Europlex Pty Ltd v Unique Living Australia Pty Ltd; Unique Living Australia Pty Ltd v Europlex Pty Ltd

1. [1]

   Mr Radoslav Minarovic is a builder. Mr Saif Hayek is a property developer.

2. [2]

   Mr Minarovic and Mr Hayek met in 2013 when Mr Minarovic managed the building works on a holiday home owned by Mr Hayek.

3. [3]

   They became friends. They have now fallen out and are in dispute.

4. [4]

   The dispute relates to entitlements of Europlex Pty Limited (a company of which Mr Minarovic is a director) and Unique Living Australia Pty Limited (a company of which Mr Hayek is a director) concerning the development of a property owned by Unique Living at Terrigal and the sale of another property formerly owned by Unique Living at East Gosford.

The Terrigal property

1. [5]

   On or about 23 June 2014 Unique Living purchased the Terrigal property for some $2.1 million.

2. [6]

   Mr Minarovic and Mr Hayek met on 8 September 2014 and agreed to develop the property. The agreement was partly written and partly oral.

3. [7]

   It is common ground that the written part of the agreement is recorded in an email that Mr Hayek sent Mr Minarovic that day which reads:

4. [8]

   It is also common ground that the terms of the agreement included that:

5. [9]

   Europlex commenced building work in January 2015.

6. [10]

   On 15 July 2015 Unique Living and Europlex executed a “Formal Instrument of Agreement” which incorporated the “General conditions of contract for design and construct” in Australian Standard AS4902-2000. I will refer to this document as the “Building Contract”.

7. [11]

   Europlex contends that it was never the mutual subjective intention of the parties that their relationship be governed by the Building Contract. Europlex asserts that document is a sham (see Lewis v Condon (2013) 85 NSWLR 99; [2013] NSWCA 204 at [57] – [70] (Leeming JA with whom McColl JA and Sackville AJA agreed)).

8. [12]

   For the reasons I set out below, I do not accept that contention.

9. [13]

   The terms of the Building Contract included that:

10. [14]

    By May 2017 the works had not reached practical completion.

11. [15]

    Europlex ceased work on the site in about June 2017.

12. [16]

    During the course of the works, Unique Living paid Europlex some $7.85 million for the work it did on the project.

13. [17]

    On 16 June 2017 Unique Living, by its solicitor, served on Europlex a notice pursuant to cl 39 of the General Conditions of the Building Contract calling on Europlex to show cause as to why Unique Living should not terminate the Building Contract.

14. [18]

    On 29 June 2017 Europlex, by its solicitor, replied to that letter. I will refer to that reply below.

15. [19]

    On 2 August 2017 Unique Living terminated the Building Contract.

16. [20]

    Mr Allen, who appeared for Europlex, accepted that if the Building Contract governed the parties’ rights (which I find it did), Unique Living was entitled to liquidated damages.

17. [21]

    In December 2017 Unique Living engaged another builder to do further work on the development.

18. [22]

    The development remains incomplete.

19. [23]

    The only relief pressed by Europlex was for declaratory and other relief concerning Europlex’s entitlement to 30 per cent of the profit from the development.

20. [24]

    As Mr Allen said in his final submissions:

21. [25]

    In those circumstances Mr Allen submitted that the “way forward” was for an order to be made under Uniform Civil Procedure Rules 2005 (NSW) r 20.14 referring for inquiry “what profit, if any, has been derived from the development of the Terrigal Land”.

22. [26]

    However, during final submissions, Mr Allen accepted that it would be premature to make such an order given the project is not complete.

23. [27]

    Mr Allen also accepted in his written submissions that “to some extent” it would be premature to make the declaratory relief sought by Europlex concerning any profit it might make from the development.

24. [28]

    Mr Roberts SC, who appeared with Mr Byrne for Unique Living, developed detailed submissions pointing to the improbability of a profit being realised from the Terrigal development. It is not necessary for me to set out the detail of those submissions here. Suffice to say I am satisfied that it is far from certain that a profit will be achieved and, for that reason, see no utility in granting Europlex declaratory relief.

25. [29]

    Accordingly Europlex’s claim should be dismissed.

Did the Building Contract govern the parties’ rights?

1. [30]

   Mr Allen submitted that “it was never the mutual subjective intention of the parties for their relationship to be governed by [the Building Contract]”.

2. [31]

   He advanced this argument on two bases: first, that the Building Contract failed for want of consideration; and second, that the document is a sham. I will address each of these in turn.

3. [32]

   First, Mr Allen submitted that “there was no consideration for the written agreement. Europlex had already promised to build and Unique Living had promised to pay $5 million”.

4. [33]

   I do not accept that submission.

5. [34]

   The email agreement of 8 September 2014 did not specify a price for which Europlex was obliged to complete the work. It merely provided that if “the budget for Terrigal goes over $5 million the extra amount will come off your commission”.

6. [35]

   By the Building Contract, Europlex promised to perform the work for “the fixed lump sum of $4,545,454 (ex GST)”, that is $5 million inclusive of GST, and otherwise on the detailed terms of the Building Contract including as to the date by which practical completion be achieved and the payment of liquidated damages if it was not.

7. [36]

   In turn, Unique Living made the various promises set out in the detailed terms of the Building Contract.

8. [37]

   Further, the conduct of Europlex and Mr Minarovic shows they accepted that the Building Contract governed the relationship between Europlex and Unique Living.

9. [38]

   On numerous occasions Mr Minarovic made statutory declarations concerning monies due and payable to Europlex “under the Building Contract”.

10. [39]

    Further, as I have mentioned, on 16 June 2017 Unique Living’s solicitors served on Europlex a notice pursuant to cl 39 of the General Conditions of the Building Contract.

11. [40]

    On 29 June 2017 Europlex’s then solicitors, Fielding Robinson, replied to deny Unique Living’s entitlement to serve a notice under cl 39.2, but nonetheless affirmed that the parties’ obligations were governed by the Building Contract.

12. [41]

    Thus, Fielding Robinson said:

13. [42]

    This shows that the parties agree their relationship was governed not merely by the oral arrangements made on 8 September 2014 as confirmed by Mr Hayek’s email sent that day, but also by the Building Contract.

14. [43]

    Mr Allen did not suggest there is any inconsistency between the two. I see none.

15. [44]

    For a document to be a “sham” there must be an intention to deceive (Lewis, [63]). Thus, even if a contract is entered into for an improper purpose, it will not be considered a “sham” unless “intentional deception as to the effect of a document” is also made out (Lewis, [68]-[70]). It is necessary to be precise as to the extent to which a transaction is said to be a sham; particularly because there is a strong assumption against making such a finding (Lewis [63], [65]).

16. [45]

    Mr Allen submitted that the Building Contract was a sham. He put this on several bases.

17. [46]

    Only two of them appear to refer to any deceitful intent.

18. [47]

    They are that:

19. [48]

    As to the first of these matters, Mr Allen referred to a document executed by Mr Hayek and Mr Minarovic on 5 September 2016. The document purported to be a contract between Unique Living and Europlex for the construction of the five townhouses at the Terrigal property for $1.25 million. It was sent to a home warranty manager at SHC Insurance Brokers the same day.

20. [49]

    Mr Allen submitted that the 5 September 2016 contract was entered into for the purposes of obtaining home warranty insurance.

21. [50]

    That may be so, but the contract did no more than specify the consideration for which Europlex agreed to perform part of the work at the Terrigal, namely construction of the five townhouses. There is no suggestion that the amount of that consideration was falsely calculated to deceive the home warranty insurer. It seems likely, as Mr Hayek said, that the document was intended by the parties to be supplementary to their main contract.

22. [51]

    I do not see how the second matter relied on by Mr Allen, assuming it to be true, is capable of relevance to the status of the Building Contract.

Cross-claim

1. [52]

   Unique Living brought a cross-claim seeking monies due pursuant to the Building Contract.

2. [53]

   In his written submissions Mr Roberts put the matter this way:

3. [54]

   I gave Mr Allen an opportunity to make written submissions about this aspect of the case.

4. [55]

   On 6 August 2018 Mr Allen sent my Associate a note saying that Europlex did not make any submissions in relation to Unique Living’s claim for damages for breach of contract.

5. [56]

   Accordingly, I propose to enter judgment for Unique Living against Europlex in the amount claimed.

Misleading or deceptive conduct

1. [57]

   In its cross-claim Unique Living also alleges that Europlex, Mr Minarovic, and Mr Minarovic’s co-director, Mr Roman Cerny, made a number of representations concerning works on the Terrigal property which constituted misleading or deceptive conduct.

2. [58]

   Insofar as Mr Hayek understood any representations made by Mr Minarovic or Mr Cerny to have been made on behalf of Europlex, they take Unique Living’s case no further. That is because Unique Living is entitled to contractual damages against Europlex.

3. [59]

   The significance of Unique Living’s misleading or deceptive conduct claim is that it is directed also to Mr Minarovic and Mr Cerny personally.

4. [60]

   Mr Roberts’s submissions in relation to this aspect of Unique Living’s case were brief, and barely developed in oral submissions.

5. [61]

   For the reasons that follow, I am not satisfied that Unique Living has any entitlement for relief against either Mr Minarovic or Mr Cerny on this basis.

6. [62]

   The first representation relates to a conversation between Mr Hayek and Mr Minarovic which led to Mr Hayek’s email of 8 September 2014.

7. [63]

   Mr Hayek said that he had a conversation with Mr Minarovic as follows:

8. [64]

   Mr Roberts submitted that Mr Minarovic thereby represented that he could project manage the work being undertaken by Europlex for a total cost of $5 million and complete the work by 1 August 2016.

9. [65]

   Mr Hayek may have relied upon what Mr Minarovic said in deciding to commit Unique Living to the agreement evidenced by his 8 September 2014 email.

10. [66]

    But that email contained a contractual warranty that any costs overrun would come from Europlex’s share of the profit and made no mention of a completion date. That was a contractual position with which Mr Hayek was evidently content.

11. [67]

    I see no basis to conclude that Mr Hayek or Unique Living otherwise placed any reliance on what Mr Minarovic is alleged to have said.

12. [68]

    On 22 April 2016 Mr Minarovic, on Europlex letterhead, sent Mr Hayek at Unique Living a letter in which he said:

13. [69]

    The letter referred to “projected claims” up to September 2016.

14. [70]

    Mr Roberts submitted that this letter amounted to a representation by Mr Minarovic “that he could complete the development in accordance with the Building Contract for $6 million including GST and variations by September 2016”.

15. [71]

    I see no such representation in this letter. What was said was no more than a statement of the estimated costs of the project and, at most, a projected completion date.

16. [72]

    On 3 September 2016 Mr Hayek sent Mr Minarovic an email stating:

17. [73]

    Mr Minarovic replied:

18. [74]

    In the same email Mr Hayek said:

19. [75]

    Mr Minarovic replied:

20. [76]

    Mr Hayek then asked:

21. [77]

    Mr Minarovic replied:

22. [78]

    Mr Roberts submitted that these exchanges amounted to a representation by Mr Minarovic that Europlex could complete the development to lockup stage by December 2016.

23. [79]

    I see no such representation in these exchanges. Mr Minarovic was saying no more than that a reasonable estimate was that the project would finish within two months “depending on cash flow”.

24. [80]

    According Mr Hayek’s affidavit, on 11 January 2017 he had this conversation with Mr Cerny:

25. [81]

    Mr Roberts submitted that Mr Cerny thus represented that Europlex would be able to complete the works if Unique Living:

26. [82]

    But Mr Hayek’s evidence makes clear that he did not rely on what Mr Cerny said. He sent an email to Mr Minarovic protesting the arrangement at [81]. Thereafter he received an assurance from Mr Minarovic that “I will repay all this money back to you even if my commission is completely depleted”. Mr Hayek’s affidavit evidence is that he relied on what Mr Minarovic said, not on what Mr Cerny said.

27. [83]

    In any event, the alleged representation is said to be misleading because neither Mr Minarovic nor Mr Cerny in fact intended that Europlex would apply the $400,000 advance to complete the Terrigal development and that Europlex did not in fact apply the $400,000 to the development.

28. [84]

    There is no direct evidence that this is so. Mr Minarovic denied it in cross-examination. He said “the money has been spent at the site” on “trades, on the materials, on the building” and “on the construction costs”.

29. [85]

    I see no reason to doubt Mr Minarovic’s evidence.

30. [86]

    In any event I think it clear that both Mr Cerny and Mr Minarovic were speaking on behalf of Europlex and were understood by Mr Hayek to be speaking on behalf of Europlex, and not in their personal capacity.

31. [87]

    Mr Hayek gave evidence in his affidavit that on 20 March 2017 he received an invoice from Europlex for $150,000 and had a conversation with Mr Minarovic as follows:

32. [88]

    Mr Roberts submitted that Mr Minarovic thereby represented that Europlex would complete the works (including the townhouses, strata registration and occupation certificates) if Unique Living paid Europlex another $150,000.

33. [89]

    Although this was not developed in Mr Roberts’s submissions, according to the cross-claim this representation is said to be misleading because Mr Minarovic allegedly knew that the cost to complete the construction of the townhouses would exceed $150,000, that Mr Minarovic did not intend for Europlex to apply the $150,000 to complete the development, and did not in fact do so.

34. [90]

    I have not been directed to any evidence to justify these assertions.

35. [91]

    In any event, Mr Hayek understood Mr Minarovic to be speaking on behalf of Europlex, and not in a personal capacity.

36. [92]

    Mr Hayek said that on 6 April 2017 he had this conversation with Mr Minarovic:

37. [93]

    In cross-examination Mr Minarovic denied having this conversation.

38. [94]

    Mr Roberts submitted that Mr Minarovic thus represented that Europlex would complete the works if Unique Living authorised the purchaser from unit 9 to make an immediate and direct payment to Europlex, and if Unique Living agreed to discount the purchase by $7,500.

39. [95]

    In Unique Living’s cross-claim it is said that this representation was misleading for two reasons. First, because Mr Minarovic and therefore Europlex did not intend to apply, and did not in fact apply, the $150,000 to the development; and second, that Mr Minarovic knew that the cost to complete the construction would exceed $150,000.

40. [96]

    Again, I have not been directed to any evidence to establish these matters.

41. [97]

    Further, as with the earlier representations, it is clear that Mr Minarovic was speaking on behalf of Europlex, and not in his personal capacity, and that Mr Hayek understood that.

42. [98]

    Finally, Mr Hayek alleges that on 21 May 2017 he had this conversation with Mr Minarovic:

43. [99]

    In cross-examination Mr Minarovic denied asking for $400,000 to complete the townhouses and threatening to walk off the site.

44. [100]

    Mr Roberts submitted that the conversation amounted to a representation by Mr Minarovic that Europlex would complete the works if Unique paid another $400,000.

45. [101]

    I do not accept that submission. If any representation was made in a conversation it was that Mr Minarovic would cause the $400,000 to be repaid within two months and that if the money was not advanced Europlex “will walk off the job”. I see no representation arising from these words about completion of the works.

Conclusion of misleading or deceptive conduct case

1. [102]

   For those reasons, I am not satisfied that Unique Living has made out a misleading or deceptive conduct case against Mr Minarovic or against Mr Cerny.

The East Gosford property

1. [103]

   On or about 29 April 2015 Unique Living purchased a property at East Gosford for $1.57 million.

2. [104]

   There was then a development approval attached to the property for 14 units and 4 townhouses.

3. [105]

   Unique Living requested various town planning consultants and other parties (including Europlex) to prepare and submit documents to amend the development application to permit construction of 27 units and no townhouses.

4. [106]

   Unique Living spent some $334,000 preparing that documentation. Those costs included $16,293 paid to Europlex.

5. [107]

   Europlex lodged the amended development application. It invoiced Unique Living for that work and was paid.

6. [108]

   In cross-examination, Mr Hayek accepted that Mr Minarovic was “involved” in the amended development application although he added:

7. [109]

   Unique Living did not develop the property in accordance with the amended development approval. On 16 February 2018 it sold the property to a third party for $2.87 million.

8. [110]

   Mr Minarovic gave evidence in his affidavit that in or about March 2016 he and Mr Hayek had a discussion to this effect:

9. [111]

   If this conversation occurred, it must have been prior to March 2016 as Unique Living became the owner of the property in February 2016.

10. [112]

    In his affidavit, Mr Hayek denied the existence of a joint venture to develop the East Gosford property.

11. [113]

    He gave more nuanced evidence in cross-examination as follows:

12. [114]

    I see no reason to doubt Mr Hayek’s account of what happened. Mr Minarovic had acted as project manager on the Terrigal project. It seems probable that the men would have agreed that he play the same role in relation to the East Gosford property, were it to be developed.

13. [115]

    But the development did not proceed.

14. [116]

    Mr Hayek arranged for the development approval to be amended and then on-sold the property. It is true that Mr Minarovic played some role in the formulation and submission of the application to amend the development application. For that work Europlex submitted an invoice which Unique Living paid.

15. [117]

    Mr Minarovic did not get to play any role as project manager. The profit that Unique Living made on the property was not from a development that Mr Minarovic project managed. No occasion arose for any commission to be paid.

16. [118]

    Europlex’s claim in respect of the East Gosford property must be dismissed.

Conclusion

1. [119]

   I invite the parties to confer and agree on the orders necessary to give effect to these reasons.