Laurena Pty. Ltd. and Ors. v Vilanti Pty. Limited and Ors. [1999] NSWSC 37 (12 February 1999)

Last Updated: 18 February 1999

NEW SOUTH WALES SUPREME COURT

CITATION: LAURENA PTY. LTD. & ORS. V. VILANTI PTY. LIMITED & ORS. [1999] NSWSC 37

CURRENT JURISDICTION: Equity Division

FILE NUMBER(S): 1620/98

HEARING DATE{S): 16-20 November 1998 and 10th December 1998

JUDGDMENT DATE: 12/02/1999

PARTIES:

Laurena Pty. Limited 1P

Desmond Garry Lee 2P

Bruce Michael Wood 3P

Vilanti Pty. Limited and Sinteria Pty. Limited 1st Defendants

C.J. Milledge, I.F. Napier, T. Kapeleris, C.J. & F.J. Milledge Management Pty. Limited, Kapeleris Management Services Pty. Limited and I. & F. Management Services Pty. Limited 2nd Defendants

Kitchener Holdings Pty. Limited 3rd Defendants

JUDGMENT OF: Hodgson CJinEq

LOWER COURT JURISDICTION: Not Applicable

LOWER COURT FILE NUMBER(S): Not Applicable

LOWER COURT JUDICIAL OFFICER: Not Applicable

COUNSEL:

Mr. D. Smallbone Plaintiffs

Mr. J. Darvall 1st, 2nd, 4th & 6thnamed Second Defendants and 3rd Defendant

Mr. M. Zammitt 3rd & 5thnamed Second Defendants

SOLICITORS:

G.J. Gooden, Balmain for Plaintiffs

Birch Partners, Bankstown for 1st, 2nd, 4th and 6thnamed Second Defendants and 3rd Defendant

Kevin Martin & Co., Burwood for 3rd & 5thnamed Second Defendants

CATCHWORDS:

CONTRACTS

JUDGMENTS AND ORDERS

SPECIFIC PERFORMANCE

A deed relating to a unit trust, entered into in settlement of legal proceedings, provided that a certain contract be entered into, that certain payments should be in full satisfaction of all moneys due to certain unit holders from the trust, and that the trust release certain loan accounts. The most recent approved accounts of trust did not disclose such loan accounts, but draft accounts had been prepared substituting those loan accounts for another loan account. The deed did not provide for the surrender or transfer of the units of the unit holders who were to receive the payments. A contract was later entered into which was not precisely in the terms provided by the deed. HELD (1) that in the circumstances of the entry into the contract, the parties manifested an intention that it be performance of the deed; that the deed mainfested an intention that it proceed on the basis of the draft accounts; and that unit holders who had no money due to them from the trust would be ordered to surrender or transfer their units. Consent orders were made prior to the hearing which included some of the final releif sought by the plaintiff. The defendants sought to have them set aside on the ground that, on giving consent, they were mistaken as to their effect. HELD (obiter) that although the unilateral mistake would have been insufficient to set aside final orders, the consent orders were closely interdependent with matters still in issue, so should be treated as interlocutory, and could have been set aside.

ACTS CITED:

DECISION:

Stood over for short minutes

JUDGMENT:

42

IN THE SUPREME COURT

OF NEW SOUTH WALES

EQUITY DIVISION

CORAM: HODGSON,CJ IN EQ.

Friday 12th February 1999

NO. 1620 OF 1998

LAURENA PTY. LIMITED & ORS. V. VILANTI PTY. LIMITED & ORS.

JUDGMENT

1 HIS HONOUR: Prior to 4th October 1995, Messrs. Lee, Wood, Milledge, Napier and Kapeleris were partners in an accountancy business trading as "Baker & Co.". They conducted their business at premises in Kitchener Parade, Bankstown, which were owned by Vilanti Pty. Limited and Sinteria Pty. Limited, as trustees of the Kitchener Parade Unit Trust (which I will call "KPUT"). The unit holders of this unit trust were Laurena Pty. Limited (a company associated with Mr. Lee), C.J. & F.J. Milledge Management Pty. Limited (a company associated with Mr. Milledge), I & F Management Services Pty. Limited (a company associated with Mr. Napier), and Kapeleris Management Services Pty. Limited (a company associated with Mr. Kapeleris).

2 In September 1995, Messrs. Milledge, Napier and Kapeleris brought proceedings against Messrs. Lee and Wood for the winding up of this partnership. These proceedings were settled by entry into three deeds on 4th October 1995: a Deed of Dissolution of Partnership, a deed relating to KPUT, and a deed relating to Riverpine Pty. Limited (the trustee of the Riverpine Trust, to form the partnership's service trust).

3 The KPUT deed provided for the first floor of the Kitchener Parade premises to be subdivided into two lots, one of which was to be purchased from Vilanti and Sinteria by Messrs. Milledge and Napier. On or about 15th August 1997, a contract was entered into for the sale of this lot by the Vilanti and Sinteria to Kitchener Holdings Pty. Limited (a company associated with Messrs. Milledge and Napier); and this contract was subsequently completed in May 1998.

4 Messrs. Lee and Wood, and Laurena, claim that the effect of the KPUT deed was that, upon the completion of this contract, Messrs. Milledge, Napier and Kapeleris had to sever their connection with Vilanti and Sinteria, and that certain payments to be made to Milledge Management, I & F Management and Kapeleris Management were in extinction of their respective entitlements as unit holders in KPUT; and in these proceedings, they seek orders giving effect to these claims.

5 Mr. Kapeleris and Kapeleris Management have put on a cross-claim seeking among other things release from guarantees to Citibank concerning a mortgage over the Kitchener Place premises, and also payment by Mr. Lee and Laurena of $42,592.00 plus interest arising out of an agreement alleged to have been made in 1986.

OUTLINE OF FACTS

6 In about 1978, Mr. Lee joined an accountancy practice which was conducted by Peter Baker and which traded as P.A. Baker & Co. Subsequently, Peter Baker retired; and by about 1985, Messrs. Milledge, Napier and Kapeleris had become partners of Mr. Lee.

7 Associated with this practice was KPUT, established by deed dated 10th March 1975. Clauses 8(a) and (b) of this deed were in the following terms:

8(a) The beneficial interest in the Trust Fund as originally constituted and as existing from time to time shall be held by the Unit Holders for the time being in proportion to the units registered in their respective names and all units shall at any given time be of equal value.

(b) Each unit shall entitle the registered holder thereof equally with the registered holders of all other units to the beneficial interest in the Trust Fund as an entirety but subject thereto shall not entitle the Unit Holder to any particular security or investment comprised in the Trust Fund or any part thereof and save as herein expressly provided no Unit Holder shall be entitled to the transfer to him of any property comprised in the Trust Fund.

8 Clause 21 provided that the trustees of the Trust should in each accounting period apply the whole of the net income of the Trust for the benefit of unit holders in proportion to their units held. This clause also empowered the trustees, with the consent of the Advisory Committee, to make interim distributions to unit holders in proportion to the units held. The Advisory Committee was established by cl.7 of the deed, and it comprised two representatives appointed by each unit holder.

9 Clause 22 of this deed was in the following terms:

22. The Trustees may if directed so to do by a unanimous resolution of the representatives to the Advisory Committee at any time or times and from time to time before the date of the termination of the Trust out of the capital of the Trust Fund held on trust as aforesaid raise any sum or sums and pay the same to Unit Holders in proportion to the units registered in their respective names as at the date of the communication of such resolution to the Trustees for their own use and benefit in addition to any income to which the said Unit Holders may from time to time be entitled.

10 It would appear that prior to 31st May 1985, fifty percent of the units were owned by Laurena, and the other fifty percent by Isthmus Holdings Pty. Limited, a company associated with one William Watson. On 31st May 1985, the directors of Isthmus Holdings resolved to transfer its fifty percent for $55,253.00, in the following proportions: 2% to Laurena for $2,210.00; and 15% to each of Milledge Management, I & F Management and Kapeleris Management for $17,681.00. Following that transaction, 52% of the units were held by Laurena, and 16% by each of the other three companies.

11 At some time in or prior to 1985, KPUT acquired land at 80 Kitchener Parade for a cost recorded in its accounts as $147,284.00. In about 1985, construction was commenced on this site of a two-storey office building, which came to be known as the Kitchener Centre, with the intention that the upper floor would be used for the accountancy practice. The ground floor was to consist of nine strata units, and it was proposed that these units be allocated to the unit holders by reference to their proportionate entitlements. The upper floor was to be a single unit, known as Lot 10.

12 At some time prior to 11th July 1986, Mr. Lee agreed with Mr. Kapeleris that he or Laurena would purchase Mr. Kapeleris' interest in the ground floor units, such agreement providing for an immediate payment of $50,000.00; and there is a dispute as to whether the agreement also provided for some further payment. Thereafter, it appears that the shares in one of the KPUT trustees, namely Vilanti, came to be held by Messrs. Lee, Milledge and Napier in the proportions 68/16/16, with Messrs. Lee, Milledge and Napier being directors of that company; and the shares in the other trustee Sinteria came to be held by Messrs. Lee, Milledge, Napier and Kapeleris in the proportions 52/16/16/16, with Messrs. Lee, Milledge, Napier and Kapeleris being directors of that company.

13 At around the same time of the transaction between Mr. Lee and Mr. Kapeleris, there were discussions between Messrs. Lee, Milledge and Napier as to the allocation of ground floor units. This proceeded on the basis that Mr. Lee or his company were entitled to 68% of those units, and Messrs. Milledge and Napier or their companies entitled to 16% each. It appears from a document in Mr. Milledge's handwriting (Exhibit L16) that negotiations were at least initially based on a value of $50,000.00, being attributed to a 16% interest in the ground floor units, on the assumption that Messrs. Lee, Milledge and Napier or their companies would each undertake liability for their respective shares of the Trust's mortgage liability attributable to the ground floor units allocated to them. This in turn was based on a split of 46% of the mortgage to the upper floor, and 54% to the ground floor.

14 In the result, it was agreed that Mr. Lee should be allocated units 3, 4, 5, 7, 8 and 9, Mr. Milledge units 1 and 6, and Mr. Napier unit 2, in conjunction with payments by Mr. Milledge of $13,500.00 to Mr. Lee and $10,000.00 to Mr. Napier. (The calculations in Exhibit L16 proposed a payment by Mr. Milledge to Mr. Lee of $11,954.00, and to Mr. Napier of $8,778.00; so the ultimate figures agreed on appear to add about one-eighth to the calculations based on a value of $50,000.00 being attributed to 16% of the ground floor units).

15 According to a document dated 11th July 1986, signed by Messrs. Lee, Milledge and Napier, the mortgage loan was to be apportioned according to sale values stated as follows:

Unit No Sale Value Per Sq.Ft. No.of Sq.Ft

1 144,240 250 601

2 144,480 250 602

3 156,480 250 652

4 133,540 230 607

5 123,690 200 651

6 127,800 210 639

7 127,800 210 639

8 127,800 210 639

9 100,825 200 545

16 I note that if one divides the sale value in each case by the area in square feet of each unit, one gets a value per square foot different from that stated in the table. In fact, the value obtained in exactly $10.00 less than that stated in the table, except in the case of unit 9 where it is $15.00 less. It appears that another document was prepared by Mr. Milledge showing values worked out correctly at the above rates, except in relation to units 5 and 9 which were worked out at rates of $210.00 per square foot each.

17 There are in evidence a number of contracts each dated 16th December 1986 for the sale of ground floor units by the trustees Vilanti and Sinteria to Milledge Management and to Laurena. The Milledge Management contracts were for the sale of lot 1 for $87,369.00 and lot 6 for $78,011.00. The Laurena contracts were for the sale of lot 3 for $94,826.00, lot 4 for $81,228.00, lot 5 for $79,473.00, lot 7 for $78,011.00, lot 8 for $78,084.00, and lot 9 for $66,605.00. It is clear that the purchase price in each case was the share of the mortgage liability allocated at that time to the respective unit. It would appear that there may have been a similar contract for the sale of unit 2 to Mr. Napier, but this is not in evidence.

18 These contracts were plainly not arm's-length contracts, and the price in each case was less than the value of the unit. It appears that a valuation was obtained as at 16th December 1986 for stamp duty purposes. According to this valuation, the value of lot 1 was $100,000.00, of lot 2 $107,000.00, of lot 4 $102,000.00, lot 5 $93,000.00, lot 6 $95,000.00, lot 7 $95,000.00, lot 8 $95,000.00, and lot 9 $87,000.00.

19 Subsequently (perhaps in about July 1988), unit 2 was sold to a third party for $156,500.00; and Mr. Napier or his company got the benefit of that sale, less the amount of the mortgage attributed to unit 2.

20 Milledge Management completed its purchase of lots 1 and 6 (perhaps in about June 1991), with the result that it became the registered proprietor of units 1 and 6.

21 Laurena's contracts were rescinded by a formal agreement executed on 24th November 1987. Some acknowledgement of Mr. Lee's or Laurena's rights in relation to the six units previously subject to those contracts is contained in a memorandum dated 29th November 1990 addressed to Mr. Lee from "SJC", which bears the signatures of Messrs. Lee, Milledge, Napier and Kapeleris. That memorandum is in the following terms:

I understand from Des that there are nine individual strata units on the ground floor of 80 Kitchener Parade. Two of these are owned by Chris, one by a doctor and the other six are in the name of The Kitchener Parade Unit Trust (The Unit Trust).

The Kitchener Parade Unit Trust is owned in various proportions by the partners' entities and Des's entity holds 52% of the Units in the Unit Trust. However it is the understanding of all the partners that the six Units in the name of The Unit Trust on the ground floor "in reality" belong to Des.

It would be possible to transfer these Units out of the Kitchener Parade Unit Trust to Des's Trust, however all sorts of stamp duty and capital gains tax implications would arise.

In order to formalise in some way Des's entitlement to the six Units I suggest a Deed between all the partners, all the unit holders in the Unit Trust and the Trustees of the Unit Trust which would in effect say the following:-

1. That the Trustees would deal with the six units as Des may direct from time to time including selling, leasing and mortgaging.

2. The proceeds of a sale or of a loan advance on a mortgage of the units would be dealt with by the Trustees as Des may direct.

The Trustees and all the other parties to the Deed would acknowledge that they would account to Des for any after tax profit of either capital or income arising from rental or sale of the six units.

4. In the event of a mortgage and any other party other than Des is obliged to provide a personal guarantee on the borrowings then Des is to provide suitable indemnities.

I look forward to your views.

22 It appears therefore that Messrs. Milledge and Napier in one way or another received the benefit of the difference between the true value of the ground floor units allocated to them and the amount of the mortgage attributed to those units: in Mr. Napier's case, something like $70,000.00 for unit 2, in addition to the $10,000.00 he had been paid by Mr. Milledge. In addition to this actual benefit received by them, capital profits were recorded in the books of the Trust, being the difference between the cost of each unit as it appeared in those books, and the amount received for each unit by the Trust, being the amount of the mortgage attributed to that unit; and this capital profit was allocated to the unit holders in proportion to their holdings (that is in the proportions 52/16/16/16). These book profits were never actually paid out in cash, but were reflected in loan accounts of the unit holders in the trust.

23 Also associated with the accountancy practice was the Riverpine Trust, the service trust for the practice at all times between 1985 and October 1995. The discretionary beneficiaries of the Riverpine Trust included the partners and KPUT. During the construction of the Kitchener Centre, KPUT incurred losses; and the distribution of profits which were made by the Riverpine Trust during this time were made to KPUT, so as to result in a break-even trading position. This distribution was given effect to by loans being made from KPUT to the Riverpine Trust.

24 In 1989, Mr. Wood joined the practice, and became a unit holder of the Riverpine Trust. It appears that there continued to be distributions of the profits from the Riverpine Trust to KPUT (in which Mr. Wood had no interest); but adjustments were made so that this procedure did not disadvantage Mr. Wood.

25 By 30th June 1991, the loan from KPUT to the Riverpine Trust amounted to $603,194.00. The accounts of KPUT as at that date showed money owing by KPUT to unit holders as follows: to Laurena, $52,834.00; to Milledge Management $31,172.00; to I & F Management $43,692.00; and to Kapeleris Management $31,172.00. Up to the time of preparation of those accounts, Mr. Milledge had undertaken responsibility for the preparation of accounts. From that time onwards, Mr. Napier undertook that responsibility. In the accounts for the year ended 30th June 1994, the loan from KPUT to the Riverpine Trust had increased to $664,821.00; and the money owing by KPUT to the unit holders' companies was $17,152.00 to Laurena; $8,836.00 to Milledge Management; $2,459.00 to I & F Management; and $8,836.00 to Kapeleris Management. The accounts also showed a loan from KPUT to I & F Management of $64,689.00, which was the balance owing by Mr. Napier's company of the mortgage liability allocated to unit 2.

26 Two rival versions have been prepared of the accounts of KPUT for the year ended 30th June 1995. According to Mr. Lee's version, the loan to Riverpine Trust was reduced to $610,097.00, apparently by some procedure of set-off against the loans from the unit holders' companies, those loans being shown as having been repaid. The loan to I & F Management remained the same, that is $64,689.00.

27 According to a version prepared by Mr. Napier, the loan to Riverpine Trust had been repaid, and replaced by loans from KPUT to the unit holders' companies, in the following amounts: $304,132.00 to Laurena; $91,598.00 to Milledge Management; $113,521.00 to I & F Management; and $91,598.00 to Kapeleris Management. The loan to I & F Management of $64,689.00 remained the same, being additional to the other loan of $113,521.00.

28 In both versions of the accounts, the only other assets of the Trust (apart from goodwill at cost $994.00) were the fixed assets of the Kitchener Parade property and its fixtures and fittings (shown at around $500,000.00) and cash shown at about $10,000.00; and the only liabilities were about $1.16 million owed to Citibank, and current liabilities, described as creditors and bonds, of about $10,000.00.

29 In mid-1985, Baker & Co. occupied about half of the upper floor of the building, and the balance of this floor was leased to a client of the practice Hood Favco. Hood Favco was due to vacate the premises in about September or October 1995.

30 On or about 16th August 1995, there was a meeting between Messrs. Lee, Milledge, Napier and Kapeleris, purportedly as directors of the trustees Vilanti and Sinteria, attended also by Mr. Wood. Over Mr. Lee's opposition, a resolution was passed to grant a lease of the premises occupied by Hood Favco to a company described as KMN & Associates Pty. Limited, a company associated with Messrs. Kapeleris, Milledge and Napier. It appears that Messrs. Kapeleris, Milledge and Napier left Baker & Co. in about October 1995, and commenced trading in those premises.

31 As mentioned earlier, in September 1995, Messrs. Milledge, Napier and Kapeleris brought proceedings in this Court for the dissolution of Baker & Co. Those proceedings were settled, and three deeds were executed on 4th October 1995.

32 The deed most significant for these proceedings is that called the "Deed Relating to Kitchener Unit Trust", entered into between the five individual partners, the trustees Vilanti and Sinteria, and the four unit holder companies. The recitals to that deed noted that Citibank, as part of its security with respect to a loan to the trustees, held a registered first mortgage over what the deed referred to as "the Premises", defined to be lot 10; and that Messrs. Lee, Kapeleris, Milledge and Napier had personally guaranteed that loan. Recital L stated "agreement has been reached in relation to the use, occupation and ownership of the premises on the terms and conditions of this Deed". Part 3 of the deed contained the covenants of the deed, and it is necessary to set this out in full, as follows:

1. Amendment to Strata Plan

1.1 The Trustees, Lee, Kapeleris, Milledge and Napier shall each do all acts and sign all documents necessary to amend strata plan 33286 by subdividing the existing Lot 10 into two separate lots in the ratio of 52:48 and otherwise in accordance with a sketch plan prepared pursuant to clause 1.

1.2 Within seven days of the date of this Deed the Trustees, Lee, Kapeleris, Milledge and Napier shall use their best endeavours to agree upon a sketch plan which is to be the basis subdividing the Premises.

1.3 If the Trustees, Lee, Kapeleris, Milledge and Napier are unable to agree on a sketch plan in accordance with clause 1.2 then the Trustees shall instruct Hill & Blume Strata Planning, Surveyors to prepare the appropriate plan of subdivision together with all necessary documents for lodgement with Council and the decision of such Surveyors shall be final and binding upon the parties.

1.4 If the Trustees, Lee, Kapeleris, Milledge and Napier agree on a sketch plan in accordance with clause 1.2 then within two business days of the date of such agreement the Trustees shall instruct Greg Hull, Surveyor to prepare the appropriate plan of subdivision together with all necessary documents for lodgment with Council.

1.5 The Trustees, Lee, Kapeleris, Milledge and Napier agree that:

(a) within three business days of receipt of documents from the surveyor preparing the documents in accordance with this clause 1, the Trustees shall sign the documents and forward them on to Citibank for its consent as mortgagee;

(b) within two business days of receipt of documents back from Citibank with its consent endorsed thereon the Trustees shall lodge the documents with Bankstown City Council together with appropriate application and fee;

(c) if the Council approves the application then the Trustees shall:

(i) expeditiously request Citibank to produce the subject certificate of title to enable its registration;

(ii) within two working days of Citibank producing the subject certificate of title the Trustee shall cause the plan and associated documents (if any) to be lodged for registration with Land Titles Office together with relevant fee.

(d) if Council does not approve the application, the Partners shall be at liberty to require the Trustees to appeal against the decision and the Trustees shall if so required institute such an appeal forthwith.

2. Contracts to Sell Premises

2.1 Within seven days of the date of this deed the Trustees as vendor and Milledge and Napier as purchaser agree to enter into a contract for sale in or substantially in the form of the First Schedule for a purchase price $384,000 to purchase that part of the Premises being an area equal to 48% of the Premises, such area to be determined in accordance with clause 1 of this Deed.

2.2 If the contract specified in clause 2.1 is validly rescinded in accordance with clause 2.2 of the said contract, then Lee, Milledge and Napier agree as follows:

(a) within fourteen days of the rescission of the contract specified in clause 2.1 they shall do all acts and sign all necessary documents to cause to be incorporated a company by the Australian Securities Commission with Articles of Association in the form set out in the Second Schedule other than the following:-

(i) "Companies Code 1981" where appearing shall be replaced by "Corporations Law 1990";

(ii) Article 4 shall be amended by providing shares as follows:-

Group No. Number of Shares

1 52

2 48

(iii) Article 3(i) to be amended to reflect the fact that one of the units shall be occupied by L & W being the holders of Group No.1 shares and the other by KMN being the holders of Group No.2 shares;

(iv) Article 5 shall further be amended to specify that the property involved is two commercial units and car spaces rather than flats;

(v) Articles 7 and 20 to be amended by inserting "12%" as the relevant interest rate;

(vi) Article 38 to be amended to provide that the quorum is to be two members;

(vii) Article 43(i)(b) to be amended to provide that one member may demand a poll;

(viii) Article 45 to be amended to provide that the Chairman does not have a casting vote;

(ix) Article 54 to be amended to provide that there shall be four Directors, two representing the holders of Group No.1 shares and the other representing the holders of the Group No.2 shares.

(b) upon incorporation of the said company shares must be allotted as follows:

(i) Lee fifty two (52) shares which share pursuant to the Articles of the said company entitles the holder to the right to exclusive occupation of that part of the Premises (including car spaces) being an area equal to 52% of the Premises, such area to be determined in accordance with clause 1 of this Deed;

(ii) Milledge and Napier forty-eight (48) shares which share pursuant to the Articles of the said company entitles the holder to the right to exclusive occupation of that part of the Premises (including car spaces) being an area equal to 48% of the Premises, such area to be determined in accordance with clause 1 of this Deed;

(c) upon incorporation there shall be two directors of the said company one appointed by Lee and the second by Milledge and Napier;

2.3 Within seven days of incorporation:

(a) Lee and Milledge or Napier (the directors of the said company shall do all acts, pass all resolutions and sign all documents necessary to authorise the said company to enter into a contract in accordance with clause 2.3(b); and

(b) the Trustees as vendor and the said company as purchaser shall enter into a contract for sale in or substantially in the form of Third Schedule to purchase the Premises for a purchase price $800,00.

3. Occupation of Premises

3.1 As and from the Dissolution Date until completion of either the contract specified in clause 2.1 or the procedure under clause 2.2 as the case may be the Trustees agree with L&W and KMN as follows:

(a) In consideration of L&W paying as and when they fall due 52% of the expenses of the Trustees and the Kitchener Trust for the premises, L&W shall be entitled to occupy the part of the Premises being an area equal to 52% of the Premises, such area to be determined in accordance with clause 1 of this Deed.

(b) In consideration of KMN paying as and when they fall due 48% of the expenses of the Trustees and the Kitchener Trust for the premises, KMN shall be entitled to occupy the part of the Premises being an area equal to 48% of the Premises, such area to be determined in accordance with clause 1 of this Deed.

3.2 As and from the Dissolution Date L&W and KMN must not use the part of the Premises respectively occupied by them for any purpose or use other than for professional offices.

3.3 As and from the Dissolution Date L&W and KMN respectively shall be entitled to the exclusive use and occupation of that part of the Premises being 52% and 48% respectively of the Premises such areas to be determined in accordance with clause 1 of this Deed.

4. Repayment of Citibank and Unit Holders

4.1 When either contract specified in clause 2.1 or 2.2 is completed I & F Management shall pay to Citibank the sum of $64,689.29.

4.2 If the contract specified in clause 2.1 is completed then the Trustees must deal with the price of $384,000.00 as follows:

(a) as to the sum of up to $312,000 paid to Citibank to obtain a partial discharge of its mortgage so far as it relates to the property specified in the said contract; and

(b) subject to clause 4.2(c), as to the balance paid into the account of the Kitchener Trust for immediate payment out to the following unit holders of the Kitchener Trust in proportion set out alongside their name:

(i) Kapeleris Management Trust one third in full satisfaction of all moneys which may be due to them from the Kitchener Trust;

(ii) C.J. & F.J. Milledge Management Trust one third in full satisfaction of all moneys which may be due to them from the Kitchener Trust;

(iii) I & F Management Trust one third in full satisfaction of all moneys which may be due to them from the Kitchener Trust; and

(c) other than I & F Management's liability for $64,689.29 payable in accordance with clause 4.1, in consideration of the purchase referred to in this clause 4.2, the Trustees agree to release KMN, Kapeleris Coy, Milledge Coy and I & F Management from their respective loan accounts.

4.3 If the contract specified in clause 2.2 is completed then the Trustees must deal with the price of $800,000 as follows:

(a) as to a sum of up to $650,000 paid to Citibank to obtain a partial discharge of its mortgage so far as it relates to the Premises;

(b) subject to clause 4.3(c), as to the balance paid into the account of the Kitchener Trust for immediate payment out of the unit holders of the Kitchener Trust in proportion set out alongside their name:

(i) Kapeleris Management Trust - 16% in full satisfaction of all moneys which may be due to them from the Kitchener Trust;

(ii) C.J. & F.J. Milledge Management Trust - 16% in full satisfaction of all moneys which may be due to them from the Kitchener Trust;

(iii) I & F Management Trust - 16% in full satisfaction of all moneys which may be due to them from the Kitchener Trust;

(iv) Laurena Trust - 52% in full satisfaction of all moneys which may be due to them from the Kitchener Trust; and

(c) other than I & F Management's liability for $64,689.29 payable in accordance with clause 4.1, in consideration of the purchase referred to in this clause 4.3, the Trustees agree to release KMN, Kapeleris Coy, Milledge Coy and I & F Management from their respective loan accounts;

4.4 Lee must pay any penalty required by Citibank as a condition of the partial discharge pursuant to either clause 4.2 or 4.3 as the case may be.

5. Transfer of Shares and Resignation as Officers of Trustees

As at the date of completion of either the contract specified in clause 2.1 or clause 2.2 as the case may be the following shall apply:

(a) Milledge and Napier must transfer to the nominees of Lee at par all their shares in Vilanti Pty. Limited CAN 002 633 007;

(b) Kapeleris, Milledge and Napier must transfer to the nominees of Lee at par all their shares in Sinteria Pty. Limited CAN 002 424 348;

(c) Milledge and Napier must each resign as directors of Vilanti Pty. Limited CAN 002 633 007;

(d) Kapeleris, Milledge and Napier must each resign as directors of Sinteria Pty. Limited CAN 002 424 348;

(e) Milledge must resign as secretary of Vilanti Pty. Limited ACN 002 633 007 and Sinteria Pty. Limited CAN 002 424 348;

(f) Kapeleris, Milledge and Napier must deliver to L&W all records and the common seal of Vilanti Pty. Limited CAN 002 633 007 and Sinteria Pty. Limited CAN 002 424 348;

(f)(a) This provision shall be an essential term of this deed. Within six months of the date of this deed Lee must at his sole expense and his own guarantee re-finance the remainder of the Citibank loan or procure Citibank's release of KMN as guarantors of the Citibank loan, and the release of Milledge Coy, Kapeleris Coy and I & F Management from their respective guarantees to Citibank.

(g) KMN must be released from their guarantee to Citibank and all further liabilities either under the Kitchener Trust or as officers of the Trustees and Lee shall indemnify KMN and keep them indemnified against all claims, demands, actions, suits or executions in connection therewith.

6. Accounting Work for Trustees & Kitchener Trust

The parties agree that:

(a) accounts shall be prepared by Lee and checked by Kapeleris for the Trustees and the Kitchener Trust at no cost to the parties;

(b) if any dispute arises concerning the accuracy of accounts prepared in accordance with this clause 6 then an independent accountant shall be appointed (at the request of the party disputing the accounts) by the President or his nominee of the Australian Society of Accountants. The independent accountant shall:

(a) be granted access to all books and records of the Trustees and the Kitchener Trust;

(b) check the disputed accounts;

(c) submit an opinion, which shall be final and binding on the parties; and

(d) act as an expert and not as an arbitrator.

7. Costs

Each of the parties shall bear its own legal costs and disbursements of an incidental in relation to the preparation of this Deed.

8. Dispute Resolution

8.1 In the event of any dispute arising between the Partners in respect of or in connection with this Deed the Partners shall, without prejudice to any other right which they may have pursuant to this Deed, explore whether the issue can be resolved by agreement between them, using informal dispute resolution techniques such as negotiation, mediation, independent expert appraisal or any other alternative dispute resolution technique. The rules governing any such technique which is adopted shall be as recommended by the Society of Accountants.

8.2 In the event that the dispute is not resolved by such agreement within seven days of the dispute arising, any partner may refer the dispute to arbitration. The arbitrator shall be appointed by the Society of Accountants but must not be a person who has participated in an informal dispute resolution under clause 8.1

8.(sic) Further Assurance

Each of the parties shall do, sign and executed all acts, deed, documents and things as may reasonably be required by this Deed or otherwise effective to carry out and give effect to the terms and intentions of this Deed.

33 The contract in the First Schedule to this deed was the 1992 edition of the Law Society Real Estate Institute form. The property was described in the contract as part of lot 10 designated in an annexed plan: no such plan was annexed. The purchaser was described as Messrs. Milledge and Napier "as trustee for Millnap Pty. Limited (a company to be incorporated) but if that name is not acceptable to the Australian Securities Commission then as trustees for such other name as is acceptable". The price was given as $384,000.00. Special Condition 22 of the contract related to registration of the necessary strata plan. Special Condition 22.3 was in the following terms:

22.3 If the plan has not been registered within six months of the date hereof then either party may by notice in writing to the other rescind this Contract whereupon the provisions of Clause 19 will apply.

34 The contract in the Third Schedule was also in the 1992 form, and it contained no special conditions.

35 A second deed executed on 4th October 1995 was entitled "Deed of Dissolution of Partnership". The parties to that deed was the five partners, and the deed dissolved the partnership as at 27th September 1995. "Trustees" was defined to mean Vilanti and Sinteria; and "Unit Trust" was defined to mean KPUT. The "Premises Deed" was defined to mean the deed which I have just been describing. Covenant 11.4 of this deed was in the following terms:

Other than to comply with the provisions of the Premises Deed, Lee and KMN agree that no change shall be made to the shareholding, directorships or management structure of the Trustees or Unit Trust as a consequence of dissolution of the Partnership.

36 Covenant 12.4 was in the following terms:

12.4 Riverpine and the Riverpine Trust

In relation to Riverpine and the Riverpine Trust the Partners agree that as and from the date of dissolution:

(a) except for the functions authorised by this clause 12.4 Riverpine's activities as a general service company shall cease;

(b) neither KMN or L&W shall operate Riverpine as a service company either during or after the winding-up of the Partnership's affairs;

(c) the activities of Riverpine must be limited to those functions authorised by the provisions of this Deed;

(d) Riverpine shall administer those expenses (including joint dissolution expenses) relating to the dissolution of the Partnership which must be paid into the Riverpine Account by virtue of this Deed;

(e) the signatories to the Riverpine Account must be the persons nominated for that purpose in clause 4.3;

(f) all bank accounts in the name of Riverpine other than the Riverpine Account shall be closed;

(g) they shall pay contributions referred to in clause 12.4(d) in the Riverpine Account at least one week before the due date for payment in the case of any periodic payments and no later than one week from the invoice date in the case of other expenses;

(h) they shall ensure that the Riverpine Account is kept in credit at all times with sufficient cleared funds to meet expenses as they fall due;

(i) they shall treat bank charges and expenses incurred in the administration of the Riverpine Account as a joint dissolution expenses;

(j) they shall distribute all assets of Riverpine and the Riverpine Trust between the Partners in the manner stipulated by this Deed (in specie where so provided);

(k) they shall do all acts and sign all documents necessary to wind up Riverpine and the Riverpine Trust and to maintain a reserve in the Riverpine Account to meet the costs of winding up when the activities of each entity contemplated in this clause 12.4 are completed;

(l) they shall convene and pass appropriate resolutions by Riverpine to give effect to the provisions of this Deed including but not limited to a resolution distributing the plant and equipment in specie and in accordance with the Third Schedule.

37 The stipulation referred to in par.(j) of covenant 12.4 was contained in covenant 8 of the deed, which dealt only with furniture, plant and equipment.

38 The third deed executed on 4th October 1995 was entitled "Deed Relating to Riverpine Pty. Limited and the Riverpine Trust". Recital F of this deed was in the following terms:

F. Pursuant to the Deed of Dissolution, the Partners have agreed to procure the winding-up of the Riverpine Trust, the vesting of its property and distribution of its assets pursuant to the terms of the Trust Deed and the provisions hereof.

39 Recital H was as follows:

Riverpine has agreed to enter into this Deed with the Partners in order to give effect to the intentions recited above and contemplated by the Partners in the Deed of Dissolution.

40 Covenant 4 of that deed dealt with the distribution of trust property, with 4.1 dealing with equipment, as set out in the Second Schedule to the deed; and cl.4.2 dealing with "any surplus cash". Covenant 6 of the deed was in the following terms:

Other Liabilities

Any liability of Riverpine or the Riverpine Trust for which specific provision has not been made in this Deed shall be discharged from funds held by Riverpine at the date of this Deed for its own purposes, or those of the Trust, as the case may be.

41 There was delay in preparation of the plan of subdivision contemplated by Covenant 1 of the KPUT deed, and particularly in preparation of the associated s.88B instrument. In a letter dated 11th July 1996 from KMN Accountants (the name under which Messrs. Kapeleris, Milledge and Napier were then trading) to Mr. Lee, it was requested that Mr. Lee forward the linen plan for the subdivision to a surveyor to enable him to conclude the s.88B document and subsequently lodge the strata plan with Bankstown Council. The letter concluded with the following paragraph:

If this document is not forwarded to the Independent Surveyor with seven (7) days this would indicate to us that you do not wish to proceed with the terms of the "Strata Title Subdivision" as indicated in the Property Deed of Dissolution. In these circumstances, to protect the interests of the Unit Holders, Lease Agreements should be obtained immediately from the 1st floor tenants.

42 It was not until June 1997 that agreement was reached on the plan and the associated s.88 instrument. The portion of lot 10 to be purchased by the Milledge and Napier interests was shown on that plan as lot 11, and the portion to be retained by the trustees was shown as lot 12. A draft contract was submitted to the Milledge and Napier interests in about June 1997; and, at the request of Messrs. Milledge and Napier, this contract showed the purchaser as Kitchener Holdings Pty. Limited.

43 By letter dated 27th June 1997, Birch Partners (solicitors acting for the purchaser) requested certain amendments to the draft contract, and in pursuing those requests referred to Covenant 4 of the KPUT deed.

44 In a letter dated 3rd July 1997 from Mr. Lee to Citibank, proposals were made as to amounts to be paid in association with completion of this contract. In the result, it was agreed that Citibank would give a discharge of mortgage in relation to lot 11 on being paid $64,689.00 (the proportion of the loan attributed to lot 2) and $290,000.00, the proportion attributed to lot 11). By a letter dated 12th August 1997 from KMN Accountants to Citibank, there was agreement expressed to matters in a letter from Citibank dated 6th August 1997, including Condition 2 which was to the effect that guarantees of the loan given by Messrs. Kapeleris, Milledge and Napier would be released.

45 The contract was dated 15th August 1997. It differed in some respects from the contract in the First Schedule to the KPUT deed. It was in the 1996 edition of the Law Society Real Estate Institute form. It introduced Special Conditions 23 to 26, in the following terms:

23(a) The vendor agrees to accept the sum of $1,296.00 as deposit in this Contract.

24(a) The purchaser shall pay the balance of $382.704.00 ("the balance") on completion and the vendor hereby directs the purchaser to pay the balance by the following cheques:

(i) $290,000.00 in favour of Citibank by Bank Cheque;

(ii) $30,901.00 in favour of C.J. & F.J. Milledge Management Pty. Limited by ordinary cheque;

(iii) $30,901.00 in favour of I & F Management Services Pty. Limited by ordinary cheque;

(iv) $30,902.00 in favour of Kapeleris Management Services Pty. Limited by ordinary cheque.

25(a) The vendor shall, on completion, in addition to the amount referred to in Clause 24(a) pay to Citibank the amount of $1,296.00 and the purchaser hereby gives authority to the stakeholder to account to Citibank on completion for the said amount of $1,296.00.

26(a) The purchaser, in consideration of the vendor entering into this Contract, shall pay to Citibank on completion the sum of $64,689.00, in addition to the purchase price, but the vendor acknowledges that the payment by the purchaser is on behalf of I & F Management Services Pty. Limited as trustee for I & F Management Services Trust.

(b) The vendor, upon the payment being made in Clause 26(a), shall, if required by I & F Management Services Pty. Limited, on completion execute a form of discharge acknowledging that I & F Management Services Pty. Limited indebtedness to the Kitchener Parade Unit Trust is reduced by $64,689.00.

46 It appears that prior to the entry into this contract, each of Messrs. Milledge, Napier and Kapeleris were paying about $1,035.00 per month towards mortgage repayments in respect of the first floor of the Kitchener Parade premises. It appears that they ceased making these contributions at around the time the contract was entered into.

47 On 26th November 1997, Mr. Lee wrote to Messrs. Napier, Milledge and Kapeleris a letter in the following terms:

I tried speaking to you yesterday regarding finalising the problems regarding the accounts of the above, to allow the transfer to take place.

I have reviewed the accounts and am happy to change the loan account back to your individual companies from Riverpine Pty. Limited as shown in the latest accounts. Could you please confirm that this is the only issue in dispute in the accounts.

I have been advised to forward the attached documents to you for signature and return on settlement.

If there are any other issues outstanding can you please let me know as soon as possible.

48 The problems regarding the accounts referred to in that letter arose from the rival versions of the KPUT accounts for the year ended 30th June 1995 to which I have referred previously. Mr. Lee, pursuant to Covenant 6(a) of the KPUT deed, had prepared accounts for KPUT for the year ended 30th June 1995 and 30th June 1996, and submitted them to the other parties in about December 1996. These were disputed. A meeting of directors of the trustees took place on 7th February 1997, and at that meeting the finalisation of these accounts was deferred. It appears that that matter was not much advanced between then and 26th November 1997 when Mr. Lee wrote his letter.

49 On 27th November 1997, Birch Partners wrote to Heaney Richardson & Nemes, who were then acting as solicitors for the vendors, confirming that settlement was to take place on 28th November 1997. However, on 28th November 1997 Heaney Richardson & Nemes wrote to Birch Partners to the effect that "our client" (meaning Mr. Lee) would settle only if "your clients" (meaning Messrs. Milledge, Napier and Kapeleris) resign as directors from KPUT and transfer their units in the Trust to Mr. Lee. This communication noted that the accounts in the unit trust had been altered as per "your clients' request".

50 On 1st December 1997, Birch Partners wrote to Heaney Richardson & Nemes to the effect that there was no provision in the contract for any such resignation and transfer, and enclosing a Notice to Complete requiring completion on 17th December 1997. Heaney Richardson & Nemes responded on 3rd December 1997, asserting that the overall agreement between the parties required the resignation and transfers. In their response of 8th December 1997, Birch Partners denied that there was such an overall agreement, and questioned the authority of Heaney Richardson & Nemes to make such assertions on behalf of the vendors, namely the trustees Vilanti and Sinteria.

51 On 16th December 1997, KMN Accountants wrote to Heaney Richardson & Nemes asserting that a meeting of the Boards of the trustees on 15th December 1997 had resolved to withdraw the trustees' retainer of Heaney Richardson & Nemes as solicitors for the vendors, and to appoint Stockman & Evans in their place. By a letter of the same date from Birch Partners from Stockman & Evans, the Notice to Complete was extended to 3pm on 17th December 1997.

52 By letter dated 18th December 1997, from Heaney Richardson & Nemes to Stockman & Evans, it was asserted that in the view of Heaney Richardson & Nemes their retainer had not been terminated. In a letter of the same date from Heaney Richardson & Nemes to Birch Partners, the same assertion was made, and an appointment was made to settle the contract on 22nd December "on the basis that the sale to your clients will be completed as contemplated by the 1995 Deed".

53 On 19th December 1997, Birch Partners wrote to Heaney Richardson & Nemes a letter in the following terms:

We confirm that we act for KMN.

We refer to your fax letter dated 18 inst.

Mr. Lee and the vendor companies are in breach of an essential term of the Deed, in that the Citibank loan was not and has not been refinanced within the specified 6 month period. Therefore our clients consider that Mr. Lee and the vendor companies have repudiated the deed. The deed is at an end and our clients reserve their rights to claim damages arising out of the repudiation.

54 There were between November 1997 and February 1998 a number of requests on behalf of the Milledge, Napier and Kapeleris interests to Mr. Lee to submit further accounts for KPUT; but no such accounts were submitted by Mr. Lee until February 1998. These accounts, when they were submitted, were not changed as foreshadowed in the letter of 26th November 1997, but rather continued to show a debt of over $600,000.00 owing by Riverpine.

55 These proceedings were commenced on 5th March 1998. The contract for the sale of lot 11 was completed on 15th May 1998, without prejudice to the positions of the parties in these proceedings.

56 Consent orders were made in these proceedings on 4th June 1998, including an order that Messrs. Milledge and Napier specifically perform their respective obligations pursuant to Covenant 5 of the KPUT deed. There is some discussion of these orders and of their effect in a judgment which I gave on 3rd July 1998.

ISSUES

57 The following issues have been debated in these proceedings.

58 First, there is the issue whether the KPUT deed is still in force. For the defendants, it has been contended that the effect of Covenant 5(f)(a) is that the plaintiffs' interests are in fundamental breach, and cannot now enforce the deed. Furthermore, it has been contended on behalf of Messrs. Milledge and Napier that the contract made on 15th August 1997 was not a contract giving effect to the KPUT deed, but rather was entered into independently of it. There is also the issue raised by the plaintiffs that the consent orders of 4th June 1998 mean that the defendants cannot assert that the KPUT deed is no longer in force: this raises a question of interpretation of the orders, and also may require consideration of a cross-claim brought by the defendants to set aside these consent orders.

59 Secondly, there are issues as to what is now required by the KPUT deed, if it is effective and still in force. There is a question as to whether Milledge Management, I & F Management and Kapeleris Management are obliged to transfer their units in the Trust. There is a question as to the effect of the release of debts contained in the KPUT deed, particularly as it relates to the dispute as to the correct accounts of KPUT: on the Napier version, substantial debts owing to KPUT by Milledge Management, I & F Management and Kapeleris Management are released; whereas on the Lee version, there are no such debts which are released, but rather a debt from Riverpine which is not released. In association with this question, there has been an application to amend pleadings and lead further evidence to support the Napier version.

60 Next, there is a claim by the plaintiffs for damages arising out of alleged failures of the defendants to contribute to expenses incurred by the trustees, including expenses in relation to mortgage repayments attributable to lot 11 between the date of the contract and the date of completion.

61 Thirdly, there are other defences. Delay and laches have been pleaded. In the application to amend referred to earlier, it is sought to include in the defence by the Milledge and Napier interests an allegation of lack of readiness, willingness and ability on the part of the plaintiffs, and particularly the Lee interests, to perform their obligations under the contract. There may be a question as to whether this can be relied on without the amendment, in circumstances where readiness, willingness and ability is not alleged in the Statement of Claim.

62 Fourthly and finally, there is the Cross-claim by the Kapeleris interests. Some issues raised by this cross-claim fall within the earlier issues, particularly those concerning release of the Kapeleris interests from guarantees of the Citibank loan, and the taking of accounts. The issue which the cross-claim raises independently of other issues is the claim against the Lee interests for $42,592.00 plus interest.

63 I will deal first with the first three issues I have identified, leaving aside the issue of rectification concerning the question whether the KPUT deed requires transfer of units, the application for amendment, and the application to set aside the consent orders. Then I will deal with those excepted matters, in so far as it is necessary to do so. Finally, I will deal with Mr. Kapeleris' cross-claim.

WHAT, IF ANY, IS THE CURRENT EFFECT OF THE KPUT DEED?

Submissions

64 Written submissions have been provided on behalf of all parties, and I will leave them with the papers. I have read and considered them carefully, but I will only outline them in this judgment.

65 Mr. Smallbone for the plaintiffs submitted that the contract of sale to Kitchener Holdings was the contract provided in Covenant 2.1 of the KPUT deed. The differences were not substantial, and under Covenant 2.1 the contract had only to be "substantially" in the terms of the contract in the Schedule. The change of the purchaser's name was made at the request of Messrs. Milledge and Napier. Alterations to the terms were requested by the purchaser's solicitor on the basis of the KPUT deed. Messrs. Milledge, Napier and Kapeleris acknowledged in their letter to Citibank that they were to get a release of their guarantees, to which they had no entitlement apart from the KPUT deed. Under the contract, they were to get about $30,000.00 each, an entitlement which could only be explained by the KPUT deed.

66 As for Covenant 5(f)(a), that was subject to the preamble to Covenant 5, and accordingly meant that the release had to be given on completion of the contract or six months after the date of the deed, whichever was the later. In any event, even if there had been a breach of Covenant 5(f)(a), there had been no election to terminate; and the KPUT deed had been affirmed by entry into the contract. The purported termination of 15th December 1997 was accordingly too late.

67 Covenant 4.2(b) meant that receipt of the amounts referred to, being in full satisfaction of all moneys which may be due to them from the Trust, was a payment out of their entitlements as unit holders. In equity, they previously had no entitlement to the remaining downstairs units, so it was appropriate that realisation of their beneficial interests in 48% of the upper floor would discharge all their entitlements as unit holders.

68 Covenant 3.1(a) required them to pay expenses, including the Citibank payments of $1,035.00 per month. The Napier interests were also liable for $642.40 per month in relation to the portion of the mortgage allocated to unit 2. It was foreseeable that failure to make these payments could cause financial embarrassment to Mr. Lee, so the defendants were also liable for additional loss caused to Mr. Lee in relation to his divorce settlement.

69 For the defendants, it was submitted by Mr. Darvall and Mr. Zammit that Covenant 4.2(c) of the deed showed that the Napier version of the accounts was correct, otherwise there were no loan accounts which could be released. This was confirmed by Covenant 4.4(g) of the Dissolution Deed, and Covenant 11(g) of the Riverpine deed, both of which contemplate that the partners' loan accounts in Riverpine would be in credit. Covenant 4.2(b) did not mean that their entitlements as unit holders would be discharged. There were capital distributions due to the Milledge, Napier and Kapeleris interests from KPUT, namely those which would flow from realisation of the downstairs units and of lot 12, even on the basis that the downstairs unit would be sold to the Lee interests for the amount of the mortgage attributable to them. There had been such capital distributions concerning the sale for the mortgage allocation to Mr. Milledge of lots 1 and 6 and to the Napier interests of lot 2.

70 Covenant 5(f)(a) was not subject to the preamble to Covenant 5, and required absolutely that there be performance within six months. Plainly it was not complied with. Rescission was effected by the letter of 11th July 1996, or alternatively the letter of 19th December 1997.

71 The contract to purchase lot 11 was entered independently of the KPUT deed. Special condition 24, providing for payment of $30,901.00 each, displaced cl.4.2(b) and did not provide that the payment was to be "in full satisfaction" of unit holders' entitlements. In any event, such payment was only in respect of the sale of lot 11, or alternatively was on account of capital entitlements as above.

72 The plaintiffs were not entitled to specific performance, because they have not at appropriate times been ready willing and able to perform the contract themselves, and were not now ready willing and able. The Lee interests would complete the contract for the sale of lot 11 only if the units were transferred, and there was no obligation on the defendants to do this. Furthermore, Mr. Lee had failed to prepare the accounts of KPUT on the proper basis, that is on the basis of Mr. Napier's version of the accounts.

73 On the question of damages, Covenant 3.1(a) was an obligation enforceable by the trustees, not by the plaintiffs. If it related to gross expenses, provision of those expenses would add to the profit, and 48% would have to be returned to the defendants. Failure to pay the expenses was not established by the evidence. The instalments included some payments of principal, to which the plaintiffs were not entitled. In relation to other items claimed in a schedule produced on behalf of the plaintiffs, it was submitted that costs of $1,051.00 paid to Mr. Heidtman had been paid by Kitchener Holdings Pty. Limited. The valuation fee of $1,200.00 to Citibank was payable by the Lee interests. The costs of Heaney Richardson & Nemes included work done for the Lee interests as well as work done for the trustees; in any event, there had been no proper appointment of Heaney Richardson & Nemes by the trustees; and there had been no proper accounts rendered, and the accounts had not been assessed. In relation to the claim for monthly contributions in respect of unit 2 by the Napier interests, there was no obligation to make such payments in the KPUT deed, and the liability for such payments was caused by delay by the Lee interests in entering into and completing the contract. Additional expenses incurred by Mr. Lee because of financial embarrassment in relation to his divorce settlement were too remote.

Decision

74 It is probable that the parties to the Deed expected that the contract would be completed within six months, and did not expressly consider how Covenant 5(f)(a) was to operate if it were not completed within six months. It could be argued that, by making Covenant 5(f)(a) "an essential term", the parties intended it to operate before completion, if completion was delayed beyond six months. However, I think the better view is that Covenant 5(f)(a) is subject to the preamble in Covenant 5. It refers to the "remainder of the Citibank loan", which must mean the remainder after what is paid on completion. Accordingly, in my opinion, the release must be provided either within six months or on the completion of the contract, whichever is the later.

75 In my opinion, the contract relating to lot 11 was entered into in order to give effect to Covenant 5. In my opinion, the change of name of the purchaser was not material. I note that the contract in the first schedule to the KPUT deed had Messrs. Milledge and Napier as purchasers only as trustees for a company which they were to incorporate, so the naming of the purchaser as a company specified and requested by Messrs. Milledge and Napier gave effect almost precisely to the terms of the deed. Furthermore, the deed provided that the terms of the contract were to be "substantially" as provided in the schedule. In my opinion also, as submitted by Mr. Smallbone, Messrs. Milledge, Napier and Kapeleris manifested an intention that the contract be pursuant to the KPUT deed by seeking release of their guarantees by Citibank, and by Birch Partners negotiating the terms of the contract in reliance on provisions of the KPUT deed. In my opinion also, the provision that the Milledge, Napier and Kapeleris interests each received about $30,000.00 is explicable only on the basis that the contract was giving effect to the KPUT deed.

76 This means that the entry into this contract (which was signed by Mr. Kapeleris on behalf of one of the vendors) was an affirmation of the KPUT deed; so that even if there had been a breach of Covenant 5(f)(a), the only purported rescission relying on breach of that covenant, namely that of 19th December 1997, was too late.

77 I note that Messrs. Milledge and Napier said in evidence that they believed, in August 1997, that the KPUT deed was no longer valid, that they were entering into the contract independently of it, and that special conditions 23-26 were included for that reason. (Mr. Kapeleris, on the other hand, swore that he believed the contract was giving effect to the KPUT deed). In cross-examination, Mr. Napier tried to explain the payment of $30,000.00 as being a loan on account of a capital profit realised on the sale of lot 11, of which his share was $87,013.00 or $42,726.00 (see Exhibit MN6); and that this was put to Mr. Lee. Similar evidence was given by Mr. Milledge. Indeed, both went so far as suggesting that this had been the original intention of Covenant 4.2(b) of the KPUT deed.

78 I reject this evidence of Messrs. Milledge and Napier. In my opinion, it is probably deliberately false, but at best it is a very substantial reconstruction. It is not believable at all that they had that view of the KPUT deed at the time it was executed. They did not assert in their affidavits that the $30,000.00 was a loan, or that it was put to Mr. Lee that it was to be a loan; and in my opinion, this was not said to Mr. Lee. In my opinion, this evidence is inconsistent with their conduct, at the time of entry into the contract, in seeking release from Citibank of their guarantees. It is also inconsistent with the letter written by their solicitors, negotiating terms of the contract on the basis of the KPUT deed. Even if I were wrong in rejecting this evidence as to their subjective belief, for reasons I have already given their objective conduct plainly manifested an intention that the contract be a performance of the KPUT deed.

79 Turning to the rival versions of the KPUT accounts, I accept that Mr. Napier's changes to the KPUT accounts were never approved by the directors of the KPUT trustees. However, in my opinion it is plain that the entry into the KPUT deed manifested an intention that this deed operate on the KPUT accounts substantially as altered by Mr. Napier. Otherwise, Covenant 4.2(c) dealing with the release of loan accounts would be meaningless, there being no such loan accounts on Mr. Lee's version. Furthermore, on the Lee version of the accounts, any notion that a distribution of the surplus on the sale of lot 11 to the Milledge, Napier and Kapeleris interests should be "in full satisfaction of all moneys which may be due to them from the Kitchener Trust", would be grossly inappropriate: there would be a very large assets of the trust, namely the debt of over $600,000.00 due by Riverpine, to which in fairness each of those interests should have a 16% entitlement. This was explained by Mr. Lee as having been overlooked by him. The same position would apply in relation to the alternative contract, which was to be entered into if a subdivision was not approved, and in relation to which the distribution to the Lee interests as well as the other interests was to be in full satisfaction of all moneys which may be due to the Lee interests from the Kapeleris trusts. This would leave the Riverpine debt as something to which no-one would apparently have had any entitlement.

80 Furthermore, the changes to the accounts were made by the person with the responsibility for preparing the accounts, and were available to the Lee interests at the time of entering into the KPUT deed. Either Mr. Lee utilised this availability and knew of the alterations; or alternatively did not utilise it, when it would be reasonable to expect that a person entering into such a deed would have looked into the state of accounts of the trust. On any approach, in my opinion, Mr. Lee and his interests manifested an intention that the deed apply to accounts substantially as altered by Mr.Napier.

81 This is further confirmed by the terms quoted earlier from the partnership dissolution deed and the Riverpine deed, dealing with the winding up of Riverpine and the distribution of its assets: these terms seem to me to point strongly against Riverpine having an ongoing debt of over $600,000.00 to KPUT, balanced by debts owing to it by the partners or their companies.

82 On the question of transfer of units, "in full satisfaction" means in full payment of all entitlements as unit holder. Provided the deed is regarded as applying to the accounts as altered by Mr. Napier, this would be fair, having regard to the acceptance by all parties that all the downstairs units remaining in the trust were beneficially owned by the Lee interests, so that in effect all assets of KPUT were accounted for. This was also consistent with the manifest intention of the three deeds to achieve so far as possible a complete parting of the ways of the two camps.

83 The circumstance that the Milledge, Napier and Kapeleris companies had received full payment of all their entitlements as unit holders meant, in terms of the original KPUT deed, those unit holders had nothing due to them; and this would be inconsistent with them being unit holders of any percentage. It would mean that they would have no rights as unit holders. To give effect to this intention and consequence of the KPUT deed of October 1995, the Court could mould an appropriate order, that those unit holders either surrender or transfer their units.

84 On the matter of delay, laches and readiness, willingness and ability, in my opinion, a defence of lack of readiness, willingness and ability is available to the defendants without amendment. The Statement of Claim is defective in not pleading readiness, willingness and ability. In those circumstances, in my opinion, the absence of denial of readiness, willingness and ability in the Defence should not preclude it being raised by the defendants, particularly where the matter was debated during the hearing of the case, and no objection was taken by the plaintiffs on the basis of surprise.

85 These matters must be approached, having regard to the circumstance that the Milledge, Napier and Kapeleris interests have taken a substantial benefit under the deed by reason of the entry into and completion of the contract, and are not offering to give up any such benefit. There was long delay in entering into and completing the contract; but this is not shown to be solely the fault of the Lee interests, and in the circumstances is insufficient to defeat specific performance.

86 In my opinion, the only possible deficiency in the plaintiffs' case on this aspect arises from the failure of Mr. Lee to prepare proper accounts for KPUT on the basis on which the deed operates, that is on the basis that the Napier version is substantially correct. This failure may be considered all the more serious because Mr. Lee had undertaken to do this in his letter of 26th November 1997. However, during the hearing the Lee interests made it clear that they were in substance prepared to have the matter go forward on the basis of the Napier version of the accounts, and in my opinion, the plaintiffs have now demonstrated substantial readiness, willingness and ability to perform their side of the bargain. In circumstances where the defendants have received and retained benefits, in my opinion this is sufficient.

87 As regards the plaintiffs' claim for damages, in my opinion the relevant defendants were obliged by Covenant 3.1(a) to continue payments to Citibank of the appropriate shares of the mortgage instalments between the time of the contract and completion. It was put that these amounts were paid out of income otherwise available to the trust, and thus not paid by the Lee interests. However, in my opinion, the other income of the trust out of which the payments were made was income from the ground floor units to which the Lee interests were entitled in equity, and accordingly cannot to any extent be regarded as payments made on behalf of any of the defendants. In my opinion, the companies associated with Messrs. Milledge, Napier and Kapeleris are bound to reimburse the Lee interests with sums of approximately $1,035.00 per month, being the instalments attributable to the interest in lot 10 of each of those entities. I do not think it is to the point that a small part of those instalments was in respect of capital. In addition, there will be liability for interest at schedule rates.

88 However, in my opinion all other claims for damages by the plaintiffs fail.

89 As regards the instalments in respect of unit 2, the deed makes no provision for any liability in the Napier interests to continue those payments. I do not think the previous practice is sufficient to imply such a liability.

90 As regards money payable by KPUT to Citibank to get the discharge of mortgage (bank fee, valuation fee, legal costs of the discharge of mortgage), and the trustee's own legal costs, again the KPUT deed imposes no obligation. It could be argued that those amounts were, under the KPUT deed, to come out of the purchase price for unit 11 prior to the ascertainment of the balance to be distributed to the interests associated with Messrs. Milledge, Napier and Kapeleris; but that approach is inconsistent I think with cls.23-26 of the contract; and in that respect, in my opinion the contract would prevail over the deed.

91 As regards additional expenses incurred by Mr. Lee in relation to his divorce settlement, in my opinion they are plainly too remote.

RECTIFICATION

92 This question does not actually need to be determined, having regard to my interpretation of the KPUT deed. However, I will briefly deal with it.

Submissions

93 Mr. Smallbone submitted that Mr. Nemes' evidence of discussion about the Milledge, Napier and Kapeleris interests exiting from the trust, and the redemption of their units, should be accepted over Mr. Carroll's denials of such discussion. Mr. Nemes was supported by his contemporary notes. Mr. Carroll's recollection was not good, and he was unable to give any reasonable explanation of Covenant 4.2(b).

94 Mr. Darvall submitted that rectification required clear and satisfactory evidence: Australian Gypsum v. Hume Steel [1930] HCA 38; (1930) 45 CLR 54 at 64; Moses v. Northern Assurance (1856) 1 VLT 114. There was not such evidence in this case.

Decision

95 In my opinion, Mr. Nemes' notes do make it probable that the exiting from the trust and the redemption of units was discussed; and to that extent, I prefer Mr. Nemes' evidence to that of Mr. Carroll. In general terms, this tends to confirm my understanding of what was intended by the deed, although of course it is not admissible in evidence for this purpose. But in my opinion, this does not amount to clear and satisfactory evidence of an agreement or common intention sufficient to justify rectification, if my interpretation of the deed were incorrect.

AMENDMENT

96 Mr. Darvall submitted that the granting of the amendment sought and the hearing of further evidence was crucial to determination of the plaintiffs' claim for specific performance, particularly on the aspect of readiness, willingness and ability.

97 However, without needing to consider whether or not there was an earlier agreement by Mr. Lee to the amendments to the accounts effected by Mr. Napier, I have found that the entry into the KPUT deed manifested an intention by Mr. Lee and interests associated with him that the Napier version of the accounts be adopted, at least for the purpose of giving effect to the deed. Furthermore, without amendment I permitted reliance on the defence that the plaintiffs were not ready, willing and able to perform the deed for their part. For those reasons, I do not think the amendment is necessary in order to give effect to any case reasonably sought to be raised by the defendants, and in the light of the lateness of the application and the expense and inconvenience that would be involved in re-opening the matter, I refuse the application.

CONSENT ORDERS

98 Having regard to my decision that the KPUT deed is still in force, it is not necessary for me to decide the application to set aside the consent orders. However, I will briefly deal with it.

Submissions

99 Mr. Darvall submitted that the orders were interlocutory: see Sanofi v. Parke Davis No.11 (1981) 149 CLR 147 at 152. Such orders may be set aside, even when made by consent and entered: Mullins v. Howell (1879) 11 Ch.D. 736; Ainsworth v. Wilding (1896) 1 Ch. 673. The Court retains control of its proceedings, and for that purpose may set aside such orders: Wilkshire v. The Commonwealth (1976) 9 ALR 325 at 330; Morgan v. 45 Flers Avenue (1987) 11 NSWLR 573; Werner & Co. v. Bailey Aluminium Products (1988) 80 ALR 134.

100 Mr. Smallbone submitted that consent orders can only be set aside on a ground on which a contract could be set aside: Bailey v. Marinoff [1971] HCA 49; (1971) 125 CLR 529; Nicholson v. Nicholson (1974) 2 NSWLR 59; Alfa Laval Australia v. Shoalhaven Dairy Co-Op, Giles, J., 12th May 1989. In this case, there was no mutual mistake: McCrae v. Commonwealth Disposals Commissions (1951) 88 CLR 377; Life Insurance Co. of Australia v. Phillips [1924] HCA 44; (1925) 35 CLR 60. Nor was there a unilateral mistake justifying setting aside a contract, because it was not shown that the plaintiffs knew of any such mistake: Taylor v. Johnson [1983] HCA 5; (1983) 151 CLR 422; Tutt v. Doyle (1997) 42 NSWLR 10. In any event, the defendants' alleged mistake was not properly proved: Grundell v. Registrar-General (1990) 5 BPR 97340; Dimura v. Public Trustee, Bryson, J., 15th July 1996; Atsas v. Gertsch, Hodgson, CJ in Eq., 28th July 1998.

Decision

101 If the orders in question are properly regarded as final orders, I would be inclined to accept Mr. Smallbone's submissions. However, in this case because of the close interdependence of the consent orders which were made, with the issues which were left to be contested, I do not think the consent orders can fairly be regarded as orders finally disposing of any aspect of the claim for relief. I think therefore that they are more appropriately regarded as interlocutory orders; and as such, by reason of what I believe to be a mistake by the defendants as to their effect, I would have been inclined to set them aside, had this been necessary.

MR. KAPELERIS' CLAIM

Submissions

102 Mr. Zammit referred to Mr. Kapeleris' evidence of the following conversation between Messrs. Kapeleris and Lee in about July 1986: Kapeleris: "I will sell you my entitlement for $92,000.00". Lee: "Do you realise that you may have to pay capital gains tax on the profit?" Kapeleris: "If I have to I will pay it when the time comes but there is a good chance I will not have to pay any capital gains tax as the land was acquired before capital gains tax was introduced". Lee: "I will tell you what I will give you, $50,000.00 now being the after-tax amount and later if it is confirmed that no capital gains tax is payable I will give you an additional $42,592.00 being the capital gains tax figure. That is my best offer". Kapeleris: "I will go along with that". Mr. Zammit submitted that this evidence was to be preferred to Mr. Lee's denial of any such conversation. It was corroborated by Mr. Tan. It was in accordance with the probabilities: the prices attributed to individual units in the contract subsequently executed were much more than $50,000.00, the valuations of the units were much more than $50,000.00, and the amounts attributed to the units in Exhibit L5 were much more than $50,000.00.

103 Furthermore, the agreement was plausible. Capital gains tax, if applicable, would be levied on a subsequent sale by KPUT for the benefit of a unit holder; and once Mr. Kapeleris' entitlement was purchased by Mr. Lee, that capital gains tax would be payable by Mr. Lee. In the absence of Mr. Lee being liable for such capital gains tax, it was reasonable that he should pay that amount to Mr. Kapeleris.

104 Specific performance of such an agreement was available to a vendor, even if all that remained to be done was payment of the purchase price: Turner v. Bladin [1951] HCA 13; (1951) 82 CLR 463. Although there was no memorandum, there was sufficient part-performance: McBride v. Sandline [1918] HCA 32; (1918) 25 CLR 69; J.C. Williamson v. Lukey [1931] HCA 15; (1931) 45 CLR 282. Accordingly, Mr. Kapeleris' claim was not statute-barred. In any event, Mr. Lee was seeking specific performance which in effect, in that it would give him full control and rights in respect of the downstairs unit, involved specific performance of his agreement in 1986 with Mr. Kapeleris; and accordingly, he would be required to complete his agreement with Mr. Kapeleris.

105 Mr. Smallbone submitted that the claim was for debt, not specific performance; and that in any event, a limitation period would be applied by analogy: Firth v. Slingsby (1888) 58 LT 481; R. v. McNeil [1922] HCA 33; (1922) 31 CLR 76; J.C. Williamson v. Lukey [1931] HCA 15; (1931) 45 CLR 282; Re Robinson (1911) 1 Ch. 502; Re Greaves (1881) 18 Ch.D. 551; Fitzgerald v. Masters [1956] HCA 53; (1956) 95 CLR 420. Mr. Kapeleris ascertained that capital gains tax was not payable at the latest in May 1988, and so his claim was statute-barred.

106 His claim was also defeated by s.54A of the Conveyancing Act; and part-performance could not be relied on, as it had not been pleaded. Furthermore, Covenant 4.2(b) of the KPUT deed discharged any claim of Mr. Kapeleris.

107 In any event, the probabilities were strongly against the existence of any such agreement. It was inherently unlikely that an odd figure such as $92,000.00 was initially requested, and that in response Mr. Lee specified $42,592.00. Those figures were arrived at by mathematical calculations working back from a net figure of $50,000.00. In any event, it did not make sense that Mr. Lee would pay Mr. Kapeleris an additional amount because Mr. Kapeleris was not liable for capital gains tax. The figures did not make mathematical sense, and Mr. Kapeleris was discredited by his claim to have said "Why would I sell my equity in downstairs for less than I paid", when it was clear that he had paid around $17,000.00 for this equity.

Decision

108 Looking first at some objective facts, it is plain that $50,000.00 was never intended to represent 16% of the full value of downstairs; what it was intended to represent, if anything, was 16% of the difference between the value of downstairs and the amount of the mortgage that was to be attributed to downstairs. Accordingly, the figures in the contracts, and the valuations of the units, are not appropriate figures to compare with $50,000.00: what would be appropriate would be the difference between the value of the units and the amount of the mortgage attributed to those units.

109 Next, in my opinion it is clear that the adjustments made between Messrs. Lee, Milledge and Napier were based in the first instance on attributing $50,000.00 as a reasonable sum for 16%; though subsequently this was rounded off to figures of about one-eighth higher, which would attribute $56,000.00 or thereabouts to 16%. On completion of the building and realisation of some of the units, it turned out that 16% was worth something like $80,000.00 or more. On the other hand, Mr. Kapeleris received his $50,000.00 somewhat earlier, and avoided any risks associated with the enterprise.

110 On the question of how capital gains tax would relevantly have applied, I think the relevant application would have been to a sale of units by KPUT, in which case capital gains tax, if applicable, would have been payable on the difference between the acquisition cost by KPUT (CPI adjusted) and the sale price. Applying this to Mr. Kapeleris' share, this would be the difference attributable to a sale of 16% of downstairs. If there was at the time of the sale from Kapeleris to Lee a difference between the value of Mr. Kapeleris' 16%, and KPUT's acquisition costs of this 16%, of $92,000.00 or thereabouts, then $42,000.00 or thereabouts of tax subsequently payable on the sale of that 16% by KPUT would be attributable to capital gains up to the time of the sale of Mr. Kapeleris' interest to Mr. Lee. It would make some sense then that Mr. Lee would pay Mr. Kapeleris $50,000.00, on the basis that there would be a further $42,000.00 if capital gains tax did not apply.

111 However, the conversation given in evidence by Mr. Kapeleris did not refer to capital gains tax possibly payable in the future by Mr. Lee, but capital gains tax possibly payable by Mr. Kapeleris. As submitted by Mr. Smallbone, I do not think that does make sense. As regards Mr. Tan's corroboration, on the only occasion when Mr. Tan gave his recollection of the conversation without being led, he gave the conversation as being Lee saying to the effect "I will pay you $50,000.00, and should there be any capital gains tax I will look after that", which is entirely different from Mr. Kapeleris' claim.

112 I think there is force also in Mr. Smallbone's submission that the original specification of $92,000.00 by Mr. Kapeleris seems inherently unlikely. I have reservations about Mr. Lee's credibility, having regard to what appears to be prevaricating conduct in relation to the Napier version of the KPUT accounts; but I also have reservations about Mr. Kapeleris' credibility, having regard to his unsatisfactory explanation of his statement about being paid less for his interest than he had paid for it.

113 On the whole, I do not think Mr. Kapeleris has discharged the onus which lies squarely on him of satisfying me that there was a contract in sufficiently certain terms about the payment of additional money, or as to what the precise terms of such a contract were.

114 I am inclined to think, had I found a contract, that the other defences would have failed. Having regard to the purely equitable basis of Mr. Lee's claim to the remaining six units downstairs, and having regard to the circumstance that specific performance of the KPUT deed would in substance translate that equitable entitlement into a full legal entitlement, I think it is fair to say that in substance Mr. Lee is now seeking specific performance of his 1986 agreement with Mr. Kapeleris. In those circumstances, I think Mr. Lee would be required to honour in full all aspects of his agreement with Mr. Kapeleris.

CONCLUSION

115 In the result, I think the plaintiffs are entitled to an order for specific performance, but in terms which make it clear that this is to be on the basis of accounts substantially as prepared by Mr. Napier. As part of that specific performance, appropriate orders would be made which ensure that, one way or another, the Milledge, Napier and Kapeleris interests cease to be unit holders in the Kitchener Parade unit trust. The terms of the specific performance would be such as to give effect to Mr. Kapeleris' claims, other than the claim for $42,592.00. That lastmentioned claim will be dismissed.

116 On the question of costs, I may need to hear submissions, but I will express some tentative views. The plaintiffs did not plead readiness, willingness and ability, and did not initially give evidence of readiness, willingness and ability. Between November 1997 and well into the hearing of the case, the plaintiffs did not offer performance on their part on the proper basis. The defendants' contentions about the KPUT accounts, particularly concerning Riverpine, were contested by the plaintiffs, and the plaintiffs lost. On the other hand, the overall result of the case must be considered as substantially a win for the plaintiffs.

117 The issues raised by Mr. Kapeleris took some time, and Mr. Kapeleris lost those issues. However, he did not raise the issue, which was raised and lost by Messrs. Milledge and Napier, about the contract not being in performance of the KPUT deed. Taking all these matters into account, my tentative view is that an order should be made that all of the defendants, apart from the first defendants (the trustees), should be ordered to pay one-half of the plaintiffs' costs.

*************

I certify this and the preceding 41

pages to be a true copy of the reasons

for judgment of Justice D.H. Hodgson

Date 12th February 1999

Associate

LAST UPDATED: 12/02/1999