Subota v Boskovic (No 2) [2013] NSWDC 262

District Court New South Wales

Medium Neutral Citation: Subota v Boskovic (No 2) [2013] NSWDC 262 Hearing dates: 7, 8 and 9 August 2013 Decision date: 09 August 2013 Jurisdiction: Civil Before: P Taylor SC DCJ Decision: (1) Judgment for the plaintiff in the sum of $203,987.27 inclusive of interest. (2) Defendant to pay the plaintiff's costs. (3) Exhibits to be returned after 28 days. Catchwords: AGREEMENT - real estate development - share profits and losses - implied term - breach of agreement - co-guarantor - contribution between guarantors Cases Cited: BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 Category: Principal judgment Parties: Branko Subota (plaintiff) Ivan Boskovic (defendant) Representation: Mr P Menadue (plaintiff) Mr R Jefferis (defendant) Sean Wilkins & Company (plaintiff) Harbourside Legal Services Pty Ltd (defendant) File Number(s): 2012/231613 Publication restriction: No

ex tempore Judgment 1Branko Subota, the plaintiff, and Ivan Boskovic, the defendant, were good friends. In 2005 Mr Boskovic found a potential real estate development opportunity in Toukley on the New South Wales Central Coast. The proposal involved two blocks of land zoned to allow unit development. Both Mr Subota and Mr Boskovic were interested. So was another associate, Mr Garo Aroutunian. A company was acquired and optimistically named B.I.G. Investments Pty Ltd ("BIG"), after the first initials of the names of the three proposed investors. Mr Aroutunian did not go ahead with the investment but the company name remained. 2The two blocks of land were acquired in the name of BIG. Mr Subota and Mr Boskovic were the directors of BIG and the shares in BIG were owned 50 per cent by Mr Subota's wife, Margaret Palisi, and 50 per cent by Meliva Pty Limited, a company wholly owned by Mr Boskovic. The purchase price was $1 million paid for by a loan from the National Australia Bank ("NAB") of $880,000 secured against the Toukley properties, with the difference contributed equally by Mr Subota and Mr Boskovic. Mr Subota and Mr Boskovic were guarantors of the loan, along with Ms Palisi who had apparently consented to a mortgage on a property she owned as further security for the bank loan. 3The proposal involved building 21 units on the lots. After purchase the first step was to obtain development approval. Time and money was spent on achieving this end, as well as to cover the shortfall between the rental of the properties and the interest on the bank loan. Financial contributions were made equally by Mr Subota and Mr Boskovic, amounting to perhaps $150,000 each. 4In about 2008, Wyong Council rejected the development application. Mr Boskovic was having financial difficulties and was unable to continue contributing to the property. Both parties appeared to have lost interest in the development. They considered each taking over one lot but Mr Boskovic was financially unable to take that course, so the properties were marketed for sale. A proposed buyer offered $550,000 for the lots. Mr Boskovic thought he could obtain a better offer but none eventuated, so the lots were sold for that price. Both Mr Subota and Mr Boskovic signed the sale contracts and the transfers. 5At that time, Mr Subota's wife was no longer prepared to continue to provide security for the loan and wanted to sell her property. That apparently occurred and thus Mr Subota's wife's property was released as security. Settlement on the sale of the Toukley properties resulted in approximately $350,000 still owing to the bank. 6Mr Subota said that the parties agreed to share the remaining deficit of $350,000 equally but to release the other securities. The bank wanted some alternative security, so Mr Subota paid out 50 per cent of the debt, $175,618,80, and provided a term deposit and security for the residue that, he said, Mr Boskovic had agreed to pay. 7Both Mr Subota and Mr Boskovic executed guarantees in respect of the remaining $175,600 approximately. Mr Boskovic made one payment of about $3,500 in respect of the residual debt, reducing the balance to the approved $175,000 but then ceased to make any more payments. He gave evidence that he had financial troubles and could not pay any contributions. The bank took funds from Mr Subota's term deposit to meet the interest obligations and ultimately, Mr Subota used his term deposit to pay off the whole loan. 8Mr Subota sues Mr Boskovic for the funds he paid from the term deposit to pay off the loan, totalling a sum of $185,475.31 plus interest from 4 April 2012. Mr Boskovic denies liability. 9Mr Subota's claim has three bases. First, he asserts an oral agreement in May 2011 where he says Mr Boskovic agreed to be responsible for the unpaid half of the outstanding debt to the bank, Mr Subota already having paid the other half. Part of this agreement, according to Mr Subota, involved Mr Subota putting up a term deposit as security because the bank required security for the loan and Mr Boskovic could not offer any. 10The second alternative basis of Mr Subota's claim is that in 2005 the parties agreed to share equally the profits and losses, and that the unpaid amount of the NAB loan after the sale of the two properties represented the outstanding amount of the loss. Mr Subota says that, having paid his half, it was incumbent on Mr Boskovic to pay the remaining half of the loan outstanding and to pay the equivalent amount of damages for breach when he defaulted. 11The third alternative claim is that Mr Boskovic was liable as a co-guarantor to contribute 50 per cent of the amount paid by the other guarantor, Mr Subota, who had paid the whole of the $350,000, approximately, outstanding. This claim for contribution between guarantors relied on the 2011 guarantee or, alternatively, the 2005 guarantee. 12These three alternative claims raised all the issues identified by the parties. I propose to deal with each claim separately.