at the rate of $50-00 per hour (minimum 40 hour week) plus 7½ % of cost of construction (of course not including land cost or interest on loan) paid weekly. · All units must be sold as soon as possible and loan repaid as a priority. · Any monies spent shall be accounted for, that is, all books, invoices and other paperwork shall be available at any time to the Partnership. · In the event of my death my wife shall take centre of all my affairs. In the event of Sophie's death Tony shall take control of her affairs. In the event of Jim's death his wife shall take control of his affairs. 7 The person "Jim" referred to in that document is Dimitrios. 8 On 28 November 1989 some valuers, Burgess & Jaye, provided a valuation for an impending mortgage to be given to Mercantile Credits Limited under instructions from J. Christo, that is the respondent. In the valuation, construction costs were estimated at $1.401 million, and there was an estimate of a further $45,000 for non construction costs. The total sales value of the units to be constructed was projected as $2 million. 9 An application for building approval was lodged on 30 November 1989 with Wollongong City Council, and building approval was granted on 13 February 1990. 10 On 23 April 1990 a shelf company, Emery Park Pty Limited, which I will call Emery Park, was acquired and the appellants and the respondent became shareholders and directors of it. On 18 May 1990 Emery Park entered into a contract to purchase the properties from the appellants for $340,000, and on 25 May 1990 Emery Park entered into an agreement with BCE whereby BCE agreed to construct the units for $1.45 million. 11 During the months of May to July 1990 there were various transactions and agreements, whereby capital contributed by each party was determined. Insofar as further payments were required, such payments were made to Emery Park. 12 On 31 July 1990 the sale of the properties from the appellants to Emery Park was completed, and on 1 August 1990 Emery Park executed a mortgage of the properties in favour of Mercantile Credits Limited securing an advance of $1.63 million. $180,000 of that was to pay out the existing mortgage, leaving $1.45 million available for the building work. 13 By about July 1991 construction of the units was completed. The cost of the construction, as calculated by an accountant called by the respondent, was given as about $1.58 million. Sales of the units achieved a gross return of just over $2 million. 14 It appears that by October 1991 Emery Park was insolvent. The respondent filed a summons in the Equity Division of this Court for an order that Emery Park be wound up. Receivers and managers were appointed on 30 October 1991, and a winding up order was made on 26 October 1992. 15 The outcome was that there was no return to the partners on account of their capital contributions, and the appellants lost the land and the moneys that they had contributed to the project. However, the respondent, through BCE, received about $233,347 in respect of building works that BCE carried out, including about $110,000 calculated at 7.5 per cent of the building costs, in accordance with the letter of agreement signed on 14 November 1989. 16 The appellants' claim, as formulated in the statement of claim in these proceedings, had the following elements. The appellants alleged that the respondent represented to the appellants prior to entry into the venture, among other things, that he could build the ten units for $1.24 million; that he could sell them for $2.4 million; and that he guaranteed that each party would make a profit of $150,000. The appellants alleged that the respondent thereby induced the appellants to enter into the venture. The appellants alleged that the respondent had a fiduciary duty to the appellants, and that he breached that duty in the following respects: (ii) Failing to disclose to the joint venture partners that building costs would exceed $1,240,000.00.