New South Wales Supreme Court CITATION : Ollis v Melissari [2005] NSWSC 1064 HEARING DATE(S) : 4/10/05-6/10/05 JUDGMENT DATE : 1 November 2005 JURISDICTION : Equity JUDGMENT OF : Campbell J DECISION : Contract not validly terminated. Parties to bring in Short Minutes of Order CATCHWORDS : CONVEYANCING - termination of contract - whether contract for sale of land validly terminated - no question of principle Victor Warren Ollis - Plaintiff PARTIES : Mary Melissari - First Defendant Colin Coveny - Second Defendant FILE NUMBER(S) : SC 1376/05 M.G. McHugh - Plaintiff COUNSEL : M Lawson - Second Defendant Hussein Karimjee - Plaintiff SOLICITORS : Hancocks Solicitors - Second Defendant LOWER COURT JURISDICTION : IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION EQUITY LIST CAMPBELL J 1 NOVEMBER 2005 1376/05 VICTOR WARREN OLLIS v MARY C MELISSARI & ANOR JUDGMENT 1 HIS HONOUR: The outcome of this case turns upon whether the plaintiff has successfully terminated a contract for the sale of land to the second defendant. 2 The plaintiff is a property developer. He has been involved in developing rural land for about four years. Before the events which are central to this case occurred, he had acquired certain rights in three adjacent parcels of land on the outskirts on the township of Parkes, in central New South Wales. One of those properties was known as the Medlyn Estate. 3 The land was at the time zoned rural small holdings. It was the plaintiff's intention to have the land rezoned to an urban and village zoning, and to have a plan of subdivision approved, so that the land was ready for development. 4 The plan of subdivision which was contemplated in relation to the Medlyn Estate involved making provision for roads and other services within it, and dividing the land into 31 or 32 – the evidence is equivocal – residential lots. 5 The plaintiff had purchased that land – at a time when it was still contained in two separate titles – from its then owners, under a Contract for Sale made on 27 October 2003. On 17 February 2004 a new Certificate of Title issued for the Medlyn Estate, still showing the two vendors as registered proprietors, but showing the land as comprised in a single Certificate of Title. 6 The second defendant was a plumber by trade, who up to February 2004 worked as a hot water system service technician. On 13 February 2004 the plaintiff wrote to the second defendant offering him a position as a sales consultant. The letter offered a retainer of $50,000 pa, plus a commission of $1,000 paid on each block of land sold and $500 on each villa sold. That commission was only payable, however, if certain sales targets were met, of not less than seven exchanged contracts per calendar month. As things eventuated, the second defendant never achieved as many as seven exchanged contracts in a calendar month. 7 On 23 February 2004, after the second defendant had orally accepted the offer contained in the letter, he began working as a salesman for the plaintiff. The second defendant's employment by the plaintiff lasted until 28 July 2004. From 29 July 2004 the second defendant was employed by the Shields Family Trust, an entity associated with the de facto wife of the plaintiff. 8 Under the Contract for Sale by which he purchased the Medlyn Estate, the plaintiff agreed to pay the then owners the amount of $280,000, and also to undertake, at his own expense, the registration of a plan of subdivision. 9 On 15 July 2004 a new Certificate of Title issued for the land, this time showing the plaintiff as the registered proprietor, and that the land was subject to a mortgage to Holmes Conveyancing Pty Ltd. The stamp duty on the contract was paid on 2 July 2004. I infer that it was some time between 17 February 2004 and 15 July 2004 that the plaintiff settled his contract to purchase the Medlyn Estate. Holmes Conveyancing Pty Ltd is a company associated with Mr Stephen Holmes, solicitor, of Erina. Mr Holmes acted for the plaintiff in numerous conveyancing transactions. 10 Two to three weeks after the second defendant was employed by the plaintiff there occurred something which the second defendant described as a "national event", which made the sales target which had been set for him redundant, and changed the whole nature of the plaintiff's business. This involved the plaintiff being the subject of media focus, and led to a drop-off in the work which he provided to Austates Conveyancers. 11 Austates Conveyancers is a firm of conveyancers, which had an arrangement with the plaintiff whereby the plaintiff would refer purchasers of land from him to Austates Conveyancers, and would pay the fees of Austates Conveyancers in connection with those referrals. Between about March 2003 and August 2004 the firm had received about 99 referrals of prospective purchasers from the plaintiff. 12 Mr Tony Melissari is a conveyancing clerk with Austates Conveyancers, and was a person with whom the plaintiff often dealt in this way. In the course of those dealings, the plaintiff had introduced the second defendant to Mr Melissari, as someone who was working for him to sell property. Mr Melissari came to act for the second defendant in connection with a contract whereby the second defendant agreed to purchase the Medlyn Estate from the plaintiff. 13 In August 2005, in support of this matter continuing to be expedited (but in an affidavit which was also read at the hearing) the plaintiff said that the monies which he would have used in completing his other projects had been effectively tied up in the project relating to the Medlyn Estate, that this litigation had sterilised the land from an economic point of view, and as a result he was suffering "extreme financial hardship". I infer that he was under significant financial pressure in August 2004. 14 The Medlyn Estate was one of the properties of the plaintiff in which the defendant tried to sell lots. By 6 August 2004 the second defendant had arrangements on foot for the sale of seven of the lots in the Medlyn Estate. Those arrangements involved the sale of four of the lots to himself, and another three of the lots to two other people. 15 By 6 August 2004 the second defendant was also, at the plaintiff's suggestion, following another approach to the sale of the Medlyn Estate, which involved putting together a syndicate of investors which would purchase the whole of the Medlyn Estate, and carry out what remained to be done to finish its subdivision and development. The plaintiff had obtained, in November 2004, a report intended to provide the local council with the information needed to justify the rezoning of the Medlyn Estate and the other two adjoining parcels of land which the plaintiff owned, but the rezoning, and hence the subdivision itself, had not taken place by early August 2004. 16 The Contract for Sale which is the subject of the dispute in the present case is one whereby the plaintiff agreed to sell to the second defendant the whole of the land in the Medlyn Estate. The contract was in fact entered on 6 August 2004, at the office of Mr Melissari in Ultimo, after the plaintiff and the second defendant had had some hours of discussion there. Though entered on 6 August 2004, it was backdated to 2 August 2004. Terms of the Contract 17 The contract is in the form of the 2000 edition of the New South Wales standard form contract, with various special conditions. Its front page names the plaintiff as vendor, and the second defendant "and or nominee" as purchaser. It states that it is entered without the intervention of an agent. It nominates Mr Holmes as the vendor's conveyancer (though Mr Holmes was in fact a solicitor) and Austates Conveyancers ("ref Tony Melissari") as the purchaser's conveyancer. It states that the completion date is the sixtieth day after the date of the contract, and sets out, on its front page: Price $800,000.00 Deposit $130,000.00 Balance $670,000.00 18 The contract contains a form of Purchaser's Solicitors Certificate, which was not filled out. The blank form of certificate stated, amongst other things: "I am giving this Certificate in accordance with section 66W of the Conveyancing Act 1919 with reference to a Contract for the sale of property at Medlyn Estate, Parkes, from Victor Warren Ollis to Parkes JV Money Maker Pty Ltd in order that there is no cooling off period in relation to that Contract." The form went on to make provision for the person giving it to state that he or she had explained to Parkes JV Money Maker Pty Ltd various things relating to the contract. 19 Clause 2 of the standard form contract (which remained in this contract) said: "2.1 The purchaser must pay the deposit to the depositholder as stakeholder. 2.2 Normally , the purchaser must pay the deposit on the making of this contract, and this time is essential. 2.3 If this contract requires the purchaser to pay any of the deposit by a later time, that time is also essential. 2.4 The purchaser can pay any of the deposit only by unconditionally giving cash (up to $2,000) or a cheque to the depositholder or to the vendor, vendor's agent or vendor's solicitor for sending to the depositholder. 2.5 If any of the deposit is not paid on time or a cheque for any of the deposit is not honoured on presentation, the vendor can terminate . This right to terminate is lost as soon as the deposit is paid in full." 20 Clause 9 of the standard form contract (which was also unaltered in this contract) provides: "If the purchaser does not comply with this contract (or a notice under or relating to it) in an essential respect, the vendor can terminate by serving a notice. After the termination the vendor can - 9.1 keep or recover the deposit (to a maximum of 10% of the price); 9.2 hold any other money paid by the purchaser under this contract as security for anything recoverable under this clause - 9.2.1 for 12 months after the termination ; or 9.2.2 if the vendor commences proceedings under this clause within 12 months, until those proceedings are concluded; and 9.3 sue the purchaser either - 9.3.1 where the vendor has resold the property under a contract made within 12 months after the termination , to recover - § the deficiency on resale (with credit for any of the deposit kept or recovered and after allowance for any capital gains tax or goods and services tax payable on anything recovered under this clause); and § the reasonable costs and expenses arising out of the purchaser's non-compliance with this contract or the notice and of resale and any attempted resale; or 9.3.2 to recover damages for breach of contract." 21 The contract contained the following special conditions: "16. Upon request the purchaser will release (or authorise release) to the Vendor forthwith the deposit monies paid, such monies to be used by the Vendor for the payment of a deposit and/or stamp duty upon the purchase of other real estate. The Vendor warrants that the said deposit monies will only be paid to any Agent or Solicitors trust account or to the Office of State Revenue pending completion of the Vendor's purchase. 17. Immediately upon exchange of the contract the Purchasers shall authorise the deposit stakeholder to release the deposit unconditionally to the Vendor. 18. On settlement the Purchasers shall accept a transfer to Victor Ollis and the Vendor shall allow an amount of $64.00 to the Purchasers for registration fees. The Purchasers shall not object or raise any requisition or claim for compensation in relation this nor require the Vendor to register the transfer to him prior to settlement. 19. The balance of the purchase price shall be paid as follows:- (a) as to the sum of $520,000.00 in cash on completion. (b) as to the sum of $50,000.00 within 60 days of the date of completion. (c) as to the sum of $100,000.00 to be held in trust pending Parkes Shire Council approval of the development application and as part payment of council contributions towards the subdivision. (d) The purchaser hereby consents to the registration of a caveat over the property to secure payment of the balance and shall sign and hand over to the vendor's solicitor before settlement all necessary documents to have the caveat registered." 22 It is common ground between the plaintiff and the second defendant that the deposit of $130,000 shown on the front page of the Contract for Sale was not paid by the second defendant to the plaintiff on exchange. Whether the plaintiff's purported termination of the contract was effective depends upon whether there was an obligation on the second defendant ever to pay that deposit. That in turn depends, to a large extent, on whether evidence of the plaintiff, or of the second defendant, is accepted concerning what transpired at their meeting on 6 August 2004. Events of 6 August 2004 23 Neither the plaintiff nor the second defendant was an impressive witness. Neither showed any great desire simply to answer questions put to them, rather than put their point of view. Neither struck me as having a particularly good recollection, or as being able to give evidence uninfluenced by wishful thinking about how they would like the facts to be. I do not conclude, however, that either of them was deliberately lying in the witness box. 24 The account of each of the plaintiff and the second defendant contains an admission that the person giving the account has been involved in a type of deception connected with the contract. 25 The plaintiff's account is that in July 2004 the second defendant had told him that he had got together a committee of investors, who wanted to purchase a property like Medlyn Estate, but insisted that the second defendant head up the syndicate and control it. The plaintiff says that he instructed Mr Holmes to prepare a draft contract for the sale of Medlyn Estate to the second defendant, and went with that contract which Mr Holmes had drawn up (which showed a purchase price of $800,000 and a deposit of $23,000) to Mr Melissari's office, where he met the second defendant. The plaintiff's account is that the following conversation took place at Mr Melissari's office. SECOND DEFENDANT: "I want to change the front page of the Contract not to show a $23,000 deposit but an amount of $130,000, which is what I'm selling each share for. That is to cover the company and trust preparation fees and stamp duty and my profit." PLAINTIFF: "I don't care what you do." SECOND DEFENDANT: "Are you prepared to change the $23,000 deposit to $130,000 being one of the equal shares? I want it reflected in the contract as I am going to meet the syndicate tonight and I want to tell them that I have put in $130,000, being my share." PLAINTIFF: "I don't mind changing the deposit as long as you pay me the amount." SECOND DEFENDANT: "Yes, you will be paid the $130,000." PLAINTIFF: "I don't care what you do as long as at the end of the deal on settlement I have $800,000 in my bank account. I will agree to change the deposit to $130,000 on the strict understanding that the $130,000 is in no way a gift or any other thing and that the full $130,000 has to be paid with the other settlement monies." SECOND DEFENDANT: "Yes you will receive the full $130,000 with the rest of the monies." PLAINTIFF: "Tony, don't worry about the $130,000, Colin is using that amount for his selling program." 26 In some supplementary oral evidence (after Mr Melissari had filed an affidavit for the second defendant) the plaintiff said that Mr Melissari was not in the room continually on 6 August 2004, and that it was during one of the times Mr Melissari was out of the room that the second defendant assured the plaintiff that he would pay the $130,000 in seven to fourteen days (or seven to ten days – the plaintiff's evidence differed). As the plaintiff understood it, the front page of the contract appears to show that a deposit of $130,000 was paid on exchange. 27 I do not accept that the correct construction of the contract is that $130,000 was paid on exchange, but for present purposes what matters is the way the plaintiff saw it. The plaintiff was aware that the second defendant was planning to show the contract to members of his syndicate of investors, use the contract as a means of inducing investors to pay money for a share in the investment project, and would then pay the $130,000 to the plaintiff, from the money which the investors had put in. As the plaintiff understood it: "Q. At the time you signed this particular contract, you didn't assume that any one of the syndicate members was getting a free ride, as it were, and paying nothing, did you? A. Yes I did, assume that Mr Coveny was going to write himself in and get an interest in the deal somewhere because he made that clear. Q. At the time you signed this particular contract for the sale of lands? A. Yes. " 28 In other words, in this account the plaintiff was well aware that the second defendant was likely to make a false representation to the investors that he (the second defendant) had already paid a deposit of $130,000, use the contract which the plaintiff had signed as evidence giving credibility to that false representation, use that false representation as a means of obtaining money from the investors, and then pay the deposit to the plaintiff using the money so obtained. On this account, even recognising that the plaintiff says that this was the idea of the second defendant, the plaintiff was still an active participant in the fraud, deliberately assisted in the creation of the false evidence – the contract – which would be used to carry the fraud through, and would be the beneficiary of the fraud both when the deposit was actually paid, and also if the fraud meant that the investors came into the scheme with the result that he would then receive the whole of the $800,000 purchase price. Particular care is needed before one accepts the evidence of a man who gives this sort of an account of himself. 29 The account of the second defendant is that in July 2004 the plaintiff was telling him that he had a cashflow problem and needed to raise money. The second defendant says that the plaintiff suggested to him that if he (the second defendant) could get a buyer for the whole of the Medlyn Estate for $650,000 or $700,000 that would give him (the plaintiff) his money back with some profit, and leave enough money to cover the costs of the development. The second defendant says that the plaintiff told him that if he (the second defendant) worked out the deal with the investors quickly, he would get a good commission, and could use it to pay for his own share of the property. The second defendant told the plaintiff that he was arranging a company, which would buy the property for the syndicate. The second defendant says that in July 2004 the plaintiff said to him: "This is how it will work. I need to get about $670,000 out of the sale. It will cost about $20,000 for each of the 31 lots for development and I'll need another $50,000 for other costs. You need to cover the stamp duty on the purchase, accountancy and legal fees plus you should have a bit extra put away for other costs. Add about $100,000 to the purchase price. I'll sell the property to you for $800,000. If you have seven shares of $130,000 each that will give you $910,000. In return, I'll pay you a commission of $130,000 on the sale and that can be your share paid for." 30 In August 2004 the second defendant enquired of Mr Pilgrim (a real estate agent who acted in connection with another of the plaintiff's developments) whether any sales were going through on that development. The second defendant told Mr Pilgrim that he was pretty sure he was not going to settle on the purchase of the Medlyn Estate, and that if Mr Pilgrim did not have any sales going through "I am pretty sure Vic will be broke. He won't survive he's finished." (This evidence was read as part of the plaintiff's case.) That the second defendant made that statement at that time is confirmatory of his evidence that the plaintiff told him that he (the plaintiff) had a cashflow problem. 31 The second defendant says that in the first days of August 2004 he had a conversation with the plaintiff as follows: PLAINTIFF: "This is taking too long. I need the money from the Medlyn Estate now." SECOND DEFENDANT: "We haven't sorted out the company yet to buy it." PLAINTIFF: "We'll put it in your name and you can sort it out later." SECOND DEFENDANT: "I'm not comfortable with that. If the contract's in my name we'll need to include the words 'and/or nominee'. Then I can put the company name in the transfer." PLAINTIFF: "That's fine. I'll get the contracts to you for signature." SECOND DEFENDANT: "It's a bit quick. I haven't got everything organised yet with the purchasers. And I'm a bit concerned about the price. At $800,000 for the Estate, the subdivided blocks would be $25,800 each. The raw value is only about $10,000 per block. After rezoning and with the D.A. they'll only be worth about $20,000 per block." PLAINTIFF: "You're only paying $670,000. That brings the price of the blocks down to that sort of price." SECOND DEFENDANT: "I can't get $670,000 together straight away. I can probably get about $500,000." PLAINTIFF: "We'll work something out so I get some of the money now and the balance later." 32 According to the second defendant, on 5 August 2004 the plaintiff telephoned him and said that Stephen Holmes had drawn up the contracts, and that they should be signed, because he needed the money for the settlement of one of the blocks of land adjacent to Medlyn Estate. It was at that stage that the second defendant said he wanted Tony Melissari to look at the contract for him, and a meeting was arranged at Tony Melissari's office for the next day. 33 In fact two different forms of contract were executed between the plaintiff and the second defendant on 6 August 2004, relating to the Medlyn Estate. One of them was the contract for the sale of the entire estate by the plaintiff to the second defendant, which I have already mentioned. 34 The other was a contract for the sale to the plaintiff of certain of the subdivided lots in the Medlyn Estate. That contract left the space for naming the vendor blank. It nominated a price of $305,000, a deposit of $100,000, and a balance of $205,000. That contract was also dated 2 August 2004, even though it was in fact executed on 6 August 2004. It may be that it related to three lots only, namely the three lots in relation to which the second defendant had already arranged sales, to persons other than himself. The front page of the contract identifies the land to be sold by reference to an "enclosure "A"". There are in fact two enclosures marked "A", one of which is a plan of the proposed subdivision, the other of which is a piece of paper containing typewriting and various handwritten notes. Part of that page includes "lots 13, 14, 17 can be purchased for $205,000 as part of the agreement." That second contract had not been mentioned in the plaintiff's affidavit evidence in chief. 35 The second defendant's account of the discussion on 6 August 2004 is as follows: "During the meeting the Plaintiff produced one of the contracts and said: "This contract is for the sale from me to Colin of the Medlyn Estate for $800,000." The Plaintiff then produced another contract and continued: "This contract is for the sale back to me of 7 of the proposed 31 lots at a price of $305,000 total." The Plaintiff also explained: "$100,000 of the money Colin will pay me will go to the costs of the development. That money will be paid back to me by way of a paid deposit on the other contract. That's why the other contract is showing $100,000 paid deposit. That's for taking care of the development." During the discussion the Plaintiff said to Tony Melissari: "Colin's commission for putting the deal together is $130,000. Change the deposit on the contract from 10% to $130,000 and show it as paid. That way Colin his already paid his share of the purchase price from his commission." I said to the Plaintiff and Tony Melissari: "We should have condition in the contract that $100,000 is to be held in Stephen Holmes' trust account to be applied to rezoning and development application." During the discussion: The Plaintiff said: "I want this settlement to go through straight away.." I said: " I can only get $520,000 together in the short term." The Plaintiff said: "We'll make it that $520,000 is payable straight up. The balance of $150,000 can be paid within 2 months of settlement. I'll need the $520,000 to be released to me." I said: "What security will we have if we release the money?" The Plaintiff said: "We'll settle on $520,000. You can pay the $150,000 within 2 months after settlement but I'll need to put a Caveat on the title until I get the $150,000." During the discussion the Plaintiff said: "We'll put 60 days on the contract for settlement but back-date them to 2 August. Get me the $520,000 as soon as you can." Tony Melissari reprinted the front pages of the contracts and also inserted a page of special conditions into each contract. The Plaintiff and I read over them and then we each signed the documents. Tony Melissari dated them 2 August 2004." 36 On the second defendant's own account, he did not tell his investors that he had in fact not paid a deposit of $130,000, in cash, or that he had been credited with a deposit of $130,000 for his commission in putting together the deal, until the conveyancing transaction started to encounter difficulties, around 60 days after 2 August 2004. Thus, on his own account, the second defendant was proposing to misrepresent to investors the source of the $130,000 shown as deposit on the front page of the contract, and to keep secret from them that the $130,000 was in the nature of a secret commission to him. Particular care is needed in accepting the evidence of a man who gives that sort of account of himself. 37 There were other ways in which the plaintiff's evidence was not satisfactory. The account he gave in his affidavit of the meeting in Mr Melissari's office on 6 August 2004, quoted above in para [25], gives the impression that Mr Melissari was present throughout the entire conversation. It was only after Mr Melissari had filed his affidavit, giving an account significantly different to that of the plaintiff, that the plaintiff said in oral evidence that Mr Melissari was out of the room at certain critical moments. If the account of the conversation which the plaintiff gave in his affidavit were correct, Mr Melissari would have been in no doubt that the $130,000 had not been paid on 6 August 2004, but was required to be paid. That is completely inconsistent with both Mr Melissari's subsequent actions, and his evidence. 38 Other aspects of the plaintiff's evidence were also unsatisfactory. For example, it is the objective fact that on 20 August 2004 Mr Holmes sent to Mr Melissari the Certificate of Title, a signed transfer containing an acknowledgment of receipt of $800,000, and a discharge of mortgage, without any covering letter or other communication. The plaintiff, when asked about that in cross-examination, said that he believed he had an undertaking from Mr Melissari not to deal with the documents sent to him other than in accordance with instructions from the plaintiff. No such undertaking had been mentioned in evidence before, and there is no skerrick of documentary confirmation of it. I do not accept that that evidence is true. On another occasion, the plaintiff gave evidence which created the clear impression that the planning report which he had obtained in November 2004 (para [15] above) had cost $50,000 and related to the Medlyn Estate alone – when the report was produced in Court for the first time, it was apparent that it related to the Medlyn Estate and the two adjoining properties as well. At that stage the plaintiff said that, though it had cost $50,000, there were other expenses for other consultants as well. These are just examples of how I found the plaintiff to be a witness I am not prepared to rely upon. 39 Mr Melissari gives evidence of the plaintiff bringing two forms of contract to his office on 6 August 2004. I found him a credible witness. His account of the discussion relating to the contract the subject of this litigation, does not purport to be a continuous narrative. However, one portion of it is: "During the discussions Mr Coveny said to me: "I'm setting up a company, Parkes JV Money Maker, to be the purchaser. There'll be seven shares and the shareholders will be the owners of the property. I'll have one share. The purchase should be in the name of the company but it's not set up yet. Put the purchaser as me or my nominee." I said: "Why don't you wait until the company structure is finalised?" Mr Ollis said: "That'll take too long. Just put it as Colin or nominee, and he can transfer it to the company when its ready."" 40 Another portion is: "During the discussions concerning the First Contract, Mr Ollis said to me: "The sale price is $800,000. Show that in the contract." Mr Coveny said: "There'll be seven shares of $130,000 each. That will leave enough money over to cover stamp duty, set up costs for the company, subdivision and development fees, and so on."" 41 Another is: "Mr Ollis said, in reference to the First Contract: "My payment to Colin for structuring the deal is his share, that is $130,000.00. I want to show that in the contract. Make the deposit $130,000.00 instead of 10% and show that it has been paid." I said: "In that case there should be a clause releasing the deposit to you." He said: "Yes. You can put in another special condition stating that."" 42 Another is: "During that discussion Mr Ollis said: "We need to get this settled over the next couple of weeks." Mr Coveny said: "We should be able to get you $520,000.00 over the next couple of weeks. I can get that paid into your solicitor's trust account but we'll need to get the title deed from you. We'll need another 60 days to pay the balance of $150,00.00." Mr Ollis said: "That's fine but if I hand over the title deed as security I'll have to lodge a caveat until the balance is paid. We'll have a 60 day settlement period on the contract to allow time for the balance of $150,000.00 to be paid but back date this contract to 2 August so time starts to run from then. We want to finalise as soon as possible." Mr Coveny said: "Out of the $150,000.00, $100,000.00 will stay in the trust account to go towards Parkes Council."" 43 Mr Melissari then had special conditions 17, 18 and 19 (set out in para [21] above) typed up, and included in the contract. I infer that it was also at Mr Melissari's office, and after the conversation just recounted, that the front page of the contract, showing a deposit of $130,000 came into existence. 44 Concerning the proposed second contract, Mr Melissari gives evidence of the following fragments: - that the second defendant said: "Leave the name of the Vendor blank. I don't know yet whether the vendor will be me or Parkes JV Money Maker." - that the plaintiff said: "The purchase price on this contract is $305,000.00 with a paid deposit of $100,00.00. Both contracts should be dated 2 August." - that the plaintiff said: "This contract will need a special condition releasing the deposit also." - that the second defendant said: "We need a special condition in this contract making Vic responsible for finishing the roads and registering the subdivision and bearing the costs of the separate titles." 45 Mr Melissari had the front page of the second contract typed up in accordance with those instructions, and inserted into it special conditions which read: "17. Immediately upon exchange of the contract the Purchasers shall authorise the deposit stakeholder to release the deposit unconditionally to the Vendor. 18. The purchaser herein agrees to attend to completion of all necessary roadworks and to attend to the registration of the subdivision and release of titles at his own costs." 46 Both the plaintiff and the second defendant then signed each of the forms of contract in Mr Melissari's presence. It was at the instruction of both the plaintiff and the second defendant that Mr Melissari dated the contracts 2 August 2004. 47 I accept this evidence of Mr Melissari. It is confirmatory of the substance of some critical parts the evidence of the second defendant, that the plaintiff specifically stated in the meeting that the $130,000 shown as the deposit was a payment to the second defendant for structuring the deal. While Mr Melissari accepts that from time to time he was not present while the plaintiff and the second defendant continued their discussion, I do not accept that, during one of Mr Melissari's absences from the room, an arrangement was reached between the plaintiff and the second defendant which was directly contrary to what the plaintiff had told Mr Melissari concerning the $130,000 deposit. Events After 6 August 2004 48 I will now trace the history of the transaction after 6 August 2004, before returning to consider some other arguments which were put concerning the probabilities of the events of 6 August 2004. 49 The syndicate which the second defendant was organising was divided into seven equal parts. He was organising it on the basis that one of those parts would be held by himself, and the other six by various other people. The basic price at which the second defendant sought contribution was $130,000 per share. However, as things eventuated, he came to offer shares so that two shares could be bought for a total of $225,000, and in relation to at least one of the syndicate members he agreed to accept certain legal services as amounting to a contribution in kind to make up part of the purchase price of a share. 50 The investors remitted a total of $520,500 in connection with their investment over a period from 4 August 2004 to no later than 20 August 2004. (The evidence does not give any direct explanation of how it happened that $13,000 each was received from two investors on 4 & 5 August 2004, before the contract had even been executed.) Some of that money was sent direct to the plaintiff's bank account by electronic transfer, the rest of it was sent to the trust account of Mr Holmes. In relation to the money sent to Mr Holmes, each remitter gave him authority to account to the plaintiff for it. 51 On 17 August 2004 the plaintiff instructed Mr Holmes to settle with Austates Conveyancers. 52 On 19 August 2004 Mr Melissari sent to Mr Holmes by facsimile a settlement statement. The covering letter asked Mr Holmes to advise cheque details in due course. The settlement statement said: $ Purchase Price 800,000.00 Deposit Paid 130,000.00 670,000.00 Council & Water Rates Not assessed – mutual undertakings 53 Mr Holmes replied, also by facsimile, on 19 August 2004 saying: "You are hereby authorised and directed to pay the balance of purchase monies as follows: 1. BANK Cheque Stephen Holmes $2,033.00 2. BANK Cheque Stephen Holmes $111,756.48 3. BANK Cheque Holmes Conveyancing P/L $219,210.52 4. BANK Cheque Victor Ollis $319,000.00 5. BANK Cheque Office of State Revenue $18,000.00 Total cheques for settlement $670,000.00 We note that we hold $351,000.00 in our trust account in relation to the purchase. Please fax your authority to us to pay out the monies in relation to the purchase on settlement . We confirm settlement is scheduled to take place on 20/4/04 at 10.00am at Stephen Holmes, Erina." 54 It was in response to the italicised and underlined request in that letter that the various authorities from investors to release money to the plaintiff (all of which were dated 20 August 2004) were sent to Mr Holmes. 55 The plaintiff gave oral evidence that he discussed his conveyancing transactions with Mr Holmes every day, and that he saw the letter of 19 August 2004 around the time it was written, and told Mr Holmes that it was incorrect. Mr Holmes' evidence on that topic is curious. He says that he was instructed that there were other monies outstanding, that he asked the plaintiff whether he wanted that amount outstanding to be secured by a mortgage back over the property, and the plaintiff said "No, that he had other ways of getting money from [the second defendant]". As that evidence of Mr Holmes was given only in re-examination there was no opportunity to explore it. I do not regard it as something which justifies acceptance of the plaintiff's account of the events of 6 August 2005. 56 On 20 August 2004 Mr Holmes drew a cheque on the money in his trust account for $18,000 in favour of the Office of State Revenue, to pay the vendor duty on the Contract for Sale. 57 Also on 20 August 2004 Mr Holmes, as earlier recounted, sent to Mr Melissari the Certificate of Title, the transfer signed by the plaintiff containing an acknowledgement of receipt of $800,000 (even though, even if one counted the $130,000 deposit as having been paid, only $650,500 had been received by that stage), and a Discharge of Mortgage form relating to the mortgage which Mr Holmes'company had over the property. Even though Mr Holmes' letter of 19 August 2004 had requested the drawing of various bank cheques totalling $670,000 for settlement, amounts totalling $520,500 had already been paid, partly into his own trust account and partly direct to the plaintiff. 58 On 20 August 2004, Mr Holmes drew cheques which reduced to nil the amount standing in his trust account to the credit of this particular transaction. 59 On 1 September 2004 a company called Parkes JV Money Maker Pty Ltd was incorporated, which had the various intending syndicate members, including the second defendant, as both shareholders and directors. 60 In mid to late September the plaintiff came to Mr Melissari's office and said that the second defendant should have settled the Medlyn deal by that time, that the plaintiff needed the money weeks ago, and (in colourfully emphatic language) that the plaintiff was not giving him a cent. The conversation continued: MELISSARI: "We're still within the parameters of the contract. Settlement is to be within 60 days of exchange." OLLIS: "The deal is off." 61 On 5 October 2004 Mr Holmes served a Notice to Complete, appointing 20 October 2004 as the completion date. That Notice to Complete required payment on or before that day of "the balance of purchase money", without saying how much money that was. There had been no document or conversation prior to 5 October 2004 which showed that $279,500 was the amount which the plaintiff was requiring to have paid on settlement. 62 The first such communication was a facsimile of 12 October 2004 from Mr Holmes to Austates Conveyancers. It said: "We are instructed that the settlement figures are as follows: Purchase price $800,000.00 Less amount paid $520,500.00 Balance due $279,500.00 The Council rates will have to be apportioned when they are struck." 63 On 13 October 2004 Mr Holmes forwarded to Mr Melissari a facsimile which he had received on 12 October 2004 from the plaintiff's administrative assistant, which listed the makeup of the $520,500 which had been received, under a heading "Deposits/Progress Payment Receipted". 64 On 13 October 2004 Mr Melissari faxed back saying: "We refer to your facsimile of the 12th instant and note that the figures are incorrect. We note that the figures should read as follows:- Purchase Price $800,00.00 Less Amount Paid $650,500.00 $149,500.00 Please note that our clients wish to settle this matter on the 19th October, 2004." 65 On 14 October 2004 Mr Melissari faxed again to Mr Holmes, saying: "We refer to your facsimile of the 13th instant and note that you have made no mention of the deposit paid herein being the sum of $130,000.00." Mr Melissari adopted the practice of faxing Mr Holmes, because he could not succeed in getting through when he tried to telephone him. 66 Though Mr Holmes gives evidence that this fax of 14 October 2004 was the first mention to him of a deposit having been paid, and he was not cross-examined on that assertion, it is manifestly incorrect. The settlement statement faxed to him on 19 August 2004 (para [52] above) said, in so many words, "Deposit paid". 67 On 14 October 2004 Mr Holmes faxed Mr Melissari back, saying: "With reference to your fax of 14/10/04, we are instructed that no deposit of $130,000.00 has ever been paid. Our client is negotiating with Colin Coveny to advance him some monies but the amount would be no more than $45,000.00." 68 Mr Melissari replied on 14 October 2004. "We refer to your latest facsimile and enclose herewith copy of front page of exchanged Contract for Sale. Kindly note that the deposit shown therein is the sum of $130,000.00 and therefore our settlement figures will reflect same. Please note that it is our clients intention to settle this matter on Monday the 18th October, 2004 and we would therefore appreciate Council and Water rates notices to enable us to prepare our settlement figures." 69 Mr Holmes faxed back, on 14 October 2004. "With reference to your fax of the 14/10/04, the amount of the deposit indicated on the front page of the contract does not mean it was actually paid. We are instructed that no deposit was actually paid. Our client does not hold any Council or water rate notices. We note that in your settlement statement enclosed with your letter of 19/8/04 you state - Council & Water Rates not assessed – mutual undertakings." 70 Mr Melissari replied on 15 October 2004. "We refer to your latest facsimile and reply as follows:- We understand that the $130,000.00 deposit noted on the Contract for Sale is on account of Commissions payable to Mr Coveny by the vendor. We understand that $100,000.00 is payable to Stephen Holmes Solicitor Trust Account and the balance being $49,500.00 is to be drawn to V. Ollis could you kindly confirm same." 71 To that, Mr Holmes replied, on 15 October 2004. "With reference to your fax of 15/10/04, we are instructed that the purchase price is $810,000.00 as was apparently agreed with your clients. Our client is prepared to allow Colin Coveny a credit of $45,000.00. We are further instructed that if your clients have a contract which is agreeable to Mr Ollis for the repurchase by him of 15 Blocks for $305,000.00, Mr Ollis would be willing to pay a deposit of 5% being $15,250.00. Settlement figures are as follows: Purchase price $810,000.00 Less Amount paid $520,500.00 Credit to Coveny $45,000.00 Buy-back deposit $15,250.00 $580,750.00 $229,250.00 Please pay as follows: 1. RJ & ST Smith $136,000.00 2. V Ollis $93,250.00 Our client feels that the purchasers are deliberately frustrating the completion of the contract and we are instructed that if the matter is not settled within the time allowed under the notice to complete our client sees no possibility of a resolution except by the Courts." 72 The exchange between the two legal representatives continued inconclusively for another few days. In the course of that exchange, Mr Melissari repeated that the deposit of $130,000 was made up of commissions (in the plural) payable to the second defendant. Mr Holmes explained the reference to the purchase price being $810,000, in his fax of 15 October 2004 by saying that he was instructed that "after the agreement was entered into, you clients requested additional things to be done for $10,000.00 but if your clients no longer require these things to be done then the purchase price is $800,00.00." 73 On 20 October 2004, Mr Melissari faxed Mr Holmes saying: "We are at a loss to understand your clients reasoning that the settlement figures as forward by our office are incorrect. The writer was present at the time the agreement was formed and the Contract for Sale is representative of that agreement." Also on 20 October 2004, Mr Melissari faxed to Mr Holmes copies of the cheques totalling $149,500 which he was proffering for settlement. When it was clear that cheques totalling $149,500 would not be accepted as sufficient to enable settlement to occur, Mr Melissari did not in fact send anyone to the appointed time and place for settlement. However, on 20 October 2004 he sent his own Notice to Complete to Mr Holmes. 74 On 21 October 2004 Mr Holmes served a Notice of Termination of the Contract. 75 Even though, around the time of the termination, Mr Melissari informed Mr Holmes more than once that the second defendant would sue the plaintiff, it was not the second defendant who took the initiative to bring legal proceedings. The present proceedings were started by the plaintiff, initially against the first defendant alone on 7 February 2005. The first defendant is the principal of Austates Conveyancers. At the commencement of this hearing the first defendant was excused from further attendance, and did not thereafter take an active part in the proceedings. 76 When these proceedings were begun, they sought return of the Certificate of Title, discharge of mortgage and transfer, and (even though the second defendant was not then a party) removal of a caveat which the second defendant had lodged. Though the second defendant was manifestly a necessary party to the proceedings, it was only after directions were made by me on 6 May 2005 that steps were taken for the joinder of the second defendant, and the filing of any cross-claim by the second defendant. 77 Pursuant to interlocutory orders of the Court in these proceedings, the Certificate of Title, transfer and discharge of mortgage have been given by the first defendant to the solicitors for the second defendant in these proceedings, on the undertaking of those solicitors that the documents will be dealt with in accordance with the order of the Court. Other Matters Relating to Probabilities of 6 August 2004 Meeting 78 The plaintiff submits that the financial structure of the contract is a most improbable one, if the substance of the second defendant's evidence about the transaction were correct. The plaintiff submits that if the amount of $130,000 was really a commission paid, the plaintiff would be significantly disadvantaging himself financially by showing it as a deposit, and therefore as part of the purchase price. He submits, correctly, that when the plaintiff is a land developer, his gross receipts from the sale of land are taken into account in assessing his taxable income. He also says that the effect of the arrangement as put forward by the second defendant would be to increase the plaintiff's taxable income by $130,000. I do not accept that step in the argument. It is true that showing a purchase price of $800,000 would have the effect of increasing his gross income by $130,000 by comparison with what the second defendant says is the "real" purchase price of $670,000, but if that was done there would be nothing to stop the plaintiff from claiming a deduction for the $130,000 which was credited in kind as a deposit, if in truth it was a commission. In this way, the plaintiff's taxable income (as opposed to his gross income) does not increase as a consequence of the financial structure which was adopted for the contract. Further, I see nothing implausible in the plaintiff wanting to assist in the investors being deceived into believing that the second defendant had paid $130,000 towards the purchase of the land. 79 The plaintiff also submits that the financial structure of the contract had the effect that he paid more vendor duty than would have been needed if the "real" purchase price of $670,000 had been shown. This submission is correct. However, the extra vendor duty so paid is 2.25% of $130,000, or $2,925. Even if the plaintiff actually thought through the vendor tax ramifications of the financial structure of the contract at the time it was entered (a matter on which the evidence is silent) I see nothing implausible about the plaintiff deciding that paying an extra $2,925 in duty would be worth while if it meant that he had a certain (and, he believed at the time, quick) sale. 80 The plaintiff puts another argument for the way in which the context of the transaction favours his version. In one of his submissions from the witness box, he said that the deposit was in fact paid by amounts he received from the investors soon after 6 August 2004. It is true that investors had paid to the plaintiff, or to Mr Holmes, part-payments exceeding $130,000 by 13 August 2004, and that by 20 August 2004 those investors who had paid the money to Mr Holmes had agreed to their money being released to the plaintiff. If those payments were indeed being treated as payment of the deposit, this might make explicable the fact that, even though Clause 2 of the standard form contract conferred a right to terminate without any need to serve a Notice to Complete if the deposit was not paid on time, the plaintiff never attempted to terminate on that ground. However, that is not the way in which the contemporaneous documents show either of the parties treating those part-payments. Mr Melissari's correspondence with Mr Holmes shows him consistently regarding the $130,000 deposit as having been paid, and those part-payments received by the plaintiff and Mr Holmes being part-payments of the balance. I take that correspondence from Mr Melissari to represent both his instructions from the second defendant, and Mr Melissari's own understanding of the situation. The first contemporaneous document which refers in any way to a deposit being received from the investors is the fax from the plaintiff's administrative assistant to Mr Holmes of 13 October 2004, referred to at para [63] above. There is no reason to believe that the administrative assistant would know precisely whether the monies received were supposed to be deposit, or supposed to be a part-payment of the balance of the purchase price, and the equivocal terms in which she referred to those payments in her fax is consistent with her not knowing. Further, Mr Holmes stated unequivocally on 14 October 2004, "We are instructed that no deposit of $130,000 has ever been paid". When Mr Melissari contested that, Mr Holmes replied again, on 14 October 2004 saying: "The amount of the deposit indicated on the front page of the contract does not mean it was actually paid. We are instructed that no deposit was actually paid.". Those letters would, I infer, reflect the plaintiff's instructions to Mr Holmes at the time. That means that, if the plaintiff's version is correct, he allowed the contract to drift on for over two months, when he had a readily available right of termination, and when, at least by mid to late September 2004, he had told Mr Melissari that the deal was off. That seems implausible. 81 There is another aspect of the plausibility of the story which favours the defendant's account. If the defendant succeeded in selling six shares for a full $130,000 each, this would yield him $780,000. That would require the second defendant to find $20,000 from another source, and also bear the stamp duty (which in fact cost $31,490), the set up costs for the proposed company, and any subdivision and development fees which were not covered by the $100,000 proposed to be set aside in Mr Holmes' trust account. As well, part of his sales offer to intending investors was that he would provide a company or trust structure for the investors to hold their interest in, at his own expense. There is no evidence suggesting that the second defendant had enough resources to cover all these expenses, if he was obliged to pay a full $800,000 as the purchase price. 82 Counsel for the plaintiff relied strongly on a submission that the plaintiff would be most unlikely to sell the Medlyn Estate for less than its correct value, and that the evidence suggested that it was being sold for a lesser value than the plaintiff had achieved, or could achieve, in relation to the two adjoining estates. However, the evidence to support that submission is thin. There is no valuation evidence of any of the land. The report of November 2004 concerning rezoning (para [15] above) provides the most reliable evidence of the sizes of these parcels of land. The Medlyn Estate was 3.6 ha, one of the adjoining lots (called Grange) was 2.4 ha with a subdivision plan for 31 lots and sold, it seems, for $900,000. The other nearby land of the plaintiff (known as Docos) had an area of 4.3 ha, with a subdivision plan for 51 or 52 lots. The second defendant gave evidence that he "had a deal to try to sell that for $1.5m". There is no evidence about whether that "deal" ever reached the stage of being a firm contract. There is no evidence about how any work which had been done to advance the rezoning or subdivision might have differed between the three different parcels of land. There is no evidence about whether there was anything in the topography or location of the three difference parcels of land which might bear upon their relative values per square metre. Thus, I do not find this argument persuasive. 83 For these reasons, I accept that it was agreed between the plaintiff and the second defendant that the amount of $130,000 shown as the deposit was an amount treated as paid to the second defendant for structuring the deal. Thus, there was no obligation on the second defendant to pay that $130,000 on settlement. It follows that the insistence of the plaintiff on receiving that $130,000 was wrongful, and his termination of the contract wrongful. The Plaintiff's Claim 84 The plaintiff's claim in these proceedings seeks a declaration that the contract has been validly terminated by him, that he is entitled to retain the sum of $130,000 or alternatively $80,000, damages, and a declaration that the $520,500 paid to the plaintiff by the second defendant is held by the plaintiff as security under the contract until the property is sold and the plaintiff's total damages can be calculated. Concerning that latter declaration (which is based on Clause 9 of the contract), I mention that the plaintiff has not tried to keep the amount of money which he received from the investors separate from his other funds – rather, he had used it in the course of his development activities. 85 The plaintiff also seeks delivery up of the Certificate of Title, transfer and discharge of mortgage, damages for detention of those documents, and an order that a caveat placed on the property by the second defendant be removed and the second defendant restrained from lodging any further caveat. 86 It follows from these reasons so far that all these claims of the plaintiff will be dismissed. The Cross-Claim 87 The second defendant has filed a cross-claim (which now takes the form of a Third Amended Cross-Claim). So far as now pressed, it seeks an order that the plaintiff withdraw a caveat which he has filed against the land, and an order restraining him from lodging a further caveat, an order for specific performance of the contract, or alternatively damages, a declaration that the deposit payable under the contract has been paid to the plaintiff by offsetting of commission, a declaration that the cross-claimant has an equitable lien over the property to the extent of any and all payments ordered to be refunded by the plaintiff and/or damages ordered by the Court. 88 The parties have conducted the litigation in a way that accepts that all of these remedies turn upon whether the contract was validly terminated. 89 Counsel for the second defendant made clear that, though he does not abandon the claim for specific performance, his client's preference would be to receive an order for damages, or an order for return of the monies paid under the contract, in either case together with interest, and costs. No submission was made on behalf of the plaintiff that, if the second defendant was otherwise entitled to succeed, he should not receive the form of order which he prefers nor, as I understand it, did the second defendant submit that, if an award of damages were appropriate, those damages would not be appropriately assessed in the sum of $520,500. 90 In the course of final addresses, counsel for the defendant provided a document which said: "… The Second Defendant recognises that any money that he receives under any of the orders sought will be held on a resulting trust to the benefit of those persons who paid the money to the Vendor on his behalf. As a result, the Second Defendant seeks the following order in relation to damages awarded to him against the Plaintiff: That such damages be paid into the Trust account of the Second Defendant's solicitors, Hancocks Solicitors, pending further order of the Court as to payment out of those moneys to the parties who are beneficially entitled to the same; and The Second Defendant's solicitor consents to so hold the money paid under the order, and undertakes to the Court not to disperse the money except in accordance with any subsequent order of the Court. The Second Defendant's solicitor also undertakes to the Court: 1. To contact those persons who paid money under the Contract on behalf of the Second Defendant and to ascertain the extent of their beneficial interest in any damages awarded; and, 2. To re-list the matter before the Court at the earliest opportunity with a view to obtaining an order for the payment out to those persons so beneficially interested in the money held in trust. In addition, the Second Defendant seeks a declaration that he has an equitable lien (to be held to the benefit of those persons beneficially entitled to money ordered to be paid to the Second Defendant in accordance with the above orders); in; 1. The property known as the Medlyn Estate (the property the subject of these proceedings); and, 2. All title documents currently held by the Second Defendant's solicitor pursuant to order of the Supreme Court of New South Wales on 2 June 2005, to secure any award of damages or payment of refund of money paid under the Contract for Sale." 91 Insofar as the relief which the second defendant seeks is equitable relief, I mention that no defence of unclean hands has been raised in relation to it. I have given consideration, as I am obliged, to whether the contract being enforced in these proceedings is one which is illegal. In my view, there is nothing illegal about the contract itself. Any illegality which there might be (concerning which it is not necessary for me to make a positive finding) arises in relation to the intention to not disclose the true nature of the contract to the intending investors, so as to enable the second defendant to receive a secret commission concerning the contract. Any such illegality is not one which would make the contract itself unenforceable. 92 Even though the second defendant may well have intended to hold the benefit of his rights under the contract for the various investors (including himself), the legal rights connected with the contract are ones which he alone had and could exercise. In that circumstances, it seems to me that his claim for the benefit of a purchaser's lien in relation to money paid under the contract is a good one, even though (a matter which it is not necessary for me to decide, and not appropriate to decide when the investors are not party to this litigation) it may be that certain equitable rights, in favour of the investors, attach to the benefit of that purchaser's lien. 93 In my view, the form of declaration which the second defendant seeks in relation to his equitable lien is one which is undesirably indeterminate and imprecise in relation to for whom the benefit of the equitable lien is held. For that reason, I will omit the words "(to be held to the benefit of those persons beneficially entitled to money ordered to be paid to the Second Defendant in accordance with the above orders)" from the declaration of existence of an equitable lien. All that matters, so far as the rights between the plaintiff and the second defendant are concerned, is that the second defendant has an equitable lien. By making a declaration in the form I propose, only the plaintiff and the second defendant are bound, and the investors are not precluded from contending that the benefit of the equitable lien is held in some fashion for their benefit. 94 The second defendant's offer to pay the damages into his solicitor's trust account, and the undertaking of the second defendant's solicitor concerning what is to be done with that money, are voluntary restrictions which the second defendant seeks to impose upon himself. I see no reason why it would be inappropriate to permit him to impose those restrictions, by making the type of order he seeks in relation to the proceeds of damages, and accepting the undertakings proffered to the Court by his solicitor. 95 In principle, it is appropriate for interest on the sum of $520,500 to be awarded, from the date of each respective payment to the date on which judgment is entered. There is no reasons why that interest ought not accrue at the various rates which have applied under section 94 Supreme Court Act 1970 and section 100 Civil Procedure Act 2005. Before any orders can be entered it will be necessary for the quantum of that interest to be calculated. 96 As the plaintiff has failed completely against both defendants, and as the second defendant has succeeded on his cross-claim, the plaintiff should pay the costs of both defendants, including the second defendant's costs of the cross-claim. 97 Because it will be necessary for the amount of interest to be calculated, it is not possible to make final orders at this stage. 98 I direct the defendants to bring in, on a date arranged within 14 days of the date of delivery of these reasons with my Associate, short minutes of the orders proposed to be made. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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