Luigi Iacullo v Remly Pty Limited and Dominic Iacullo and Lillian Iacullo

Judgment

1. [1]

   These proceedings are one of three proceedings which were heard together before me. The Plaintiff, Mr Luigi Iacullo (to whom I will refer, without disrespect, as "Luigi") seeks a declaration that the First Defendant, Remly Pty Ltd ("Remly"), holds its assets as to 50% on trust for him. Luigi also seeks a declaration that Remly, as trustee, holds a one-half interest in a property at [number omitted] Remly Street, Roselands ("Property A") on trust for him. Luigi also seeks orders that the Second Defendant, Mr Dominic Iacullo (to whom I will refer, without disrespect, as "Dominic") and the Third Defendant, Mrs Lillian Iacullo (to whom I will refer, without disrespect, as "Lillian") cause Remly to account to Luigi for all income and other profits received by Remly. Luigi also seeks an order that Remly be removed as trustee and replaced by Trust Company of Australia Limited.

2. [2]

   Luigi and Dominic are brothers and Lillian is Dominic's wife. Luigi was previously the one-half owner as tenant-in-common of a property at [number omitted] Moorefields Road, Roselands ("Property O") and Dominic and Lillian jointly owned the other half interest in Property O. Property O is a battleaxe block with a five metre access to Moorefields Road on which a factory building is situated. It was thought to be suitable for residential development and it appears to have been understood throughout the period that the prospects of such a development would be improved by incorporating adjoining properties to Property O in the proposed development. It has now been granted development approval for such a development. Nature of the evidence

3. [3]

   There are significant and irreconcilable differences between Luigi's and Dominic's evidence of events that are not explicable merely by the passage of time. There is limited contemporaneous documentation to corroborate either party's account, other than Luigi's file notes of later conversations at a time when a dispute was crystallising, as to which other difficulties arise to which I refer below.

4. [4]

   In considering the evidence, I have had regard to Dixon J's observations in Briginshaw v Briginshaw (1938) 60 CLR 336 at 361-362 that: "The truth is that, when the law requires the proof of any fact, the tribunal must feel an actual persuasion of its occurrence or existence before it can be found. It cannot be found as a result of a mere mechanical comparison of probabilities independently of any belief in its reality ... it is enough that the affirmative of an allegation is made out to the reasonable satisfaction of the tribunal. But reasonable satisfaction is not a state of mind that is attained or established independently of the nature and consequence of the fact or facts to be proved. The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question whether the issue has been proved to the reasonable satisfaction of the tribunal. In such matters "reasonable satisfaction" should not be produced by inexact proofs, indefinite testimony, or indirect inferences."

5. [5]

   In Ho v Powell [2001] NSWCA 168; (2001) 51 NSWLR 572, Hodgson JA (Beazley JA and Davies AJA agreeing) observed that: "There is a long-standing controversy whether the civil standard of proof requires a numerical probability in excess of 50 per cent (see Davies v Taylor [1974] AC 207 at 219), or belief amounting to reasonable satisfaction (see Briginshaw v Briginshaw (1938) 60 CLR 336 at 361-362). My own opinion is that the resolution of the controversy involves recognition that, in deciding facts according to the civil standard of proof, the court is dealing with two questions: not just what are the probabilities on the limited material which the court has, but also whether that limited material is an appropriate basis on which to reach a reasonable decision. I discussed this in some detail in an article published at (1995) 69 ALJ 731 (D H Hodgson, "The Scales of Justice: Probability and Proof in Legal Fact-finding")." These principles were in turn applied by Nicholas J in Aksu v Ilhan [2011] NSWSC 970 at [37]ff.

6. [6]

   It is also important to have regard to the fallibility of human memory, which increases with the passage of time, particularly where disputes or litigation intervene. As McLelland CJ in Eq noted in Watson v Foxman (1995) 49 NSWLR 315 at 318-319, each element of the plaintiff's cause of action: "must be proved to the reasonable satisfaction of the court, which means that the court 'must feel an actual persuasion of its occurrence or existence'. Such satisfaction is 'not ... attained or established independently of the nature and consequence of the fact or facts to be proved' including the 'seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding': Helton v Allen (1940) 63 CLR 691 at 712. Considerations of the above kinds can pose serious difficulties of proof for a party relying upon spoken words as the foundation of a causes of action ... in the absence of some reliable contemporaneous record or other satisfactory corroboration." Those observations were subsequently applied in Hoy Mobile Pty Ltd v Allphones Retail Pty Ltd (No 2) [2008] FCA 810 at [41] and Varma v Varma [2010] NSWSC 786 at [424]-[425].

7. [7]

   Luigi gave affidavit evidence and was cross-examined at some length. I have significant reservations as to the reliability of Luigi's evidence. He swore several affidavits in the several proceedings, which set out detailed accounts of relevant conversations in direct speech. These included affidavits sworn on 12 November 2007, 14 November 2007, 22 April 2010 and a detailed affidavit in reply sworn on 4 October (or possibly 4 November) 2010, nearly seven years after the earliest of the events in question and a year before Luigi gave evidence in the proceedings. Luigi swore a further affidavit on 20 April 2011 arranging conversations from his earlier affidavits in chronological order, and also swore further affidavits giving evidence of conversations in direct speech in the course of the hearing. However, Luigi had difficulty recalling some conversations in cross-examination, unless his attention was first drawn to the passage of his affidavit in which he had set them out, and also referred in cross-examination to the fact that conversations had occurred up to seven years ago to qualify his recollection of events (T111, T114). Luigi's account in his affidavits of critical meetings and conversations was, on occasion, less comprehensive than his file notes: for example, his account of the meeting on 12 September 2006 (Luigi 4.11.10 [72]; Luigi 20.4.11 [66]).

8. [8]

   In cross-examination, Luigi was clearly conscious of the matters that he sought to establish in his case and often gave non-responsive and self-serving answers. He was reluctant to concede matters that he regarded as adverse to his interest, only doing so when the cross-examination left him no alternative. For example, his concession that Dominic had never told him that he could take "as long as he liked" to put money into the development (T137-138) was only given after lengthy questioning, and he was reluctant to concede that his legal advisers had taken the position that Dominic and Lillian should be required to account for monies withdrawn from the partnership account on his instructions (T139-141). There were also aspects of Luigi's evidence that were strikingly implausible. For example, he denied that Dominic was "disappointed" in his conduct as a brother in respect of another development ("Hogben Street development"), notwithstanding that Luigi had taken up an investment in that development to the exclusion of Dominic and had agreed to a request that he not disclose Dominic's exclusion from that development for a considerable period.

9. [9]

   There are also other matters which give rise to concern as to the reliability of Luigi's evidence:

10. [10]

    Luigi also gave evidence that he maintained extensive file notes of conversations in the ordinary course and relied on those file notes in support of his account of events in 2005 and 2006. He did not rely on such file notes in respect of conversations in the earlier period, although there is no suggestion that his practice as to taking file notes changed in the period. Although he gave evidence that he had moved several times during the period and had not commenced looking for those file notes for the earlier period until late in the hearing, I consider that his failure to tender such file notes in respect of the earlier period is of some significance where he has systematically relied on such file notes in support of his account of events in the later period (although the truthfulness of those file notes is not accepted by Dominic and they have the difficulties to which I refer below). I should proceed on the basis that Luigi would have searched for and led such file notes in evidence if that evidence was likely to assist him. In these circumstances, the Court should at least be less likely to draw inferences favourable to Luigi from other evidence in respect of the relevant matters: Commercial Union Assurance Co of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 at 418-419; Burke v LFOT Pty Ltd [2002] HCA 17; (2002) 209 CLR 282 at [134] (in respect of documentary evidence); Kuhl v Zurich Financial Services Australia Ltd [2011] HCA 11; (2011) 276 ALR 375 at 393-394. JD Heydon, Cross on Evidence , 8 th Australian ed at [1215] notes that an unexplained failure by a party to tender documents may in appropriate circumstances lead to an inference that the missing material would not have assisted that party's case.

11. [11]

    There is also an issue as to the reliability of the file notes on which Luigi relies in respect of events in 2005 and 2006. It was put to Luigi in cross-examination, and he denied, that he had prepared these file notes after the dispute arose (T122-124; T245-246; T251). One file note addresses events over a twenty-one day period (LDA 80) and all of the file notes are in detailed narrative form. It appears that the file notes were prepared after the conversations to which they refer, although Luigi's evidence is that they were prepared on the evening or the next morning.

12. [12]

    A particular difficulty emerged with one of the file notes on which Luigi relies which gives rise to a wider issue as to the accuracy of those file notes. Luigi relies on a file note of a conversation on 24 April 2006 concerning a conversation about Dominic's purchase of a second property adjacent to Property O ("Property B") (CB 10/1092-1093) which records Dominic having said that he had purchased Property B and that settlement had occurred (necessarily, prior to the date of the conversation on 24 April 2006). However, Remly did not exchange contracts to acquire Property B until 11 May 2006 and settlement did not occur until 11 August 2006. It is highly unlikely that Dominic would have mistakenly advised Luigi that he had settled the purchase of Property B prior to entering the contract to buy that property and there was no apparent advantage to Dominic in lying to Luigi about that matter. If Dominic was not mistaken as to this matter and did not mislead Luigi as to the position in that conversation, then the file note does not accurately record the conversation. For present purposes, it is sufficient that I note that I am not satisfied of the accuracy of this file note or other file notes in this period and therefore not satisfied that these file notes corroborate Luigi's account of the relevant conversations.

13. [13]

    A the conclusion of Luigi's evidence, and notwithstanding the file notes purportedly corroborating parts of that evidence for the period 2005 and 2006, I was left with the strong impression that much of Luigi's evidence, particularly in respect of events in 2004, was a reconstruction to support his claims in these proceedings. In particular, I am unable to accept Luigi's evidence that, until September 2006, Dominic was content that Luigi should have a half interest in the adjoining properties to Property O, Property A and Property B, on the basis that, at an indeterminate future time, he should make a financial contribution to the costs of acquiring them if he were able to do so. Generally, I consider that I should not accept Luigi's evidence unless it is corroborated by documents (other than the file notes to which I refer above), consistent with other objective evidence or against interest and that evidence does not leave me actually persuaded as to the existence or content of the conversations for which he contends. The narrative of events which follows below should be read on that basis and I will not repeat this finding in respect of the many disputed conversations as to which the only evidence is the uncorroborated accounts of Luigi and Dominic respectively.

14. [14]

    Mr Michael Murr ("Mr Murr"), who gave evidence in Luigi's case, has a long-standing relationship with Luigi. Dominic has brought a cross-claim in these proceedings against interests associated with Mr Murr which is presently the subject of a reference under Uniform Civil Procedure Rules 2005 (NSW) Pt 20 Div 3. I do not consider that it is necessary for me to reach a finding as to Mr Murr's credit in order to determine these proceedings and I consider it preferable not to do so.

15. [15]

    Dominic also gave evidence and was cross-examined at length. In cross-examination, Dominic also seemed to me to be conscious of the matters which he sought to establish in his case, although he was generally more willing to address questions in cross-examination in a responsive way than Luigi and was also prepared to concede matters which might, on one view, have seemed adverse to his case, including the fact that he ultimately hoped to re-acquire Property O from its present owner through informal arrangements which might give rise to the exercise of a put option held by that owner in favour of Dominic. I generally prefer Dominic's evidence to Luigi's evidence where there is no other evidence of matters in dispute. I should add that Dominic's evidence, which I accept, is that he has some difficulty reading and writing and he appears to have relied on Luigi to prepare business correspondence over an extended period, including over part of the period in issue in these proceedings, so correspondence tendered in the proceedings was often written by Luigi even where it was signed or co-signed by Dominic.

16. [16]

    Lillian was not called to give evidence in the proceedings. No submission was made to me that I should draw any inference that her evidence would not have assisted Dominic's or her case so I will not draw such an inference. The acquisition of Property O

17. [17]

    I should first deal with some significant events. It is convenient to seek to deal with these matters by topic, which will allow identification of the numerous disputed issues as to the timing of events.

18. [18]

    The events surrounding the purchase of Property O are largely uncontroversial. Contracts were exchanged to purchase Property O on 1 May 1997 and settlement of the purchase took place on 17 February 1998. The purchase of the property was financed by a loan from GIO, which was only prepared to lend 70% of Property O's value until Dominic and Lillian gave additional security to GIO by way of a mortgage over another property in Vincentia. GIO then approved two loans to fund the purchase, one of which was secured by a mortgage over Property O and the other secured by a mortgage over the Vincentia property.

19. [19]

    Shortly after the settlement on Property O, Lillian, Luigi and Dominic opened an account with Westpac Bank in which rent received from Property O was deposited and expenses or outgoings in respect of the property were paid and rent received from Property O from the time it was purchased until May 2007 was paid into the Property O bank account (Dominic 18.8.09 tab 50). From about June 2003, Lillian and Dominic made repayments on the Vincentia loan themselves, since the then tenant Property O was vacating the property and no rental income was being received (Dominic 22.7.10 [6.6]). The breakdown of the relationship - Dominic's exclusion from the Hogben Street development and other matters

20. [20]

    It appears that the subsequent deterioration of the relationship between Dominic and Luigi arose in part from their involvement in property development with Mr Murr. There are other disputes between Dominic and Mr Murr in respect of those developments.

21. [21]

    From 1997 on, Luigi and Dominic had invested in property developments carried out by Mr Murr (Dominic 18.8.09 [18]-[19]). The circumstances in which Dominic did not participate in one of those developments, the Hogben Street development, was a critical issue in the proceedings and the witnesses gave radically different accounts.

22. [22]

    Dominic's evidence is that he was told of the Hogben Street development in mid-2000 (Dominic 27.4.11 [151]-[152]); inspected the Hogben Street development site with Luigi and Mr Murr in mid-2001, and was told that Mr Murr's preference was for the Iacullo family interests to invest through a single family trust, and that Luigi offered to use his family trust for that investment (Dominic 18.8.09 [216]; Dominic 27.4.11 [145]). Dominic's evidence is that shortly after that time, he was told by Luigi that profits from previous developments could be rolled over into that development, but that the brothers would have to put in about another $100,000 and Luigi would arrange funding on the security of other properties which they owned (Dominic 18.8.09 [221]; Dominic 27.4.11 [146]). Dominic contends that a loan made by National Australia Bank for the benefit of Badminton, Luigi's family company, related to this matter (Dominic 27.4.11 [148]-[149]). Dominic's evidence is that he continued to visit the Hogben Street development during the period of its construction (Dominic 18.8.09 [224]; Dominic 22.7.10 [38.3]). In early December 2002, Dominic, Luigi and Mr Murr went to see Dominic's solicitors, Michell Sillar, in respect of what at least Dominic understood was the possibility of their acting on the sale of Hogben Street units (Dominic 18.8.09 [225]). Luigi and Mr Murr deny that meeting was intended to deal with the Hogben Street development although it appears that at least that possibility was raised by Dominic at the meeting (Murr [89] Luigi 7.9.09 [196]). It appears that Mr Murr had no interest in that possibility but did not make that clear to Dominic at the time.

23. [23]

    On the other hand, Mr Murr's evidence was that he told Luigi in mid-1999 that he did not want Dominic involved in future development projects (Murr 22.9.09 [20]) and that he told Luigi in early 2000 not to disclose Mr Murr's interest in the Hogben Street development to Dominic until other developments undertaken by two other entities, IMS and Pacificon, in which Dominic had an interest had been completed and Luigi agreed to that course (Murr 22.9.09 [25]). The Hogben Street Unit Trust was established in July 2001 and Dominic had no interest in that trust (Murr 22.9.09 [26]). Mr Murr's evidence was that Dominic raised the issue of his lack of involvement in the Hogben Street development with Mr Murr in the second half of 2002 and Mr Murr responded by suggesting that Dominic be allocated 20% out of Luigi's 30% share in another development project at Gladstone Street (Murr 22.9.09 [20], [25], [40], [65]).

24. [24]

    Mr Murr gave evidence in a further affidavit dated 1 December 2011 that he had advised Dominic in late 2001 or early 2002 that he had not been included in the Hogben Street development and that Luigi had been included and of Dominic's response that he was "very, very disappointed". On cross-examination, Mr Murr was emphatic that he had no obligation to tell Dominic who he would permit to invest in a development. However, he confirmed in cross-examination that he had told Dominic in late 2001 and early 2002 and on "plenty of occasions before 2003 and 2002" that Dominic was not to be involved in the Hogben Street development (T214-215).

25. [25]

    Luigi's evidence was initially that he first told Dominic of his exclusion from the Hogben Street development in 2002 and provided him with half of Luigi's percentage allocation in the Gladstone Street development (Luigi 7.9.09 [191]; T86). After Mr Murr swore the further affidavit dated 1 December 2011 to which I referred above and been cross-examined, Luigi swore a further affidavit giving evidence of a conversation with Mr Murr in late 2001 or early 2002 in which he contended that Mr Murr told him that: "Dominic came past the other day and in conversation the property next door came up and I told him he wasn't invited in that development. He seemed very disappointed." Luigi also gave evidence of subsequent attempts to persuade Mr Murr to permit Dominic to be included in the Gladstone Street development, and of Mr Murr agreeing to that course. Luigi also gave evidence of a conversation with Dominic in about July 2002, in which he contended that Dominic's increased participation in the Gladstone Street development and Luigi's reduction of his share, " means that we are squared off with Hogben because as Dad has told you and Michael [Murr] has told you, he did not invite you to participate in Hogben Street ." Luigi also gave evidence of a subsequent conversation with Mr Murr in about Christmas 2002 and then with Dominic involving the increase of Dominic's share in the Gladstone Street Unit Trust to 20% and the reduction of Luigi's share to 10%, on the basis that Dominic " accept[s] that Hogben Street is never to be brought up again ".

26. [26]

    Luigi's evidence of these further conversations was not included in his several lengthy affidavits sworn earlier in the proceedings, when it had been plain for a considerable time that the circumstances of Dominic's exclusion from the Hogben Street development was a key issue in the proceedings, and was led after Mr Murr had given evidence and Luigi had been present in Court for at least part of that evidence. In my view, Luigi tailored his evidence in his further affidavit to seek to confirm Mr Murr's evidence and this matter reflects adversely on his credit.

27. [27]

    Dominic subscribed monies to the Gladstone Street Unit Trust in August 2002, April 2003 and July 2003. Dominic's evidence is that Luigi first informed him of his exclusion from the Hogben Street development in August 2003 (Dominic 18.8.09 [83], [202], [226]; Dominic 27.4.11 [171]). Luigi denied that he had not told Dominic of his exclusion from the Hogben Street Unit Trust until after Luigi had completed his subscription for units in the Gladstone Street Unit Trust in July 2003 (T100). I accept Dominic's evidence in preference to Luigi's evidence in this regard, and I consider Mr Murr was mistaken in his recollection of these events. On balance, it seems to me to be consistent with the objective probabilities that the disclosure of Dominic's exclusion from the Hogben Street development was delayed until after July 2003, so as to avoid the risk that Dominic might decline to provide further funding for the Gladstone Street development if he had been told of his exclusion from the Hogben Street development, or at least have sought to make such further subscription conditional on his inclusion in the Hogben Street development.

28. [28]

    On either view, this matter had been disclosed to Dominic at least by August or September 2003. I do not accept Luigi's evidence that Dominic had accepted the allocation of additional units in the Gladstone Street Unit Trust to him as a resolution of the matter. The events surrounding the Hogben Street development mean that it is, in my view, objectively unlikely that Dominic would have been quick to permit Luigi to participate in the purchase of Property A and Property B (to which I refer below) without his at least making a financial contribution to that purchase from his own funds.

29. [29]

    The evidence suggests that other factors also contributed to a deterioration in the relationship between the brothers in mid-2003, including the fact that Luigi had borrowed on the security of Dominic and Luigi's parents' home for a loan to invest in a development undertaken by Mr Murr at Sutherland (Dominic 18.8.09 [81]). The acquisition of adjoining properties

30. [30]

    I now turn to the events surrounding the purchase of Property A. It appears that Luigi and Dominic had discussed the desirability of acquiring a special purpose entity to acquire properties which adjoined Property O to assist with exploiting Property O's development potential from about April 2003, and Property A was identified as a suitable property for acquisition about that time. A written offer prepared by Michell Sillar solicitors to be submitted to the then owners of Property A in May 2003 indicated that the proposed purchasers would be Dominic, Lillian and Luigi. Dominic accepted on cross-examination that this was the brothers' then intention.

31. [31]

    A heads of agreement providing for the acquisition of Property A for $520,000 (made up of an option fee of $60,000 and the purchase price of $460,000) was amended and signed by Dominic and Luigi at a meeting with the former owners of Property A on 23 August 2003. Dominic initially contended that Luigi signed the document as a witness but accepted that he also signed it as a co-owner of Property O. Dominic paid the option fee of $60,000 on Property A on 25 August 2003 (Dominic 18.8.09 tab 24). Luigi's evidence is that, on 26 August 2003, he provided a cheque to Dominic being his half-share of the option fee that Dominic put in his wallet but did not bank (Luigi 7.9.09 [116]-[117]).

32. [32]

    Dominic contends, and Luigi denies, that the arrangement for Dominic, Lillian and Luigi to together purchase Property A did not proceed after it came to Dominic's attention that he had been excluded from the Hogben Street development (Dominic 18.8.09 [226]). Dominic's evidence is that he protested that exclusion in a conversation in August 2003 and, a week or so later, advised Luigi that he intended to develop Property O without Luigi's involvement in the absence of any financial contribution by Luigi and made an offer to Luigi that Dominic would develop Property O and Luigi would get $1 million when the development was finished (Dominic 18.8.09 [84]-[85]), to which I will refer below. Dominic dates this conversation in his affidavits in these proceedings as occurring shortly before his receipt of a letter from National Australia Bank concerning an extension to the bank guarantee which he had given to support a borrowing to Luigi (Dominic 18.8.09 [85]). Dominic contends that he offered to put that arrangement in writing; Luigi advised that stamp duty would have to be paid on a document "so we won't need a document, but I want your word that I will be paid"; and that Luigi then accepted a position that Dominic would have nothing to do with Hogben Street and could develop Property O (or the wider development incorporating adjoining properties ("Roselands development")) on his own.

33. [33]

    On the other hand, in evidence in earlier proceedings before Ward J, relating to an attempt by Dominic to enforce the result of earlier settlement negotiations in the proceedings, Dominic gave evidence of an agreement in November 2003 between Luigi and him that Luigi had no interest in the Property O, but accepted in cross-examination that that agreement was not enforceable so Luigi had remained a half owner of Property O. This appears to be a reference to the suggested agreement that he would develop Property O and Luigi would get $1 million when the development was finished. I accept that the contradictory evidence as to the date of the offer leaves that matter uncertain, but I find, on the balance of probabilities, that such an offer was made in late 2003.

34. [34]

    A call option for Property A was subsequently documented and entered into on 5 September 2003, in favour of Dominic and Lillian, to Luigi's exclusion, on 5 September and this is also indicative of a significant change between 23 August 2003 when Luigi was party to the heads of agreement with the vendors of Property A and 5 September 2003 when he is not party to the call option.

35. [35]

    In September 2003, Dominic also declined to renew a guarantee in respect of a borrowing of $100,000 by Luigi from National Australia Bank. There is a dispute, which I do not need to resolve, as to the purpose for which that borrowing was initially made. Dominic's evidence was that the guarantee he gave to the National Australia Bank was for the purposes of Luigi obtaining a loan to assist in Dominic and Luigi's investment in the Hogben Street development, with Badminton Investments (a company associated with Luigi) to hold an interest on trust for Dominic (Dominic 22.7.10 [29]). Luigi's evidence is that the guarantee was for the purpose of Luigi acquiring an interest in the accounting firm at which he works. Neither party sought to lead documentary evidence (for example, of communications with the bank at the time the guarantee was given) to corroborate their respective positions and I do not think it is necessary for me to resolve that dispute in order to resolve the wider issues in the proceedings.

36. [36]

    Dominic's evidence is that, when Luigi requested that he agree to the extension of that guarantee in late 2003, he told Luigi that " we agreed that Hogben Street would now be yours and that [Property O] would be mine " and that he would not sign the guarantee (Dominic 18.8.09 [86]). The evidence is again in conflict, with Luigi contending that Dominic's unwillingness to renew the guarantee did not reflect any tension or dispute between the brothers. I do not accept that evidence. The loan which had been guaranteed by Dominic was subsequently repaid by Luigi prior to 5 November 2003 (CB 8/406). Dominic's refusal to renew the guarantee is consistent with his evidence concerning the position as to the Hogben Street development and Property A at this time.

37. [37]

    Dominic's evidence is that although he advised Luigi in late 2003 that he intended to proceed with the purchase of Property A without Luigi's involvement, he subsequently moderated that position to some extent to leave open the possibility that Luigi could be an equal partner in the development if he accounted to Dominic for the interest which Dominic claimed in the Hogben Street development and paid the cost of acquisition of his proportionate interest in Property A (Dominic 18.8.09 [24], [32]).

38. [38]

    Luigi's evidence is that, in October 2003, he was involved in meeting with the architect who was to assist with the lodgement of a development application for Property O to determine whether Property A should be included in the application and also involved in discussions as to the possible purchase of another adjoining property, Property B (Luigi 12.11.07, LIA5).

39. [39]

    The vendors of Property A exercised their right to require the exercise of the option to purchase Property A in late October or early November 2003. Luigi's evidence is that, on 4 November 2003, he and Dominic had agreed that he, on behalf of Dominic and himself, would arrange 100% funding for the entire purchase price of Property A, including stamp duty and an amount to pay for the architect and consultants required for the Development Application. By letter dated 6 November 2003, Luigi wrote to St George Bank requesting finance of $250,000 in respect of those costs (CB 8/410).

40. [40]

    On 6 November 2003, Dominic funded a bank cheque in favour of the vendors of Property A and contracts for the sale of that property were exchanged the next day (Dominic 18.8.09 [98] CB 8/423) and settled on 16 January 2004. Dominic also nominated Remly as purchaser of Property A (CB 8/426). On 7 November 2003, Dominic instructed Michell Sillar to incorporate Remly and establish the Remly Unit Trust, with Dominic and Lillian to be the unitholders (CB 8/432; Ex D3). The draft documents originally prepared by Michell Sillar for the trust deed and associated minutes refer to the creation of a unit trust with the unitholders being Dominic as to one unit and Lillian as to one unit (although a handwritten amendment was made referring to different percentages to which I will refer below) (Ex D3).

41. [41]

    By letter dated 18 December 2003, Michell Sillar sent updated draft documents relating to a proposed Remly Unit Trust to Dominic (CB 8/455). The version of that letter contained in Luigi's affidavit evidence attached a draft Unit Trust Deed which provided that the unitholders in the trust were Luigi as to 20%, Dominic as to 20% and the Murr family as to 60% (Luigi 4.11.10 [102], LIA 13A; Luigi 14.11.07 [10], LIA44 ). Luigi's evidence was that a draft trust deed containing those percentages was provided to him in late December 2003 or early January 2004 (Luigi 14.11.07 [10], LIA44 ). Mr Murr's evidence was that in late 2003 Dominic provided him with a draft of the Remly Unit Trust deed prepared by Michell Sillar which provided for a 60% interest for the Murr family (Murr 22.9.09 [47]). However, it is plain that a draft trust deed in that form was not an attachment to that letter, which requests Dominic to complete the names of the relevant parties and their percentage holdings, whereas that draft trust deed has that information already completed. The draft trust deed in that form cannot have been prepared until later, and it appears that Luigi and Mr Murr are each mistaken as to their evidence in this regard.

42. [42]

    Dominic's evidence was that he did not see a trust deed in this form until it was produced in the proceedings (T333). Luigi contends that tax invoices issued by Dominic's solicitors indicated that Luigi could not have given the relevant instruction to prepare a trust deed in that form because no conversation giving that instruction was recorded in the invoice. However, the evidence before me does not establish that those invoices were necessarily prepared to such a level of detail that a short conversation would have been separately itemised in them.

43. [43]

    By email dated 23 December 2003, St George Bank advised Luigi of its approval for two unsecured investment facilities of $125,000 each (CB 8/485). Dominic's evidence is that he did not authorise that arrangement (Dominic 18.8.09 [100]). There is every reason for Dominic not to have been attracted to the funding organised by Luigi from St George since, although that funding was unsecured, Luigi had negotiated with St George on the basis that Dominic would guarantee Luigi's borrowing as well as his own (CB 10/310). Luigi's evidence is that he spoke to Dominic concerning these arrangements on 16 January 2004 prior to settlement and also advised that he expected that Westpac would lend the balance of funding for Property A and Dominic agreed to provide "short term finance" to Remly to fund the purchase of Property A, because the funding organised by Luigi from Westpac and St George was not then available (Luigi 14.11.07 [16]; Luigi 4.11.10 [106]). Dominic denies that conversation (Dominic 18.8.09 [210]).

44. [44]

    Luigi contends that he "agreed" with Dominic on 21 January 2004 that funding for Property A would be organised with Westpac for $416,000 to be secured over Property A and with St George for $250,000 as an unsecured loan. (Luigi 14.11.07 [20]-[21]; Luigi 17.9.09 [50]-[51]; Luigi 4.11.10 [107]; Luigi 20.4.11 [23]-[27]). Luigi had considerable difficulty in giving a direct answer in cross-examination as to when it was "agreed" that the amount to be borrowed from St George would be applied to subscribe for units in the Remly Unit Trust (T106).

45. [45]

    Dominic's evidence (Dominic 18.8.09 [193]) is that he responded to Luigi's suggestion of a borrowing from Westpac in words to the effect that: "I've already bought this property. You haven't put anything in. Why would I want to just borrow again? Are you going to put any money in or not? If you need to borrow to put money in then that's a matter for you." Dominic also gives evidence of responding to Luigi's attempt to have him borrow further funds in relation to Property A that " You need to put in half the money yourself. I already have enough debt ." (Dominic 18.8.09 [195]). Luigi also gives evidence of a conversation referring to Westpac's approval for a borrowing of $528,000 in which Dominic took the position that he did not want to take on further debt and Luigi responded that " that's ludicrous. You will need to borrow anyway using your equity access loan " (Luigi 20.4.11 [28]). The dispute as to this matter demonstrates the lack of consensus as to the funding for the purchase of Property A at this time.

46. [46]

    Dominic's evidence is that there were further conversations with Luigi at the end of 2003 and early 2004 concerning the dispute regarding the Hogben Street development and Property A in which he contends he said to Luigi words to the effect that: "I am not going to carry you any more. Lillian and I will be the directors of Remly, like you and Michael [Murr] were in the other companies. You must put your money in dollar for dollar if you want to be involved in the development and you will have to pay me my entitlement in Hogben Street." (Dominic 27.4.11 [198]). Luigi denies that Dominic then told him that he would only be an equal partner with Dominic and Lillian in the development of Property A if he came up with his half share of the cost of acquisition of the property (Luigi 4.11.10 [111]).

47. [47]

    On the balance of probabilities, I am satisfied that Dominic responded to his exclusion from the Hogben Street development and the other areas of tension between himself and Luigi by communicating the position to Luigi in late 2003 that Luigi could not be involved in the purchase of Property A without contributing half of the cost of acquisition of that property and allowing Dominic the interest which he claimed in the Hogben Street development. That finding is consistent with the manner in which Remly was incorporated; the form of the initial draft of the trust deed; Dominic's failure to bank Luigi's contribution (if it was tendered) to the option fee for Property A; and the offer to buy Dominic out of Property O (or the wider development) on its completion to which I have referred above. That finding is inconsistent with the basic premise of Luigi's case.

48. [48]

    Dominic invited Mr Murr to participate in the Moorefields Road development in January 2004. I have given careful consideration to whether this matter is inconsistent with Dominic's evidence as to his discontent at this time in relation to his exclusion from the Hogben Street development. However, I accept Dominic's evidence that his approach to Mr Murr is explained by the fact that Dominic then understood that his interest in the Hogben Street development was held through Luigi's family trust and that Luigi had appropriated that interest, rather than Mr Murr having excluded him from the development, so that his anger was directed to Luigi rather than Mr Murr (T343).

49. [49]

    Luigi's evidence is that, on 15 June 2004, Dominic requested that he reimburse half of the costs associated with the purchase of Property A because Dominic did not want to use the property as security and did not want to take on further debt, and Luigi protested that this "does not make any sense" (Luigi 20.4.11 [29]-[30]). Dominic denies Luigi's account of that conversation and claims that he told Luigi that he would need to put in half the money for the purchase of Property A himself (Dominic 18.8.09 [195]-[196]).

50. [50]

    Luigi was cross-examined at some length as to this conversation. He accepted that Dominic had made clear in this conversation that he did not want the existing loan in respect of Property A to be refinanced and wanted Luigi to put in his own funds for the development; that Luigi agreed to do so, because, he says he had no choice; and that he had first "offered" to put in such funds some 18 months later in 2006 (T108). It was put to Luigi that it was apparent to him that he had been excluded from the development by at least June 2004, but he responded that Dominic had agreed that he could put in funds " when [he] had them available " (T108). Luigi then gave apparently contradictory evidence that Dominic " never said I needed to put funds in " and then that that was first said in 2006 (T108). Luigi then denied that Dominic told him that he wanted Luigi to put up money from his own resources but said that Dominic wanted Luigi to contribute his half " when I had the funds available " (T112) and ultimately accepted that Dominic had told him by June 2004 that he was required to put up the funds from his own resources if he wanted to participate in the venture, with the qualification that there was no time limit on when he did so (T112-113). Given the events over this period, and the fact that (as Luigi conceded) Dominic had then requested Luigi to put in his own funds, I do not think it likely that Dominic would have offered an arrangement which allowed Luigi to defer doing so without any time limit. Luigi also contended in cross-examination that the relationship had soured by the time he offered to put up money in early 2006 because Dominic had "gone behind my back" to purchase Property B (T113). As I noted above, Property B was not purchased until May 2006 or settled until August 2006.

51. [51]

    Dominic gives evidence of a further deterioration in his relationship with Luigi in late 2004, when he discovered that Luigi had purchased a property in the same street as their parents' home. Dominic's evidence was that he was "furious" that Luigi had purchased that property when he had not contributed to the costs of the Roselands development (Dominic 18.8.09 [123]-126]). Dominic claims that he was unwilling to continue to fund an interest for Luigi in Property A while Luigi expended funds on other purchases. Luigi denied in cross-examination that a confrontation about that matter had occurred (T128). Dominic's evidence in this regard seems to me to be inherently probable and I accept it.

52. [52]

    Dominic's evidence is that, in late 2004, he made a further offer to pay $1 million to Luigi in respect of Property O at the end of the development, less any money then owed to the bank, and that Luigi rejected that offer as "just not fair" (Dominic 18.8.09 [127]). Luigi denied in cross-examination that Dominic had repeated his offer to buy Luigi out of the development on its completion at this time (T128).

53. [53]

    Dominic relies on a note which he says he made of this arrangement (CB 16/3090) on notepaper headed "Lebanese Chamber of Commerce". The note reads: "Luigi to receive $1 million at the end of the development: for his 1/2 share in property [number omitted] Moorefields Rd less any money owed to Bank ie $520,000 to GE. Net amount $740,000." The reference to "net amount $740,000" was the $1 million figure less half the then mortgage of $520,000 (being $260,000) (Dominic 18.8.09 [125]-[130]). There is a dispute as to when the Lebanese Chamber of Commerce notepaper on which this note was recorded became available to Dominic. Dominic initially gave evidence that the notepad on which his note of the offer to Luigi was made was given to him by Mr Murr (Dominic 18.8.09 [128]). Mr Murr gave evidence that the notepaper on which Dominic had made his note of this meeting did not exist until mid-2005, and had been created for a business lunch at which a particular person would speak at that time. Dominic subsequently revised his evidence to indicate that he received that notepaper around September-November 2004 together with copies of the newsletter of the Australian Lebanese Chamber of Commerce containing an advertisement placed by his business (Dominic 22.7.10 [33]). I am not satisfied that either Dominic's or Mr Murr's recollection of these matters is sufficiently clear or accurate to allow me to place significant reliance on it.

54. [54]

    A finding that at least some form of dispute between Luigi and Dominic had occurred by late 2004, contrary to Luigi's evidence generally, is supported by Luigi's affidavit evidence of a conversation on 12 September 2006 when, according to Luigi, Dominic said to him " I told you two years ago how you could fix it ". Luigi's affidavit evidence did not indicate that he had taken issue with that statement in that conversation (Luigi 4.11.10 [72]). Luigi then asserted in cross-examination that he had in fact denied that statement when Dominic had made it (T132) but I do not accept that evidence.

55. [55]

    Luigi's evidence is that, pursuant to an alleged agreement with Dominic in relation to the development of Property O and Property A, he authorised Remly to lodge a Development Application in respect of those properties with Canterbury City Council in August-September 2004. Luigi relies on his involvement in subsequent steps of the project, including meetings with the architect in respect of the possible development and his evidence includes reference to dealings with a number of consultants in relation to the development of Property O in the period from 2005 to September 2006 (Luigi 7.9.09, LI EX 11A-11VW). Luigi also relies on the fact that he sent a letter on behalf of Dominic, Lillian and himself regarding an expression of interest to purchase another property in Campsie in May 2005 to negate the suggestion of a falling out between Dominic, Lillian and himself in 2004 (Luigi 7.09.09, LI EX 22). Dominic denies that he had previously seen the letter or expression of interest or that he had agreed to Luigi being part of the bid or including his name as a prospective purchaser of the property (Dominic 22.7.10 [26]).

56. [56]

    Luigi contends that these matters evidence his continued involvement as a person with a 50% beneficial interest in the development opportunity for Property A. I do not accept that submission. On the balance of probabilities, I consider that Luigi was involved in these matters because he was a co-owner of Property O and stood to benefit from any development involving Property O, and because Dominic had, at least for some time, left open the possibility of participation in the acquisition of Property A on the basis to which I have referred above. It was in Luigi's interest to offer such assistance because he was a co-owner of Property O and stood to benefit from any development of the site; because Dominic had left open the possibility of his further participation on the basis to which I have referred above; and because Dominic had offered to buy him out of Property O, with a payment to be made at completion of the development. It was in Dominic's interests to accept Luigi's continued assistance if it was offered given his difficulties with reading and writing to which I have referred above.

57. [57]

    Luigi's evidence is that Dominic requested reimbursement for half the cost of acquisition of Property A in January 2006; Luigi responded that it would have been better if the brothers had financed the purchase of that property by using the money which he had arranged with Westpac and St George; Dominic reiterated that he wanted Luigi to pay his half share and Luigi responded " leave it with me and we'll work on it " (Luigi 4.11.10 [37]). Dominic denies that conversation (Dominic 26.5.11 [41(ii)]). Luigi's evidence is that Dominic followed up on his payment of his half share of Property A in early February 2006 and Luigi again responded " I am working on it " (Luigi 4.11.10 [38], [114].

58. [58]

    Luigi's evidence is that a further conversation took place on 1 April 2006 in which Dominic and Luigi invited the Murrs to be involved in the Moorefields Road development and Mr Murr indicated he was not interested. Luigi contends that, in a conversation between Dominic and him on that date, Luigi suggested a meeting with Council to sort out noise issues relating to the development application and Dominic responded " Leave it to me. I will sort this out with the solicitors ." Luigi's evidence is that, in subsequent conversations during April 2006, Dominic assured him that Dominic and his solicitor would look after matters relating to the Roselands development (Luigi 4.11.10 [44]-[45]).

59. [59]

    Luigi's evidence is that a conversation took place on 24 April 2006, initially in relation to evidence for proceedings in the Land and Environment Court concerning a noise complaint against the tenant of Property O, in which Dominic disclosed the purchase of Property A and Luigi protested. Luigi's evidence is that Dominic referred to his exclusion from the Hogben Road development and Luigi contended that had been resolved by allowing Dominic a 20% share in the Gladstone Street development (Luigi 4.11.10 [46]-[49]; Luigi 20.4.11 [60]).

60. [60]

    Luigi's evidence, supported by his file note (LI EX 11 JJJ), is that Dominic also advised him in April 2006 that he had bought Property B and settled that property because Luigi had no funds to invest (Luigi 4.11.10 [46]; Luigi 20.4.11 [60]). As I have noted above, the contract for purchase of Property B was not made until May 2006 and not settled until August 2006. I can see no reason why Dominic would have been mistaken or lied to Luigi as to that matter, since there was no apparent advantage to Dominic to be gained from the latter course.

61. [61]

    Luigi's evidence is that he told Dominic on 3 June 2006 that he now had his half of the "acquisition cost of Property A" ready (Luigi 20.4.11 [61]). Dominic denies the conversation (Dominic 26.5.11 [41], [43]). Luigi's evidence is that he again advised Dominic that he wanted to pay his half share of the cost of acquiring Property A and he also wanted to organise funding for Property B at a meeting on 8 June 2006 (Luigi 7.9.09, LI EX 19). Luigi's evidence is that, on 8 August 2006, he advised Dominic that he wanted to pay his half share of Property A and was also in a position to organise funding for Property B (Luigi 4.11.10 [60]-[66], [117]; Luigi 20.4.11 [64]-[65]). Dominic also denies that conversation (Dominic 26.5.11 [43]). Luigi's evidence is that he subsequently approached Dominic on 12, 14 and 15 August 2006 to arrange times to calculate what Luigi should contribute for the acquisitions of Properties A and B after taking into account the amount of $5,000 per month withdrawn by Dominic from the account relating to Property O (Luigi 4.11.10 [67]-[71]).

62. [62]

    Luigi's evidence is that Dominic first advised Luigi that he was "out of the development" on 12 September 2006. Luigi's evidence is that Dominic then claimed that he had asked Luigi to repay his half of the outstanding GE loan of $523,000 back in January 2006 and Luigi denied that Dominic had made such a request. Luigi's evidence is that Dominic said: "I have made a decision to treat you simply as a land owner and pay you $1 million for your half share of the property when the development is finished. Lillian wants you out of the development. I have made a decision to treat you simply as a land owner and pay you $1 million for your half share of the property when the development is finished. If you were not my brother, I would pay you nothing." Luigi's evidence is that Dominic also claimed that he should have been in the Hogben Street development and that it was wrong for Luigi to exclude him from that development, and Luigi responded that Dominic had not been invited to participate in that development by Mr Murr (Luigi 12.11.07 [69]; Luigi 7.9.09 [63]; Luigi 4.11.10 [35]-[36], [72]-[73], [123], [148]; Luigi 20.4.11 [66]-[67]). Luigi's evidence is that he was not asked to contribute to the cost of acquisition of the properties until late 2004 (Luigi 4.11.10 [124]) and Dominic never suggested there should be any change in the financing arrangements up to that period (Luigi 4.11.10 [125]). For completeness, I note that, in an earlier affidavit (Ex D5, [69]), Luigi had put the million dollar offer referred to in his account of this conversation as occurring in September 2007, after his acquisition of Properties C and D which took place in late 2006 or early 2007. I think it likely that this was simply an error.

63. [63]

    Dominic denies that the conversation referred to in September 2006 relating to the Roselands development took place or that he and Luigi discussed Property A or Property B at that time, although he accepts that there were discussions about the Gladstone Street development and the sale of another property prior to that time (Dominic 26.5.11 [45]).

64. [64]

    On 19 September 2007, Remly acquired the first mortgage over Property O from GE Commercial Finance Australia Ltd. Luigi complains that the acquisition of this mortgage took place without his knowledge or consent. Luigi subsequently sought to deposit the amount of $204,009.66 into Dominic's personal bank account in October 2007 but that deposit was returned, and Luigi subsequently sought to deposit the funds into another account (Luigi 12.11.07 [65]). Luigi's acquisition of Properties C and D

65. [65]

    Luigi subsequently purchased Property C at the end of 2006 or early 2007 and Property D some time in 2007 (T118). Those properties also adjoin Property O. Dominic and Lillian's withdrawal of monies from the Property O account

66. [66]

    Various amounts of up to $5,000 were withdrawn by Dominic and Lillian from the Property O account between 2 August 2004 and 1 May 2007. Luigi contends that such monies were withdrawn to fund the purchase of Property A or pay outgoings incurred by Remly in relation to Property A and later in respect of Property B. Dominic's evidence is that the $5,000 withdrawals from the partnership account did not go into the Remly account but into a personal account operated by Dominic and Lillian, which was used for matters other than the purchase of Property A and Property B.

67. [67]

    Luigi alleges that a conversation took place in August 2004 between Dominic and himself in which Dominic sought to be reimbursed for interest and expenses on holding Remly Street until Luigi was ready to put in his half share of the cost of purchasing the property and Luigi argued that Dominic was taking too much (Luigi 20.4.11 [31]). Dominic denies that conversation (Dominic 18.8.09 [197]-[198]. Luigi's account of that conversation is inconsistent with the position he later took in an accounting undertaken by the trustees for sale of Property O where, rather than accepting the payment was an authorised reimbursement for interest and expenses on holding Property A, he contended that it was an unauthorised withdrawal which Dominic was required to repay. Appointment of trustee for sale, development approval and the sale of Property O

68. [68]

    In March 2007, Luigi advised Lillian that he wanted to sell Property O, and Dominic did not then agree to sell the property. Luigi wrote to Dominic confirming his wish to sell Property O on 27 March 2007.

69. [69]

    By Summons filed on 16 November 2007, Luigi sought orders under s 66G of the Conveyancing Act 1919 (NSW) for, inter alia, the sale of Property O. Orders were made by consent on 29 February 2008 for the appointment of trustees for sale of Property O.

70. [70]

    Luigi took advice in early 2008, when the consent order for the sale of Property O was made, as to his ability to rely on the existing application for development approval if he acquired Property O for himself (CB 11/1371) and met with Canterbury City Council on 29 February 2008 to discuss that possibility (CB 11/1378).

71. [71]

    In December 2008, Remly lodged an appeal from a decision of Canterbury City Council to refuse a development application for Property O in the Land and Environment Court.

72. [72]

    On 18 May 2009, Property O was sold by the trustees for sale to Moorefields Road Pty Ltd as trustee for the Moorefields Road Unit Trust for the sum of $1.25 million. The shareholders and directors of Moorefields Roads Pty Ltd were Mr and Mrs Shearer, who are also the directors and shareholders of Shearers Road Freight Pty Ltd, the current lessee of Property O. Luigi contends that Remly provided a loan to Moorefields Road Pty Ltd on 7 May 2009 to assist with the deposit for the purchase of Property O by Moorefields Road Pty Ltd. On balance, I accept Dominic's evidence that this amount was provided by Dominic personally rather than by Remly.

73. [73]

    Luigi contends that put and call options were entered on 6 May 2009 between Moorefields Road Pty Ltd and Dominic, which would allow Remly to acquire the units in the Moorefields Road Unit Trust. Mr Shearer gave evidence, which I accept, that he was not interested in granting a put and call option and rejected a proposal to that effect put by Dominic's solicitors (T452) and I find that no call option was granted in favour of either Remly or Dominic. However, Moorefields Road Pty Ltd is party to a put option by which it may put the units in the Moorefields Road Unit Trust to Dominic, and Dominic frankly conceded in cross-examination that he has an informal understanding with Mr Shearer which leads him to hope that that put option will be exercised when Mr Shearer is ready to do so (T304). There is evidence that Dominic chose not to lodge a caveat in respect of the put option, at least partly because he was concerned that Luigi's solicitor would then find out of its existence.

74. [74]

    Remly's appeal against Canterbury City Council's refusal of the development application for Property O was settled by agreement between Remly and Canterbury City Council on 24 September 2009. Under the settlement, a development application was approved for 22 dwellings to be constructed on Property O. I will refer to issues relating to the conduct and settlement of that appeal in my judgment in proceedings 2010/385874. Luigi's contractual claims

75. [75]

    Luigi contends that, between 7 November 2003 and 9 September 2004, he reached an agreement with Dominic (who is said to have been acting on behalf of Remly, himself and Lillian) containing the terms to which I refer below, in consideration for Luigi's consenting to Remly lodging a development application in relation to Properties O and A.

76. [76]

    I should acknowledge that the question whether a commercial arrangement constitutes a contract is not necessarily to be approached by strict analysis of whether, for example, there was offer and acceptance in accordance with classical contract theory: New Zealand Shipping Co Ltd v A M Satterthwaite & Co Ltd [1975] AC 154 at 167; Brambles Holdings Limited v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153 at [71]-[74]. In Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11,110, McHugh JA observed that: "It is often difficult to fit a commercial arrangement into the common lawyers' analysis of a contractual arrangement. ... Moreover, in an ongoing relationship, it is not always easy to point to the precise moment when the legal criteria of a contract have been fulfilled. Agreements concerning terms and conditions which might be too uncertain or too illusory to enforce at a particular time in the relationship may by reason of the parties' subsequent conduct becomes sufficiently specific to give rise to legal rights and duties. In a dynamic commercial relationship new terms will be added or will supersede older terms. It is necessary therefore to look at the whole relationship and not only at what was said and done when the relationship was first formed. ... ... A contract may be inferred from the acts and conduct of parties as well as or in the absence of their words... The question in this class of case is whether the conduct of the parties viewed in the light of the surrounding circumstances shows a tacit understanding or agreement. The conduct of the parties, however, must be capable of proving all the essential elements of an express contract."

77. [77]

    Nonetheless, Luigi had some difficulty in articulating how the alleged agreement was formed. Mr Moore, who appears for Luigi, initially submitted that the relevant agreement was reached on 7 November 2003 and nothing occurred to change that agreement until 9 September 2004 (T411). The pleaded terms of that agreement reflected a conversation with Luigi claimed took place on 7 November 2003. Mr Smallbone, who appeared for Dominic, responded that the consideration pleaded for the alleged agreement in these proceedings is Luigi's consent to Remly lodging a development application, which did not occur until 16 August 2004, and that an agreement to lodge that consent given in August 2004 could not be consideration for a binding agreement alleged to have been entered into on 7 November 2003. Mr Smallbone also pointed out that the conversation on 7 November 2003 on which Luigi relies does not include any undertaking by Luigi to conduct the development to completion or not to withdraw from the development and that Luigi in fact withdrew from the development by seeking and obtaining an order from the Court for the sale of Property O. Mr Smallbone submitted that there was in November 2003 no more than an inchoate expectation but not any binding agreement between the parties as to the conduct of the development.

78. [78]

    Mr Moore subsequently withdrew the submission that the agreement was formed on 7 November and instead submitted that some of its terms were formed on 7 November and other terms were modified or added in the period until Luigi consented to the lodgement of the development application in August 2004 and the development application was lodged in September 2004 (T453). Mr Moore contended that the terms of that agreement were those formed as at the date of the lodgement of the development application in September 2004, although some of those terms arose as early as 7 November 2003. However, that submission gave rise to a further difficulty, because it was apparent by the date of lodgement of the development application that neither Remly nor the trust had been established in the manner in which the alleged agreement contemplated.

79. [79]

    As submissions developed, Mr Moore put a further version of the agreement which was one which came into existence not in September 2004 but at the time Luigi consented to lodgement of the development application in August 2004, but that formulation had the same difficulty namely that the alleged terms as to the structure of Remly and the trust had not been complied with at that date. A contract which was not formed until August or September 2004 would also not be breached by any change of mind by Dominic and Lillian in respect of the structure of Remly prior to that date. I have found above that Dominic had communicated the position to Luigi that he could not participate in the ownership of Property A without making a financial contribution to the acquisition of that property well before that date.

80. [80]

    There is a further difficulty in establishing consideration for the alleged agreement. An enforceable contract requires consideration in the form of a price in return for the exchange of the relevant promise or a quid pro quo: Australian Woollen Mills Pty Ltd v Commonwealth [1954] HCA 20; (1954) 92 CLR 424 at 456-457; Beaton v McDivitt (1987) 13 NSWLR 162 per Kirby P at 168, per McHugh JA at 182; Atco Controls Pty Ltd (in liq) v Newtronics Pty Ltd (recs and mgrs apptd) (in liq) [2009] VSCA 238; (2009) 25 VR 411 at [62]. I do not consider that Luigi established that the pleaded consideration, namely his consent to the lodgement of the development application, was either referable to the alleged agreement or provided as consideration for it. In my view, that consent was given, not as consideration for the alleged agreement, but despite the brothers' then lack of agreement as to fundamental issues in respect of the development, because Luigi as co-owner of Property O would benefit from any development of the property.

81. [81]

    There are also difficulties with several of the pleaded terms of the alleged agreement, which are as follows: (a) [Remly] would operate as a trustee company for a unit trust (to be known as the Remly Unit Trust); (b) [Dominic] or his nominee would hold the same number of units in the proposed unit trust as [Luigi] or his nominee; (c) The special purpose entity would be structured in the same manner as the ownership proportions for Property O, namely: (i) 50% to [Luigi] or nominee; and (ii) 50% to [Dominic] or nominee. (d) Additional units in the unit trust could subsequently be issued to third parties who were acceptable to [Dominic] and [Luigi]; (e) [Remly] would, in order to fully exploit the development potential of Property O, acquire properties which adjoined Property O and which were regarded by [Luigi] and [Dominic] as being suitable properties to more fully exploit the development potential of Property O; (f) [Remly] would lodge a Development Application in relation to the Roselands development with Canterbury City Council; (g) [Remly] would carry out the Roselands development; (h) [Remly] would prosecute the DA with due diligence; and (i) [Dominic] and [Lillian] were doing (sic) nothing to cause [Remly] to fail to prosecute the DA with due diligence.

82. [82]

    The first seven of the pleaded terms of the alleged agreement are said to be partly express and partly implied. The eighth and ninth of those terms are said to be implied either to give business efficacy to the agreement by which Remly would lodge a development application with Canterbury City Council and by which Remly would carry out the Roselands development or, possibly, by reference to the implied duty of co-operation recognised in Secured Income Real Estate (Aust) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596 at 607-608.

83. [83]

    So far as the terms are said to be implied in fact, the alleged agreement is not contained in a document which is complete on its face so the requirements for implication of a term set out by the majority of the Privy Council in BP Refinery (Westernport) Pty Ltd v Shire of Hastings [1977] HCA 40; (1977) 180 CLR 266 at 282-283, as approved by the High Court in Codelfa Construction Pty Ltd v State Rail Authority (NSW) [1982] HCA 24; (1982) 149 CLR 337 at 347 (namely the term must be reasonable and equitable; must be necessary to give business efficacy to the contract; must be so obvious that 'it goes without saying'; must be capable of clear expression; and must not contradict any express term of the contract) do not apply in their full rigour. In this situation, the Court's task is that set out in Byrne v Australian Airlines Ltd [1995] HCA 24; (1995) 185 CLR 410 at 442: "... where the contract is not in writing and is oral or partly oral or it appears that the parties themselves did not reduce their agreement to a complete written form, caution is required against an automatic or rigid application of the cumulative criteria identified in BP [Refinery (Westernport) Pty Ltd v Shire of Hastings] ... In such situations, the first task is to consider the evidence and find the relevant express terms. Some terms may be inferred from the evidence of a course of dealing between the parties. It may be apparent that the parties have not spelled out all the terms of their contract, but have left some or most of them to be inferred or implied. Some terms may be implied by established custom or usage, as described above. Other terms may satisfy the criterion of being so obvious that they go without saying, in the sense that if the subject had been raised the parties to the contract would have replied "of course". If the contract has not been reduced to complete written form, the question is whether the implication of the particular term is necessary for the reasonable or effective operation of the contract in the circumstances of the case; only where this can be seen to be true will the term be implied."

84. [84]

    The first, second and fourth pleaded terms of the agreement are that Remly would act as a trustee company for a unit trust to be known as the Remly Unit Trust; Dominic or his nominee would hold the same number of units in the proposed unit trust as Luigi or his nominee; and additional units in the unit trust could subsequently be issued to third parties who were acceptable to Dominic and Luigi. Luigi identified the evidence relied on to support the first, second and fourth pleaded terms as being paragraphs 100-104 of his affidavit sworn 4 November 2010 (one of those paragraphs, paragraph 101, was not admitted in evidence); paragraphs 15 and 19 of his affidavit sworn 20 April 2011; his evidence in cross-examination concerning the draft trust deed (T109); a letter dated 14 November 2003 from Dominic's solicitors to Dominic referring to the establishment of the Remly Street Unit Trust (CB 8/203-207), a letter dated 18 December 2003 purportedly enclosing a draft of the trust deed (CB 8/455-486) (as I have noted above, the enclosure to that letter on which Luigi relied plainly did not correspond to the document described in the covering letter) and correspondence from St George Bank to Luigi offering unsecured financing facilities for Property A (CB 8/485-486).

85. [85]

    The matters relied on in support of this term included a conversation said to have occurred on 7 November 2003, which does not contain any express agreement as to the shareholding in Remly or the unit holding in the unit trust. Luigi also relies on his evidence that Dominic provided him with a copy of a draft Remly Street Unit Trust Deed in late December 2003 or early January 2004 which provided for the unitholders to be Dominic (20%), Luigi (20%) and the Murr Family (60%). I have not accepted that evidence. I see nothing in these matters which commits Dominic to the pleaded allocation of units in the trust and no basis for the pleaded second term arising from them. The Remly Street Unit Trust was not in fact established in accordance with the pleaded second term, and Luigi does not appear to have pressed the point. These matters tend against a finding that such a term had been agreed or should be implied.

86. [86]

    The third pleaded term of the agreement is that the special purpose entity would be structured in the same manner as the ownership of Property O, namely 50% to Luigi or his nominee and 50% to Dominic or his nominee. Particulars provided by Luigi in the course of the hearing indicated that this term, which had been pleaded as partly express and partly implied, was an implied term only. I do not consider that a term requiring that Remly be structured in the same manner as the ownership proportions for Property O satisfies the requirements for implication in fact (even where applied in the context of an informal agreement) and, in particular, I do not consider that such a term is so obvious that it goes without saying, particularly in circumstances where Luigi had made no contribution to the costs of acquisition of Property B within a significant period after its acquisition.

87. [87]

    The fifth pleaded term of the agreement is that Remly would, in order to fully exploit the development potential of Property O, acquire properties which adjoined Property O and which were regarded by Luigi and Dominic as being suitable properties to more fully exploit the development potential of Property O and the sixth pleaded term is that Remly would lodge a development application in relation to the Roselands Development with Canterbury City Council. The evidence relied on by Luigi in support of these terms included the matters referred to in paragraphs [7]-[10] and [15] of his affidavit sworn 20 April 2011 (one of these paragraphs, paragraph [7], was not admitted into evidence). These paragraphs related to discussions with the architect as to the possibility of incorporating either Property A or Property B into the development application, the conversation concerning the establishment of Remly and the unit trust, and the fact that Property A was purchased and was incorporated in the development application lodged in September 2004. I do not consider that the fact that discussions occurred concerning the possibility of matters amounted to the imposition of an obligation on Remly to proceed with those matters, particularly where there was no agreement between the brothers as to how Remly would fund the acquisition of those properties. In any event Remly did lodge a development application so the sixth pleaded term was not breached.

88. [88]

    The seventh pleaded term of the agreement is that Remly would carry out the Roselands development. The evidence on which Luigi relied in support of this term was paragraph 100 of his affidavit sworn on 4 November 2010 which again related to the establishment of Remly and the Remly Street Unit Trust and paragraph 20 of his affidavit sworn 20 April 2011 which related to his involvement in coordinating consultants to ensure that the development application was lodged. This evidence did not, in my view, establish any obligation on the part of Remly to carry out the development. To the extent the terms is sought to be implied, an unqualified obligation of that character would make little commercial sense in circumstances where the terms of Council's consent to the development, the costs, profitability and economic viability of the development and the availability of funding to carry it out had not yet been established. The pleaded term also has the difficulty that it would require Remly to carry out the development without providing any basis for funding it to do so or imposing any obligation upon Luigi to contribute to the costs of that development.

89. [89]

    The eighth and ninth pleaded terms would require Remly to prosecute the DA with "due diligence" and Dominic and Lillian to do nothing to cause it to fail to do so. Those obligations are said to be wholly implied. Luigi contends that prosecuting the development application with due diligence was a necessary act in performance of the alleged contract. It is, of course, well-established that a contract will often impose an implied obligation on the parties to do all such things as are necessary on their part to enable the other party to have the benefit of the contract, including a negative covenant not to hinder or prevent the fulfilment of the purpose of an express promise: Mackay v Dick (1881) 6 App Cas 251; Peters (WA) Ltd v Petersville Ltd [2001] HCA 45; (2001) 205 CLR 126 at [36]; Secured Income Real Estate (Aust) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596 at 607-608.

90. [90]

    However, any implied contractual duty to co-operate must relate to a contractual obligation contained in the contract. In Australis Media Holdings Pty Ltd v Telstra Corporation Ltd (1998) 43 NSWLR 104 at 124-125, the Court of Appeal observed that: "The "implication" of a term implied in law depends upon the demonstration of "necessity" ... It follows that, leaving aside fiduciary obligations (which are not involved here), there cannot be a duty to co-operate in bringing about something which the contract does not require to happen. An "implication, arising as it does from necessity, must be limited by the extent of the need": Board of Fire Commissioners (NSW) v Ardouin (1961) 109 CLR 105 at 118, per Kitto J. ... A contract may "contemplate" many benefits for the respective parties, but each can only call on the other to provide, or co-operate in the providing of, benefits promised by that party. For example, in the absence of an express covenant, a landlord is not bound in contract to repair the demised premises."

91. [91]

    I have not found that the pleaded agreement (if, contrary to my view, it had been established) contained the pleaded term that Remly would carry out the Roselands development. It is also not pleaded that there was either an express term or a term implied in fact that that DA should be prosecuted. In my view, there would have been real difficulty in establishing such a term as a term implied in fact, since it is neither so obvious that it goes without saying nor fair and equitable between the parties. The obvious difficulty with an implied term to that effect is that it would require Remly to continue to prosecute the DA even if its prosecution had become pointless or of uncertain benefit, for example because a decline in the economic environment had meant that funding for a development may be unavailable or demand for development properties or units in them uncertain; or because not prosecuting the DA with Canterbury City Council and having the matter determined in the Land and Environment Court was more advantageous to Remly; or because, as occurred in this case, an order for the appointment of trustees for sale of Property O was made on Luigi's application and it became unclear whether Remly would obtain any benefit from the development of the property, unless it could either reach a commercial arrangement with those purchasers or secure a higher sale price by reason of the existence of development approval in the then commercial real estate market. In the absence of an express or implied term that the DA should be prosecuted, or a corresponding term implied in fact, a term that the parties must co-operate to prosecute it diligently should not be implied as a matter of law. Still less should a term be implied that one party should prosecute it with due diligence without any corresponding obligation being imposed on the other. The ninth pleaded term would not be implied for the same reasons.

92. [92]

    For these reasons, I consider that Luigi's contractual case must fail. By Cross-Claim brought in the proceedings, Dominic contends, in the alternative, that Luigi's participation in the Moorefields Road development was subject to an agreement that it be conditional on the contribution of monies within a reasonable time which had elapsed by August 2003 and that the failure to contribute those monies constituted a repudiation of that agreement which Dominic accepted in late 2004. Alternatively, Dominic contends that any such agreement was varied to permit Luigi's participation subject to the payment of costs within a reasonable time and that, if he did not contribute in that manner, his interest would be capped in accordance with the agreement to which I had referred above and Dominic had elected to accept that capped amount. The matters to which I have referred above in finding that the contract for which Luigi contends is not established also had the result that the alternative contractual cases put by Dominic by way of Cross-Claim fail. Claim for breach of fiduciary duty

93. [93]

    Luigi also brings a claim for breach of fiduciary duty against Remly. The relevant duty and its breach is pleaded in paragraph 49 of the Amended Statement of Claim as follows: "By reason of the relationship between [Luigi] and [Remly, Dominic and Lillian] as pleaded in paragraph 13 above and by reason of [Luigi] and [Remly] being joint venturers in the Roselands development, [Remly] owed a fiduciary duty to [Luigi] to act in good faith in the best interests of [Luigi]; not to place itself in a position where its personal interests or those of its directors and shareholders might conflict with the interests of [Luigi]; and not to make improper use of [Remly's] position as the corporate entity, (which lodged the Development Application in relation to the Roselands development with Canterbury City Council and carry out [sic] the Roselands development)."

94. [94]

    The reference in this paragraph to paragraph 13 is to the pleading of the agreement between Luigi and Dominic (alleged to have been acting on behalf of each of Remly, Dominic and Lillian) formed between 7 November 2003 and 9 September 2004, to which I have referred in paragraphs 75 and 81 above. The pleaded duty also relies on the allegation that Luigi and Remly were "joint venturers" in the Roselands development. The pleaded duty does not rely on the previous acquisition by Luigi, Dominic and Lillian of Property O as co-owners in 1998 or the arrangements between those parties in respect of the ownership of Property O. The distinction is one of substance, because the alleged duty is said to have come into existence from the discussions concerning the incorporation of Remly from 7 November 2003, not from 1998 when Property O was acquired. The scope of the fiduciary duty therefore broadly corresponds to the terms of the contractual arrangements which Luigi contends existed between himself, Remly, Dominic and Lillian to which I have referred above.

95. [95]

    The arrangement between Luigi, Dominic and Lillian in respect of Property O was at times referred to as that of "partnership", the bank account to which rent on Property O was paid for part of the relevant period was from time to time referred to as the "partnership" account and it appears that tax returns were lodged on the basis that Property O was owned in partnership. That arrangement had some of the characteristic features of a partnership, including at least sharing of profit and the conduct of a common commercial enterprise with a view to profit: Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd (1974) 131 CLR 321; United Dominions Corporation Ltd v Brian Pty Ltd [1985] HCA 49; (1985) 157 CLR 1 at 679. A relationship which is properly characterised as a partnership is, of course a traditional fiduciary relationship: Birtchnell v Equity Trustees, Executors and Agency Co Ltd (1929) 42 CLR 384; Chan v Zacharia [1984] HCA 36; (1983) 154 CLR 178 at 196. However, Luigi's case was not pleaded or put on the basis that duties arising from 1998 in respect of a partnership in respect of Property O were breached by Dominic and Lillian's conduct in respect of the acquisition of Properties A and B. A case put in that way would have raised a question as to the scope of the partnership business and whether, in particular, that business extended beyond the ownership of Property O. Rather, as noted above, Luigi pleaded and put his case on the basis of on an agreement or "joint venture" formed after November 2003 to acquire additional properties to exploit the development potential of Property O.

96. [96]

    Outside the established fiduciary categories, a fiduciary relationship may exist where a person has undertaken to act in interests of another and not in his or her own interests. In Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41 at 68, Gibbs CJ observed that the case law provided "no comprehensive statement of the criteria by reference to which the existence of a fiduciary relationship may be established". His Honour observed that the critical feature of the traditional fiduciary relationships was the undertaking or agreement by the fiduciary to act for or on behalf of or in the interests of another person in the exercise of power or discretion which will affect the interests of that other person in a legal or practical sense (at 96-97). His Honour observed that: "The relationship between the parties is therefore one which gives the fiduciary a special opportunity to exercise the power or discretion to the detriment of that other person who is accordingly vulnerable to abuse by the fiduciary of his position ... It is partly because the fiduciary's exercise of the power or discretion can adversely affect the interests of the person to whom the duty is owed and because the latter is at the mercy of the former that the fiduciary comes under a duty to exercise his power or discretion in the interests of the person to whom it is owed." Mason J there noted that the critical feature of the established fiduciary relationships is that "the fiduciary undertakes or agrees to act for or on behalf of or in the interests of another person in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense" and that the beneficiary is vulnerable to abuse of the fiduciary's position. Dawson J noted that the notion underlying the fiduciary obligation is that there is inherent in the nature of the relationship a position of disadvantage or vulnerability on the part of one of the parties which causes him to place reliance upon the other and requires the protection of equity acting upon the conscience of that other.

97. [97]

    In Bristol & West Building Society v Mothew [1998] Ch 1 at 18, Millett LJ noted that: "A fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. The distinguishing obligation of a fiduciary is the obligation of loyalty. The principal is entitled to the single-minded loyalty of his fiduciary. This core liability has several facets. A fiduciary must act in good faith; he must not make a profit out of his trust; he must not place himself in a position where his duty and his interest may conflict; he may not act for his own benefit or the benefit of a third person without the informed consent of his principal ... [A fiduciary] is not subject to fiduciary obligations because he is a fiduciary; it is because he is subject to them that he is a fiduciary."

98. [98]

    In Breen v Williams [1996] HCA 57; (1996) 186 CLR 71; 138 ALR 259 at 273, Dawson and Toohey JJ noted that a fiduciary relationship does not arise simply because trust and confidence is placed in another person and that a fiduciary acts in a representative character in the exercise of his responsibility. Gaudron and McHugh JJ noted that Australian Courts had refrained from attempting to provide a general test for determining when persons stand in a fiduciary relationship but identified various factors which point to the existence of a fiduciary relationship including (1) the existence of a relation of confidence; (2) inequality of bargaining power; (3) an undertaking by one party to perform a task or fulfil a duty in the interests of another party; (4) the scope for one party to unilaterally exercise a discretion or power which may affect the rights or interests of another and (5) a dependency or vulnerability on the part of one party which causes that party to rely on another (at 284-285).

99. [99]

    In News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410; 139 ALR 193, the Full Court (Lockhart, von Doussa and Sackville JJ) referred to Wilson J's observation in Hospital Products that the basis of a fiduciary relationship was the obligation to act in the interests of another and quoted Professor Finn in identifying the question whether: "the actual circumstances of a relationship are such that one party is entitled to expect that the other will act in his interests in and for the purposes of the relationship. Ascendancy, influence, vulnerability, trust, confidence or dependence doubtless will be of importance in making this out, but they will be important only to the extent that they evidence a relationship suggesting that entitlement."

100. [100]

     The formulation by reference to an undertaking to act in the interests of another was also adopted in Concut Pty Ltd v Worrell [2000] HCA 64; (2000) 176 ALR 693 at [17] per Gleeson CJ, Gaudron and Gummow JJ; Pilmer v Duke Group Ltd (in liq) [2001] HCA 31; (2001) 207 CLR 165; 180 ALR 249 at [70] per McHugh, Gummow, Hayne and Callinan JJ and Harris v Digital Pulse Pty Ltd [2003] NSWCA 10; (2003) 56 NSWLR 298 at [36] per Spigelman CJ. In Australian Securities and Investments Commission v Citigroup Global Markets Australia Pty Ltd (No 4) [2007] FCA 963; (2007) 160 FCR 35; 62 ACSR 427 , Jacobson J (at [274]) cited comments of Professor Finn that, for a fiduciary relationship to exist: "[t]he critical matter in the end is the role that the alleged fiduciary has, or should be taken to have, in the relationship. It must so implicate the party in the other's affairs or so align him with the protection or advancement of that other's interests that foundation exists for the 'fiduciary expectation'". (P Finn in TG Youdan (ed), Equity Fiduciaries and Trusts (1989), pp 46-47)

101. [101]

     A fiduciary relationship may, but will not necessarily, arise in a joint venture arrangement, which is not formally documented, or in negotiations for such an arrangement or in a particular aspect of it: United Dominions Corporation Ltd v Brian Pty Ltd [1985] HCA 49; (1985) 157 CLR 1 at 11-13; Hungry Jack's Pty Ltd v Burger King Corporation [1999] NSWSC 1029 at [373]-[406] per Rolfe J; Burger King Corporation v Hungry Jack's Pty Ltd [2001] NSWCA 187 at [549]-[576]. However, the cases in which such duties have been found in respect of negotiations for joint ventures commonly involve circumstances in which the venture has progressed some way, while not being formally documented, the party who was later excluded has made a significant contribution to it, and there was a basis to find that one party's appropriation of the opportunity would be inconsistent with the express or understood common purpose of the parties. In Fraser Edmiston Pty Ltd v AGT (Qld) Pty Ltd [1988] 2 Qd R 1, such a duty was found in favour of the party who had brought the opportunity to the defendant who appropriated it for itself. In Ravinder Rohini Pty Ltd v Krizaic (1991) 30 FCR 300; 105 ALR 593, the party who appropriated the opportunity sold the development site using redevelopment plans developed and approved during the period of negotiation over the establishment of a partnership. In Harrison v Schipp [2001] NSWCA 13, the excluded party had funded the expenses of the venture. In Burger King Corporation v Hungry Jack's Pty Ltd [2001] NSWCA 187, the excluded party had invested time and resources in the venture, not knowing of the other parties' intent to proceed without its involvement. In GM & AM Pearce & Co Pty Ltd v Australian Tallow Producers [2005] VSCA 113, the parties had begun coordinating their business interests before the exclusion took place.

102. [102]

     In John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd [2010] HCA 19; (2010) 241 CLR 1, the High Court noted that the term "joint venture" was a vague one and was often used to bolster a conclusion that a fiduciary relationship existed; that the proposition that a fiduciary was a person acting "for or on behalf of" another person must be understood strictly, because otherwise it could become circular; and that commercial transactions often fall outside accepted categories of fiduciary relationship because they do not meet the criteria for such relationships (at [87]-[89]). The Court also noted, but did not resolve, a question whether the duties arising out of a fiduciary relationship can come to an end if the relationship has broken down without being terminated formally by the innocent party (at [103]).

103. [103]

     Putting aside the pleaded duties and the pleaded breaches (which I will address below) and approaching Luigi's claim for breach of fiduciary duty in its broadest form, I do not consider that Luigi has established that he and the Defendants generally, or he and Remly, became "joint venturers" or anticipated joint venturers in a Roselands development comprising Properties A and B as distinct from having interests in Property O as co-owners. To the extent that Dominic, Lillian and Luigi progressed the possibility of a development in Property O, that was consistent with their co-ownership of the property, and the contention that a joint venture existed in respect of the development of that property is inconsistent with Luigi's unilateral action to require the sale of that property.

104. [104]

     So far as Property A or Property B was concerned, the evidence which I have set out above indicates that, in late 2003, Dominic offered Luigi the opportunity to participate in the acquisition of Property B by personally funding his acquisition of an interest in that property, and I do not accept Luigi's evidence that agreement was reached as to other funding arrangements or that Dominic told him he could contribute whenever he had funds to do so. Luigi did not take up that offer within an extended time period. Luigi's contention that Remly was incorporated as a quasi-partnership arrangement between Luigi and Dominic is inconsistent with the fact that it had been incorporated on 7 November 2003 with Dominic and Lillian as the only directors and shareholders. These findings have the result that Dominic and Lillian did not "exclude" Luigi from a venture concerning those properties in which he was participating in any substantive way or was expected to participate, as distinct from not agreeing to his participation in that venture unless he made a financial contribution to it, which he did not do despite being permitted the opportunity to do so over an extended period.

105. [105]

     Luigi himself subsequently acted in a manner which was not consistent with the "quasi-partnership" arrangement for which he contends. He unilaterally brought an application for the sale of Property O and acquired Property C at the end of 2006 or early 2007 and Property D some time in 2007 without reference to Dominic and Lillian (T118). Luigi later dealt with Canterbury City Council on his own account in seeking to progress the project and indicated his intention to purchase Property O and his purchase of other properties on Moorefields Road that would provide access to Property O (CB 11/1378). Luigi appears to have discussed options for obtaining development approval for Property O on his own account with the trustees for sale and an architect involved in the project at a meeting on 16 April 2008 (CB 11/1477). Luigi initially accepted on cross-examination that he was entitled to make an offer to purchase Property O to the trustee for sale of the property in his own right, then asserted that he would have accounted to Dominic for the benefit when the development application was approved and had discussed that matter with his legal advisers although he had not communicated it to Dominic at the time (T121). I do not accept that evidence, and consider that Luigi's conduct in this regard was inconsistent with the duties for which he now contends.

106. [106]

     I also do not consider that the specifically pleaded duties or pleaded breaches of them were established. The first pleaded duty "to act in good faith in the best interests of [Luigi]" is a positive duty typically owed by the trustee of an express trust ( Cowan v Scargill [1985] Ch 270 at 287) , not a proscriptive duty of the kind recognised as a fiduciary duty under Australian law: ( Breen v Williams [1996] HCA 57; (1996) 186 CLR 71 at 113; Eric Preston Pty Ltd v Euroz Securities Ltd [2010] FCA 97; (2010) 77 ACSR 135, aff'd [2011] FCAFC 11; (2011) 274 ALR 705) . A matter which strongly lends against the existence of such a duty is that it would require Remly or the defendants to act in Luigi's personal interests rather than in the interests of Remly (as, on Luigi's case, the entity conducting the development) or the interests of the parties to the venture generally. The corresponding allegation that Remly, Dominic and Lillian breached a fiduciary duty by failing to act in good faith in Luigi's best interests (Amended Statement of Claim paragraph 53) must therefore fail.

107. [107]

     I also do not consider that the second pleaded duty, that Remly must not place itself in a position where its personal interests or those of its directors and shareholders might conflict with Luigi's interests, is established. Even if a joint venture had been established, a duty which prioritised Luigi's interests rather than the mutual interests of the participants is less likely to be found in a "horizontal" arrangement than in a "vertical" relationship: News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410 at 539-540; 139 ALR 193 at 312. Again, a matter which strongly lends against the existence of such a duty is that it would require that Luigi's personal interests always be given priority to the interests of Remly (as, on Luigi's case, the entity conducting the development) or the interests of the parties to the venture generally. There are a range of conflicts of interest which are likely and possibly inevitable in the relevant circumstances. For example, it may be in Remly's interests to pursue a particular form of development to maximise its corporate profit, which was in the interests of the corporate entity and/or its shareholders and unitholders in the trust collectively although not in the interests of Luigi who may not have wished to fund that form of development. There was an inevitable conflict between the interests of Dominic and Lillian on the one hand and the interests of Luigi on the other, since it would be in Luigi's interest to contribute as little as possible to the venture and in the interests of Dominic and Lillian that he should at least contribute an equal portion to the venture. Such conflicts could not be avoided and there is no evidence that the parties agreed that, and no reason why there would be an implication that, Luigi's personal interests should always be given priority to the interests of Remly or the interests of the parties to the venture generally where such a conflict arose.

108. [108]

     Luigi pleads a breach of the second pleaded fiduciary duty because Remly, Dominic and Lillian have asserted certain matters, by reason of which it is alleged that they have placed themselves in a position where their personal interests conflicted with the interests of Luigi (Amended Statement of Claim paragraph 54). That claim must also fail because, for the reasons I have noted above, I do not consider that such a duty was established requiring Remly, Dominic or Lillian to subordinate their interests to Luigi's interests so that his interests should always be preferred to theirs.

109. [109]

     In particular, Luigi alleges this duty was breached by an assertion that Luigi has no beneficial interest in Property A and has no beneficial interest in the assets of Remly. It is not clear to me why there would be a breach of such a duty (even if it was otherwise established) in asserting that Luigi had no such interest unless the existence of such an interest were otherwise established. The duty is also alleged to have been breached by assertions that Dominic and Lillian were entitled to cause Remly to acquire the first mortgage over Property O from GE Commercial Finance Australia Ltd without Luigi's knowledge or consent, and that Remly, Luigi and Dominic had no obligation to Luigi to enable Luigi to meet his obligations under the GE Commercial Finance Australia Ltd mortgage which was acquired by Remly. Again, it is not clear to me why there would be a breach of duty in asserting those matters if they are the fact, and no reason why they are not the fact is identified other than the alleged fiduciary duty.

110. [110]

     The next aspect of the alleged breach is an alleged assertion that Dominic was entitled to divert the rental income from Property O into an account which was controlled by Remly, Dominic and Lillian to the exclusion of Luigi, and were entitled to use the rental income from Property O to meet the shortfall after the receipt of rental income from Properties A and B of principal, interest and expenses incurred by Remly in relation to the purchase and ownership of properties A and B without acknowledging that Luigi has a beneficial interest in the assets of Remly. I do not understand Remly, Dominic and Lillian to assert an entitlement to use the rental income from Property O, although it is conceded that Dominic in fact applied that income for that purpose, and he has been required to account for that income by a determination made by the trustees for sale of Property O.

111. [111]

     The breach is also alleged to be established by an assertion that Luigi has no interest in the development application as amended by Canterbury City Council and dated 24 September 2009 and that Luigi has no interest in the architectural plans on which the development application as amended by Canterbury City Council and dated 24 September 2009 is based. It is again not clear to me why there would be a breach of such a duty (even if it was otherwise established) in asserting those matters unless the existence of such an interest were otherwise established. The breach is also alleged to involve an assertion that Luigi has no interest in the unsecured loan of $125,000 made to Moorefields Road Pty Ltd as trustee for the Moorefields Road Unit Trust on 7 May 2009. However, I consider that proposition is correct, since I have held on balance that the loan was funded by Dominic in his personal capacity.

112. [112]

     The third pleaded duty, not to make improper use of Remly's position, appears to reflect the statutory duties which are owed by a director to a company. I do not consider that such a duty is established, for the same reason the other pleaded fiduciary duties are not established.

113. [113]

     Luigi also pleads that, by reason of the relationship between Luigi and Remly, Dominic and Lillian, and by reason of Luigi, Dominic and Lillian being co-owners of Property O and "joint venturers" in the Roselands development, Dominic and Lillian owed a fiduciary duty to Luigi to act in good faith in his best interests; not to place themselves in a position where their personal interests might conflict with his interests and not to make improper use of Remly's position as the corporate entity which would lodge the development application in relation to the Roselands development with Canterbury City Council and carry out the Roselands development.

114. [114]

     I do not consider these duties are established for the same reasons the duties alleged to have been owed by Remly are not established. I also do not consider that Luigi has established that the relationship of co-ownership of property gives rise to fiduciary duties as between the co-owners either generally or in this case, where each co-owner has the rights attached to ownership of an interest in the property. There is also no reason why a duty should be found which prioritised Luigi's position by requiring Dominic and Lillian to subordinate their personal interests to Luigi's personal interests where Luigi did not accept any corresponding obligation.

115. [115]

     Luigi pleads that Remly, Dominic and Lillian have made improper use of Remly's position as the corporate entity which lodged the development application and was to carry out the Roselands development in that they have asserted that Luigi has no interest in the development application as amended by Canterbury City Council and has no interest in the architectural plans on which the development application is based (Amended Statement of Claim paragraph 55). The alleged breach is not established because I do not consider the alleged duty was established, and Luigi has not otherwise established the alleged interest in either the development application or the relevant architectural plans.

116. [116]

     Accordingly, I do not consider that Luigi has established that fiduciary duties were owed to him in the form pleaded or that such duties were breached. Claim arising from "special disadvantage "

117. [117]

     Luigi also alleges that, by reason of the relationship between Luigi and Remly, Dominic and Lillian, he was under a "special disadvantage" as against Remly, Dominic and Lillian. That "special disadvantage" is particularised as that: "[Luigi] was in a position of special disadvantage to [Remly] in that [Dominic] and [Lillian] were the directors and shareholders of [Remly] and further [Luigi] as distinct from [Dominic] and [Lillian] was not able to cause [Remly] to prosecute the DA lodged on 9 September 2004, even if [Luigi] had been aware (which he was not) of information required by Canterbury City Council to be furnished in order to progress the DA".

118. [118]

     Luigi also pleads that, by reason of the relationship pleaded, he was under a "special disadvantage" as against the Defendants. This allegation substantially overlaps with the allegation previously made in paragraph 50 of the Amended Statement of Claim, the only difference being that the relationship pleaded appears to add the reference to Luigi and Dominic and Lillian being co-owners of Property O.

119. [119]

     Luigi also pleads that: "It is against conscience for the Defendants to have taken advantage of the special disadvantage of the Plaintiff in that the Defendants have: (a) Failed to act in good faith in the best interests of [Luigi]; (b) Placed themselves in a position where their personal interests conflicted with the interests of [Luigi]; (c) Made improper use of [Remly's] position as the corporate entity which lodged the Development Application in relation to the Roselands Development with Canterbury City Council and was to carry out the Roselands Development."

120. [120]

     I do not consider that Luigi has established the factual basis of the allegation of special disadvantage, since he was the co-owner of Property O and at all times, prior to the sale of that property on his application, had the rights attaching to co-ownership of the Property. To the extent that Luigi was otherwise in a weaker bargaining position than Dominic, that does not establish special disadvantage of the kind necessary for such a claim: Blomley v Ryan [1956] HCA 81; (1956) 99 CLR 362; Commercial Bank of Australia v Amadio [1983] HCA 14; (1983) 151 CLR 447; Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd [2003] HCA 18; (2003) 214 CLR 51; Ridout Nominees Pty Ltd v Commonwealth Bank of Australia [2003] WASCA 158. Claim for constructive trust

121. [121]

     In closing submissions, Luigi developed an alternative argument which had not been clearly pleaded in the Further Amended Statement of Claim, that a constructive trust should be imposed under the principles established by Muschinski v Dodds [1985] HCA 78; (1985) 160 CLR 583 and Baumgartner v Baumgartner [1987] HCA 59; (1987) 164 CLR 137. Dominic and Lillian did not take any objection to the development of this argument on the basis that it had not been pleaded, and that course may well have been appropriate in circumstances that the argument did not raise new factual issues.

122. [122]

     The principles in those cases are well established and have frequently been applied in circumstances where domestic and other relationships have failed. In Muschinski v Dodds at 618, Deane J observed that: "Both common law and equity recognize that, where money or other property is paid or applied on the basis of some consensual joint relationship or endeavour which fails without attributable blame, it will often be inappropriate simply to draw a line leaving assets and liabilities to be owned and borne according to where they may prima facie lie, as a matter of law, at the time of the failure ... Where, however, there are no applicable contractual provisions or the only applicable provisions were not framed to meet the contingency of premature failure of the enterprise or relationship, other rules or principles will commonly be called into play."

123. [123]

     His Honour referred to the situations where contracts are frustrated or when partnerships or contractual joint ventures are terminated, where equity would allow a return of each party's contribution to that party. His Honour identified a more general principle of equity which he described as follows: "Those circumstances can be more precisely defined by saying that the principle operates in a case where the substratum of a joint relationship or endeavour is removed without attributable blame and where the benefit or money or other property contributed by one party on the basis and for the purposes of the relationship or endeavour would otherwise be enjoyed by the other party in circumstances in which it was not specifically intended or specifically provided that that other party should so enjoy it. The content of the principle is that, in such a case, equity will not permit that other party to assert or retain the benefit of the relevant property to the extent that it would be unconscionable for him to do so ..." (at 620).

124. [124]

     In Baumgartner v Baumgartner at 147-148, Mason CJ, Wilson and Deane JJ referred to those observations and to the general equitable principle "which restores to a party contributions which he or she has made to a joint endeavour which fails when the contributions have been made in circumstances in which it was not intended that the other party should enjoy them". Their Honours observed at 149 that: "Their contributions, financial and otherwise, to the acquisition of the land, the building of the house, the purchase of furniture and the making of their home, were on the basis of, and for the purposes of, that joint relationship. In this situation the appellant's assertion, after the relationship had failed, that the ... property, which was financed in part through the pooled funds, is his sole property, is his property beneficially to the exclusion of any interest at all on the part of the respondent, amounts to unconscionable conduct which attracts the intervention of equity and the imposition of a constructive trust at the suit of the respondent."

125. [125]

     In West v Mead [2003] NSWSC 161; (2003) 13 BPR 24,431 at [56] and [62], Campbell J noted that the Baumgartner constructive trust is imposed to prevent an unconscionable assertion of legal title in circumstances where the parties had no explicit intention about how the legal title will be held in the circumstances which have arisen, and that their Honours' reasoning in Baumgartner implemented the equitable principle that beneficial title to an asset ought to be proportionate to the contributions made to its purchase price and that non-monetary contributions are taken into account.

126. [126]

     In my view, Luigi is not entitled to relief under the application of these principles. So far as Luigi had a legal interest as co-owner of Property O, he retained that interest until he took steps to bring about the sale of that property. Luigi did not otherwise contribute money or other property to the purchase of Property A or Property B (just as Dominic did not contribute money or other property to Luigi's purchase of Property C or Property D) and there is no basis for a complaint that Dominic would otherwise enjoy the benefit of property that Luigi did not contribute. To the extent that Luigi made non-financial contributions to activities associated with the development, I have found that he did so in the knowledge of Dominic's position and on the basis that he stood to benefit from a development approval as a co-owner of Property O. Accordingly, I do not consider that any element of unconscionability is established in Dominic and Lillian asserting that Luigi has no interest in Property A or Property B where it is otherwise not established under Luigi's other claims. Relief claimed

127. [127]

     Luigi, inter alia, claims declarations that Remly's assets (including Property A and Property B) are held on trust for him as to a 50% share; that Property A is held by Remly on trust for Luigi as to a 50% share; an order requiring Dominic and Lillian to cause Remly to account to the Luigi for all income and profits received by Remly; and the removal of Remly from office as trustee of the alleged trust.

128. [128]

     A constructive trust can be imposed on a fiduciary or trustee in relation to property which was acquired in breach of the fiduciary obligation or trust: Keech v Sandford (1726) Sel Cas T King 61; 25 ER 223; Boardman v Phipps [1967] 2 AC 46; Chan v Zacharia [1984] HCA 36; (1983) 154 CLR 178. In Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 125, Deane J noted that: "[a] constructive trust may be imposed as the appropriate form of equitable relief in circumstances where a person could not in good conscience retain for himself a benefit, or the proceeds of a benefit, which he has appropriated to himself in breach of his contractual or other legal or equitable obligations to another."

129. [129]

     In Warman International Ltd v Dwyer [1995] HCA 18; (1995) 182 CLR 544, the High Court observed that whether an account or a constructive trust should be ordered would depend on the nature of the property; the relevant powers and obligations of the fiduciary; and the relationship between the profit made and the fiduciary's powers and obligations. In Bathurst City Council v PWC Properties Pty Ltd [1998] HCA 59;(1998) 195 CLR 566 at 585, the High Court noted that a Court should first consider alternative remedies before imposing a constructive trust. In Giumelli v Giumelli [1999] HCA 10; (1999) 196 CLR 101, the High Court observed that a constructive trust should not be imposed if an appropriate equitable remedy is available which falls short of the imposition of a trust. In that case, the Court held that monetary compensation, secured by an equitable charge, was more appropriate than an order for conveyance to do equity between the parties and third parties.

130. [130]

     Luigi identifies several bases for the imposition of the constructive trust. First, he contends that a constructive trust could be imposed on the basis that an express trust was intended, and has become incapable of performance because no unit trust deed was executed. A constructive trust can be imposed in this situation because it is unconscionable for the legal owner to assert a beneficial ownership: Malsbury v Malsbury [1982] 1 NSWLR 226 at 230-231. However, the evidence provides no basis for a finding that an express trust was intended so as to support the imposition of a constructive trust on that basis. The second basis for the imposition of a constructive trust is by reference to the principles in Muschinski v Dodds and Baumgartner v Baumgartner to which I have referred above. I do not consider that the imposition of a constructive trust would be appropriate on that basis for the reasons I have set out above. Third, Luigi contends that he is entitled to the imposition of a constructive trust as a remedy for breach of fiduciary duty. I have not found the claim for breach of fiduciary duty to be established for the reasons I have indicated above.

131. [131]

     In any event, I would not find that a constructive trust was an appropriate remedy in the particular circumstances, given that any contributions by Luigi to the proposed development (outside his interest in Property O) were limited and his interest in Property O was withdrawn when he sought orders for sale of that property. There would also be an issue whether a constructive trust could have been imposed, notwithstanding the purchase of Property O by Moorefields Road Pty Ltd and the fact that the latter was not joined as party to the proceedings.

132. [132]

     Dominic led evidence as to the value of Property A which I understand was intended to support a submission that there was no utility in imposing a constructive trust and Luigi led evidence in response. It is not necessary for me to deal with that submission given the findings I have reached above. However, I should indicate my findings of fact in respect of that evidence in case an appeal is brought. Mr Hunter adopted a value of $700,000 for Property A and Mr Paris revised his value, having regard to Mr Hunter's comparable sales figures, to a range of $650,000 - $675,000 for Property A. The difference between the two valuations is not large and I accept that each of Messrs Hunter and Paris were giving evidence which appropriately applied their professional expertise and the remaining difference between them is one of professional judgment. I consider it appropriate to adopt a value of $675,000 for Property A, which is the top end of Mr Paris' range and a little below the figure adopted by Mr Hunter. The parties agreed to a value for Property B of $590,000.

133. [133]

     If, contrary to my view, the basis for the imposition of a constructive trust had been established, any orders in respect of such a trust would have had to be modified so as to require the payment of contributions which have not been made by Luigi throughout the relevant period as a term of any relief granted. Orders and costs

134. [134]

     On the basis of the findings which I have reached above, the proper orders would ordinarily be that the proceedings should be dismissed, and the Plaintiff should pay the Defendants' costs of the proceedings.

135. [135]

     However, the Defendants have brought a Cross-Claim in the proceedings against the Plaintiff and third parties, which is wider than the issues raised by the Statement of Claim. Aspects of that Cross-Claim have been referred to a referee under Part 20 Div 3 of the Uniform Civil Procedure Rules and other aspects of the Cross-Claim may still have to be determined by the Court. I should therefore hear the parties as to the form of orders to be made having regard to the existence of the Cross-Claim.

136. [136]

     I direct the parties to send to my Associate draft orders to give effect to my judgment by 4pm on Wednesday 14 March 2012, if agreement can be reached between them as to the form of those Orders. If no such agreement is reached, I direct the parties to send to my Associate draft orders and any submissions addressing the matters referred to in paragraph 135 above by 4pm on Wednesday 14 March 2012; and each party may send to my Associate and serve any submissions in reply by 4pm on Monday 19 March 2012.