Brookes v Ralph & Ors [2009] QSC 416

SUPREME COURT OF QUEENSLAND CITATION: Brookes v Ralph & Ors [2009] QSC 416 PARTIES: THOMAS JOSEPH BROOKES (plaintiff) v KATHLEEN MARY RALPH (first defendant) SEAN KEITH RALPH (second defendant) CANTLEY TRADING PTY LTD ACN 103 771 731 (third defendant) FILE NO/S: BS 6274 of 2005 DIVISION: Trial Division PROCEEDING: Trial ORIGINATING COURT: Supreme Court Brisbane DELIVERED ON: 18 December 2009 DELIVERED AT: Brisbane HEARING DATE: 11, 12, 13, 14, 15, 19 and 22 May 2009 Further submissions 27 May, 4 and 15 June 2009 JUDGE: White J ORDER: Judgment for the plaintiff against the defendants for $261,237. CATCHWORDS: EQUITY – GENERAL PRINCIPLES – FIDUCIARY OBLIGATIONS – PARTICULAR CASES – where the plaintiff and the first and second defendants entered into a commercial venture – whether there was a joint venture agreement between the parties – whether the defendants are in breach of fiduciary obligations INTELLECTUAL PROPERTY – COPYRIGHT – INFRINGEMENT – DESIGNS – GENERALLY – where the plaintiff claims damages for breach of copyright in his building plans – whether the defendants have breached copyright Aberdeen Railway Co. v Blaikie Brothers (1854) 1 Macq 461 Barnes v Addy (1874) LR 9 Ch App 244 Barns v Ryan [2003] QCA 292 Birtchnell v Equity Trustees, Executors & Agency Co. Ltd (1929) 42 CLR 384 -- 1 of 33 -- 2 Consul Developments Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 Farah Constructions Pty Limited v Say-Dee Pty Limited (2007) 230 CLR 89 Malec v JC Hutton Pty Ltd (1990) 169 CLR 638 Mantonella Pty Ltd v Myles Thompson [2009] QCA 80 Spencer v The Commonwealth (1907) 5 CLR 418 Target Holdings Ltd v Redferns (a firm) [1996] 1 AC 421 United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1 Warman International Ltd v Dwyer (1995) 182 CLR 544 COUNSEL: C Heyworth-Smith for the plaintiff LA Stephens for the defendants SOLICITORS: Gregg Lawyers for the plaintiff Morgan Conley Solicitors for the defendants Overview [1] The plaintiff, Mr Brookes, lived in Sydney where he designed and built yachting equipment. He met the first defendant, Mrs Ralph, at the Gold Coast in about March 2000. Mrs Ralph owned and operated a business selling swimming pool chemicals and equipment wholesale at Loganholme. She was assisted by her adult son, Sean Ralph, the second defendant. [2] A personal relationship between Mr Brookes and Mrs Ralph developed and in November 2001 Mr Brookes relocated to Queensland taking up residence with Mrs Ralph in her home at Taneh Merah and moving his business into her rented factory premises. That personal relationship broke down and he moved out of her home and factory at least by mid-2002. The relationship continued in an “on-again- off-again” and rather turbulent fashion until mid-February 2003. [3] Mr Brookes encouraged Mrs Ralph to implement her long held desire to own a purpose built factory for her business. She was concerned about her capacity to finance such a project at that time as she had had serious cash flow problems in the immediate past. He was enthusiastic and wanted to be involved. He drew some sketches for a new factory on land which he had identified as suitable. [4] A company, Joseka Pty Ltd, was incorporated on 6 November 2002 to advance the project. Each of Mrs Ralph, Sean Ralph and Mr Brookes had one share and were directors. It was to be the trustee of a discretionary trust to be known as The Three Way Discretionary Trust, with each of the natural parties to be beneficiaries of the Trust. Joseka Pty Ltd entered into a contract, subject to conditions including for finance and development approval, to purchase land at 17 Josephine Street, Loganholme on 29 November 2002. [5] The commercial venture did not prosper, essentially, as Mr Brookes understood, for want of finance approval, while Mrs Ralph contends she could not get proper plans from Mr Brookes and an acceptable building quotation in time to take to the bank to satisfy the conditional land contract. On 12 and 13 February 2003 Mr Brookes understood from Mrs Ralph that the bank would not lend any money to finance the project. Sean Ralph proposed seeking finance to purchase the land for himself and to hold on to it until circumstances were more financially propitious. To that end Mrs Ralph proposed to Mr Brookes that they both resign as directors of -- 2 of 33 -- 3 Joseka Pty Ltd and give Sean Ralph their shares. As Mr Brookes understood, the project was over. The relationship between Mr Brookes, Mrs Ralph and, to a lesser extent, Sean Ralph, was very volatile between December 2002 and mid-February 2003. [6] Within days of the project’s end, so far as Joseka Pty Ltd purchasing the land was concerned, Mrs Ralph had incorporated the third defendant, Cantley Trading Pty Ltd, on 18 February 2003, as its sole director and shareholder. She obtained a loan from her bank for Cantley Trading Pty Ltd to purchase the land at 17 Josephine Street, Loganholme and, subsequently, to build the warehouse. Mr Brookes initially agreed to resign as a director of Joseka Pty Ltd on 13 February 2003 but withdrew those instructions. He subsequently resigned when requested by Joseka Pty Ltd’s accountant. Although Mrs Ralph instructed her accountant to attend to her resignation from 13 February 2003, she did not cease to be a director until Joseka Pty Ltd was deregistered on 1 August 2004. [7] Mr Brookes drove past the land at 17 Josephine Street in May 2004 and saw a building in the process of construction and recognised “his” design. He lodged a caveat over the land on 21 July 2004. Mr Brookes commenced these proceedings in August 2004. The new warehouse was completed in September 2004. He has sued Mrs Ralph and Sean Ralph for damages for breach of an alleged joint venture and damages for breach of fiduciary duty. He has sued Cantley Trading Pty Ltd in a ‘Barnes v Addy’ type claim. He has also sued all three defendants for damages for breach of his copyright in his building plans. [8] Mrs Ralph and Sean Ralph deny that any concluded agreement was reached between them and Mr Brookes about the warehouse project but, if there was, deny a relationship which gave rise to the fiduciary obligation of good faith. If, contrary to that latter position, a joint venture agreement was formed, the defendants contend that either the agreement was frustrated because funds could not be raised, or alternatively, there was full disclosure to Mr Brookes. They deny that the building erected on the land at 17 Josephine Street, Loganholme was the same or substantially the same as that depicted in drawings prepared by Mr Brookes, or that there was anything original in the his design. [9] There were numerous disagreements at the trial between Mr Brookes, Mrs Ralph and Sean Ralph about factual matters. The evidence of particularly Mr Brookes and Mrs Ralph was not given smoothly but tended to jump back and forth between topics. Some of the differences were very much a product of how each viewed his or her role in the “project”, the role of the other parties and their personal relationship. Some differences, I would conclude, were based on positions taken in the litigation. Some were, no doubt, coloured by the breakdown of the personal relationship. Mr Brookes seems to have kept every scrap of paper from this period including “doodle” type sketches as well as very personal email communications with Mrs Ralph, some of which appeared to be drafts not actually sent. However, these notes, jottings and emails by Mr Brookes do reveal that he has been consistent throughout in his account. [10] Not every difference needs to be resolved and it would be unwise to attempt to do so. I do not seek to resolve who was responsible for the second version of a letter which became Exhibit 109. It is not necessary to do so. After such a long period, memories of what actually occurred and why and what was said will, necessarily, be fallible. Accordingly, where it is possible to do so, I have preferred to rely on -- 3 of 33 -- 4 contemporary documents. The credit of the principal parties, Mr Brookes, Mrs Ralph and Sean Ralph, is in issue. There were some witnesses who were relevantly disinterested, although time, and that disinterestedness, has also affected their recollection. [11] As these reasons reveal, I have concluded that there was a joint venture agreement to erect a warehouse on land identified by Mr Brookes which was breached when Mrs Ralph failed to take up finance from the bank for Joseka Pty Ltd to purchase the land and construct the warehouse. The fiduciary obligations imposed by the nature of their relationship were breached when Mrs Ralph and Sean Ralph deceitfully cut Mr Brookes out of the development of the project, using Cantley Trading Pty Ltd as the vehicle in place of Joseka Pty Ltd, Cantley Trading Pty Ltd being a company in which Mr Brookes had no interest. Mrs Ralph’s business [12] Mrs Ralph worked as a representative for a swimming pool chemical company after coming from New Zealand to Queensland to live in 1984. After a brief period working in transport, she was the sales manager for another chemical company for about five years. In 1993 she set up a wholesale group buying business – the POPS Group (Privately Owned Pool Shops) – with about 65 customers. She operated this business from rental premises at 38 Chetwynd Street, Loganholme for which her business paid $4,000 per week in rent. She had started the business without capital and had experienced cash flow problems. When she first met Mr Brookes she told him about her business and her hopes for its future including, eventually, owning her own warehouse and delivery trucks. [13] Mr Brookes denied that Mrs Ralph had any tangible future plans and asserted that it was his enthusiasm and drive, together with his own experience in building tilt warehouses in Sydney and his ability at financial modelling, which persuaded Mrs Ralph to turn her mind to the realisation of the project. [14] Mrs Ralph had the support of her bank manager, Mr Steven Podlich, with respect to her business. He admired her business capacity and had nominated her for a business woman award. Mrs Ralph also had the support of a financial adviser, Mr Geoff Munck.1 Mrs Ralph was very financially cautious about her capacity to service a substantial loan. Her business was variously described as the POPS Group or Pool Pro. [15] From the end of 2002, when relations with Mrs Ralph were particularly volatile, Mr Brookes asserted his “ownership” of the project. In his evidence he affirmed this: “It was my building. I designed it. The whole development was mine. It was my concept, my brain child, my everything.”2 [16] Mr Brookes said that he was conversant from early in the personal relationship with Mrs Ralph’s business. By the time she gave her evidence, Mrs Ralph wanted to convey that she was reserved with Mr Brookes about much of her business. I accept that Mrs Ralph discussed many matters relative to her business with Mr Brookes and sought to involve him. They were in a passionate relationship as the emails 1 Mr Munck was unable to give evidence because of his mental and physical frailty at the time of the trial. 2 Transcript 3-51. -- 4 of 33 -- 5 tendered in evidence made very plain. They both operated their own businesses and discussed them and Mrs Ralph, at least, was pleased to receive Mr Brookes’s advice which he gave only too happily to her. The following passage in Mrs Ralph’s evidence probably explains the relationship as it commenced, so far as it related to her business: “I think from the moment I met Mr Brookes we actually drove back to Sydney together. I was visiting a friend down there and we drove down and we had ten or 11 hours to talk in the car and I think we both talked about our businesses and our dreams and what we wanted to do with our lives. I believed from that very day, the first time I met Mr Brookes he knew what I did for a living and what I intended to do with my life… I intended to buy myself my own warehouse when I could afford it. It stands to reason to have your own warehouse and operate from there, and your own transport, your own truck.”3 Mrs Ralph told Mr Brookes of her cash flow problems and told him early in their relationship that she was not in a position to do anything about fulfilling her dream. The business employed five or six staff in 2000 and Sean Ralph had operational control of the business. In fact, early in the relationship, Mr Brookes had lent her some $50,000 (which was repaid with interest) to assist in resolving some cash flow problems. Mr Brookes’s business [17] When asked in evidence-in-chief whether he had a business Mr Brookes’s response was “Prestige Yachting Systems, I think it was called then.”4 Mr Brookes said that “we” designed and built yachting equipment; and that he commuted between Newport, California and Newport, Sydney. He said that Mrs Ralph made space for his business in her business premises. There was no rent to be paid or agreement but he took it on his own initiative to do “a lot of their maintenance on their pouring machines and forklift and the building and stuff like that.”5 But apart from that it was unclear just what Mr Brookes’s business entailed. He maintained that he was spending about three-quarters of his time, initially, involved in Mrs Ralph’s business compared to his own. That was not the recollection of Mrs Ralph or Sean Ralph, who said he was mostly engaged with his own business interests when he was occupying considerable space in their premises. But they were at some pains to minimise his contribution to their business enterprise and what is now the realisation of Mrs Ralph’s dream. Furthermore, Mr Brookes occupied himself in the “project” without discussing much of what he was doing with the Ralphs. [18] Mr Brookes related an early conversation with Mrs Ralph in which he said that he had experience in building tilt up buildings that did not need a steel frame. The corrosive effect of the pool chemicals was something of a problem in the rented warehouse. Mrs Ralph said in evidence, and this was borne out by some of Mr Brookes’s subsequent emails, that he had been involved in a number of businesses in the past which had failed due, to a large extent, according to him, to the other people with whom he had been involved, and she was cautious about 3 Transcript 4-38. 4 Transcript 1-18. 5 Transcript 1-19. -- 5 of 33 -- 6 entering into a business relationship with him. Nonetheless, all the evidence points to her agreeing to commit to the warehouse project with Mr Brookes. Sean Ralph [19] Sean Ralph is Mrs Ralph’s only son. He had joined the Royal Australian Air Force in 1991, graduated as a corporal aircraft technician and was, as a consequence of his marks, immediately posted to work on F-111 aircrafts at Amberley. He took leave without pay after about five-and-a-half years in order to help his mother in her business which was then struggling. He remained with her for about nine months to a year before he returned briefly to the Air Force. He then left to go into business with his mother in about 1998 or 1999. He had lent her money from time to time to assist when the business was struggling and had an interest in seeing it grow. He had training in handling chemicals. By the time he gave evidence, he was the general manager of the POPS Group and a director of his own company. He supported Mrs Ralph’s evidence that he had had many conversations with her about her desire to own her own chemical distribution warehouse. [20] Sean Ralph recalled first meeting Mr Brookes in late 2000 or early 2001 at the factory premises at Chetwynd Street. It was apparent from Mr Brookes’s evidence that they did not get on well. Mr Brookes minimised Sean Ralph’s capacities in the business and his contribution to it, and disparaged his character. Mrs Ralph, on the other hand, regarded Sean as indispensable to her business. Sean Ralph did not care for Mr Brookes. [21] By about August 2002 Sean Ralph was included, at Mrs Ralph’s request, in the project. Mrs Ralph’s and Sean Ralph’s evidence was that its inception was in August 2002. There is contemporary documentary evidence in the form of notes and communications from Mr Brookes which has the project on foot from early 2002. Early plans [22] According to Mr Brookes, he represented to Mrs Ralph that he knew roughly what land values were around the Loganholme area and that he had had experience “building these sort of commercial buildings many times before…”6 He said Mrs Ralph asked him to talk to Sean about the possibility. According to Mr Brookes, Sean agreed that if Mr Brookes could prove the idea was “do-able” he would support it. Mrs Ralph agreed that he should demonstrate its “do-ability” by working on some costings and coming up with a design for the building. [23] Mr Brookes said he and Mrs Ralph agreed after many conversations in late January/ early February 2002 that he would: • find a suitable block of land; and • design a building in conjunction with a draftsman and engineers “that would work.” Mrs Ralph, according to Mr Brookes, would: • arrange the finance through her bank, with whom she had a good relationship; and 6 Transcript 1-21. -- 6 of 33 -- 7 • provide her company as a tenant to the warehouse. [24] According to Mr Brookes, Sean Ralph had no part in these early discussions nor any role to play. Mr Brookes and Mrs Ralph discussed their want of provision for superannuation and whether this land and building project could fund superannuation benefits for them both. There is no doubt that Mr Brookes was the driver of the idea. It was his enthusiasm and persistence that got it going and he maintained the momentum. His evidence was that by early 2002 he had done the costings, shown them to Mrs Ralph and when he approached real estate agents “the deal was set in concrete.”7 [25] This was not Mrs Ralph’s understanding, at least, subsequently. She was clear that Sean was an integral part of her business and his involvement in any change was essential. However, Mr Brookes’s notes prior to mid-2002, including to the vendor of the land at 17 Josephine Street, do not refer to Sean Ralph and it may be concluded that initially the project was to be only between Mr Brookes and Mrs Ralph. [26] According to Mr Brookes, after Mrs Ralph said that she wanted her son to be part of the project, he discussed with her the basis upon which he would agree to Sean participating. He produced some undated, handwritten notes:8 “This draft is to clarify the future direction of the new building project. Since Sean becoming involved. A company is to be formed by Joe Brookes, Sean Ralph & Kathy Ralph will be joint directors & equal shareholders. Roles & Responsibilities Joe – locate suitable block of land and negotiate sale with the owner & get contract on best terms – no deposit? (if possible) - design building & offices, packing areas & system & look at feasibility & design acid plant - organize construction of the building and negotiate all contracts for construction managed construction Kathy – organize the finance thru Westpac bank Provide Pops as tenant for 10 years on a lease sufficient to pay the loan & a small profit on top Sean to organize all council approvals, help Joe with all submissions to occupy building. Get approvals for acid plant. Joe to assist Sean to prepare proposals & to attend meetings with government etc.” When asked if Mrs Ralph responded to the contents of the document, Mr Brookes replied: 7 Transcript 1-32. 8 Exhibit 22. It might be safe to assume they were compiled about August 2002. -- 7 of 33 -- 8 “Yeah. Well, that was the agreement. It was all like was just responding in notes – in note form.”9 It was not put to Mr Brookes that there was no agreement in those terms. [27] Mrs Ralph was adamant, as was Sean Ralph, that they understood Mr Brookes to be able to prepare building plans acceptable to the local council and that he was experienced in “building” the kind of warehouse which would best suit the needs of a business dealing in the wholesale supply of pool chemicals. This experience meant, and Mr Brookes conveyed to them that it meant, that he would manage the building work and subcontract the work to the appropriate trades, thus saving on the builder’s margin. In this manner they would have the necessary equity in the project and could borrow the whole amount to fund the purchase of the land and build the warehouse. Mrs Ralph had no funds available to put into the project herself nor did Sean Ralph, and Mr Brookes, realistically, was not desirous of doing so. It was thus essential that “the figures” which Mr Brookes was “playing with” should achieve this object of self-funding. [28] Mr Brookes maintained that whilst he told the Ralphs he was capable of subcontracting out the building of the warehouse, because he had done it many times before, he also told them that if a builder’s quote came within 10 per cent of the estimated cost to subcontract it then they would be better off having a builder do it and thereby obtain a warranty on the building work. I accept that he explained that to the Ralphs. At least by the time they gave their evidence, Mrs Ralph and Sean Ralph, rather irrationally, contended that even if Mr Brookes retained and paid himself for a draftsman to do the drawings (as he did) he was not performing his part of the bargain.10 [29] Mr Brookes had no expertise or relevant experience in wholesale pool chemicals and their handling although he was energetic, keen to be involved, had confidence in his ability to acquire those skills and had “worked over” the regulatory hazardous chemical documents by the end of 2002. Finding the land [30] Mr Brookes was firmly of the opinion that he first identified the land at 17 Josephine Street, Loganholme as suitable for the warehouse after much searching in a rather wide radius from 38 Chetwynd Street. He tendered in evidence a number of documents evidencing these searches. He did not discuss this activity with Mrs Ralph or Sean Ralph. Both Mrs Ralph and Sean Ralph commented that had he discussed his searches with them, they would have explained that land past the Albert River was not to be considered as transport costs would rise significantly. A location characterised as “metropolitan” was essential. Mr Brookes’s explanation was that each was doing his or her part in the progression of the project and had no need for discussion. He did, however, seem to be aware of containing transport costs. Mr Brookes also made many notes and sketches, a number of which had not been seen by Mrs Ralph or Sean Ralph prior to disclosure in this litigation but which, Mr Brookes maintained, evidenced the considerable effort he was putting into the feasibility of the project. 9 Transcript 2-4. 10 For example, Exhibit 40: engineering drawings of On-site Engineers Pty Ltd (Mr D D’Alessandro) of 6 November 2002; and Exhibit 41: engineering drawings of Indacom Design (Mr Brian Johnson) of 13 November 2002. -- 8 of 33 -- 9 [31] Sean Ralph said that the identification of available land at 17 Josephine Street was made by him because he regularly made chemical deliveries to the Logan City Council water treatment plant directly behind Josephine Street. When he was earlier involved in a conversation with Mr Brookes and his mother about relocating he said he immediately drove to Josephine Street and noted that the block was still available. He said that he told Mr Brookes to give the owner of 17 Josephine Street a ring.11 [32] Who first identified the site at 17 Josephine Street is of little or no relevance to the major issues in this litigation. But it seems to have meant something to Mr Brookes and to Sean Ralph. Perhaps they independently identified the land as suitable. If it does matter, then more likely, Mr Brookes identified it as suitable for the project. There is no dispute, however, that Mr Brookes made contact with Mr Heraghty, one of the vendors of the property, in about May 2002 before, on all parties’ evidence, Sean Ralph was involved in the project. [33] Very early in negotiations with Mr Heraghty, Mr Brookes faxed a document to him identifying the special conditions that the purchaser would be seeking to have incorporated into the contract of sale. He was unable to say when this occurred but the address on the document suggests that it was after he left 38 Chetwynd Street. The contract is said to be with “Jokate Investments (Thomas Joseph Brookes and Kathleen Mary Ralph)” which indicates that it was before Sean Ralph was involved. The conditions which Mr Brookes sent to Mr Heraghty have some relevance to what occurred after the project fell over. They were the same special conditions incorporated into Joseka Pty Ltd’s contract to purchase the land and identical with special conditions in the contract with Cantley Trading Pty Ltd.12 They were: “The purchasers will within 12 weeks from the date of contract obtain the following to their satisfaction. a. Finance on terms and conditions satisfactory to the purchaser b. Logan City Council DA approval c. Any other statutory or govt. etc approval as required d. Flood history e. Easement conditions f. If any of the above conditions were found to be not satisfactory to purchaser then this contract will be terminated upon written notice by the purchaser at any time or within 7 days of the expiry of the 12 week period above g. Condition 1 above can be extended on agreement between both parties to this contract.” [34] The land at 17 Josephine Street was not on the market and, once he had identified it as appropriate, Mr Brookes was very persistent, according to Mr Heraghty, in persuading the vendors to sell and to enter into a contract without the payment of a 11 Sean Ralph had earlier noticed the land, he said, when door knocking in Chetwynd Street and Josephine Street to find premises to rent prior to leasing 38 Chetwynd Street. 12 Exhibit 75. -- 9 of 33 -- 10 deposit. The contract with the Mr and Mrs Heraghty was not executed until 29 November 2002, after Joseka Pty Ltd had been incorporated. Joseka Pty Ltd [35] Mr Brookes, Mrs Ralph and Sean Ralph agreed that if the project were to go ahead it would be through the medium of a company. They settled on the name “Joseka”, made up of the first two initials of each of their names. Joseka Pty Ltd was incorporated on 6 November 2002. It was to be the trustee of The Three Way Discretionary Trust, the beneficiaries of which were Mr Brookes, Mrs Ralph and Sean Ralph.13 It was deregistered on 1 August 2004. Mrs Ralph understood that she had resigned as a director14 on 13 February 2003 but this was not implemented until May 2004 after Mrs Ralph signed the ASIC form15 as director for the voluntary deregistration of the company. An earlier application to deregister Joseka Pty Ltd16 had been rejected by ASIC. The agreement [36] The project was fairly fluid as to details but Mr Brookes’s, Mrs Ralph’s and Sean Ralph’s evidence, nonetheless, was consistent about what they had agreed, notwithstanding the allegations in the Further Amended Defence: • land would be found in the local area on which a purpose built warehouse would be erected for Mrs Ralph’s business; • Mr Brookes would be primarily responsible for: • finding the land; • negotiating appropriate conditions with the vendor; • designing the building in conjunction with Sean Ralph and drawing the design; and • producing the plans; • Mrs Ralph would: • obtain finance for the project; and • provide her business as the long term tenant; • Sean Ralph would liaise with the local council and relevant government authorities (for wholesale chemical storage) and provide input into the design; and • a company would be incorporated in which Mr Brookes, Mrs Ralph and Sean Ralph would be directors and equal shareholders which would be the vehicle for the project. Mrs Ralph agreed in cross-examination that it was a joint venture.17 13 Exhibit 121. 14 Exhibit 108. 15 Exhibit 126. 16 Exhibit 125. 17 Transcript 4-96. -- 10 of 33 -- 11 [37] At some unspecified date, Mr Brookes set out some notes which he intended should form the basis of an agreement between the three parties via the medium of a company. He said he discussed the contents with Mrs Ralph. It was not said that he did not. Relevantly, the first three provided:18 “Articles of association (or memorandum) 1 reflects the intentions of the Directors and the reasons for the formation of the company. 2a as an investment for the 3 partners/directors/shareholders b. as a superannuation investment c. to provide a purpose built facility for Pops group d. to provide a vehicle for any other purpose to the benefit of all the shareholders. 3. Rental of the premises to the Pops Group 3a. lease for 10 years. This is to provide security of tenancy for Pops group (pool pro) and to provide a long term tenant for financial security. b. rental will always be at market value unless this is varied by the consent of all directors. IE unanimous decision c. if a dispute over market value ever arises then 3 independent REA valuations are to be obtained and an average of the 3 values are taken. In the event of a dispute a registered mediator is to be used to obtain the 3 valuations…” [38] Mr Brookes continued to make jottings as the project progressed. Towards the end of 2002 his notes revealed his thinking that Joseka Pty Ltd should borrow to buy the land and erect the building but that the POPS Group should borrow and be responsible for “all backyard, tanks, excavation and construction of liquid areas”. This was to minimise risk to himself. He was not keen to guarantee Joseka Pty Ltd’s loan for more than one-third as he had unencumbered assets to which a bank might resort if Joseka Pty Ltd defaulted. Mr Brookes’s preparations [39] Once 17 Josephine Street had been identified as suitable, Mr Brookes started preparing drawings and costings. He described drawing the plans for the factory as “massaging” the drawings. He drew in pencil, photocopied the document, then erased the parts he wished to change. Exhibit 17 is a drawing of the layout on 17 Josephine Street including the landscaping, outdoor storage areas, car parking and the warehouse and offices within the warehouse. It was conceptually developed, according to Mr Brookes, from about mid-2002 until January 2003. This drawing was given to engineers and builders for quoting on the project. He said he did not discuss his ideas with Mrs Ralph or Sean Ralph “as he had done it 18 Document 14 part of Exhibit 26 complete in Exhibit 75. -- 11 of 33 -- 12 before”19 and they knew nothing about designing a building, although he did discuss aspects of the building with Sean Ralph from time to time.20 [40] Mr Brookes settled on a schemata for the warehouse on land at Staplyton before Josephine Street was identified and prepared drawings21 which he gave to builders for a quotation. An early quotation from Big Country Buildings dated 7 March 2002 was for $168,540 plus GST.22 Mr Brookes had retained numerous documents, some on the backs of envelopes, some just jottings, evidencing his thoughts and ideas about a suitable warehouse and surrounds for pool chemicals and some related to land at Staplyton and some to 17 Josephine Street. Not all were admitted into evidence and not all could be dated. They ranged from early 2002 through to February 2003. An example is a document identified as Document 56.23 It was in these terms: “Light grade small door inside of building with pallet racking above. Check container truck side loader dimensions 19 x 32. Don’t do anything until NRA is settled. Must have contract (2) Finance approval at our choice (3) DA approval, (4) No flood history or conditions (5) Easement conditions”24 [41] As evidence of how fluid matters were so far as the project was concerned, as late as early 2003 Mr Brookes made some notes about the rising cost of the project:25 “Costs Joseka will pay for the building & driveways landscaping etc all the normal things that a landlord would do, including the offices & the roof extension out the back Pops to pay for anything specialized e.g pouring rooms, acid pits, etc, Effluent pits, storage pits, & tank. If pops signs a ten year lease (covering the loan) then depending on the cost Joseka will pay for the basic filling rooms & the back storage areas. Depends on cost! Will save filling back corner. 19 Transcript 1-47. 20 Exhibit 29. 21 Exhibit 18. 22 Exhibit 19. 23 Part of Exhibit 20. 24 NRA was a reference to the National Regulatory Authority which registered wholesale chemicals. 25 Exhibit 23. -- 12 of 33 -- 13 + container blocks alongside walls. Sean says pops may get sold!” [42] Mr Brookes said of this:26 “We were trying to keep the project within the budget and the – the cost of some of these specialised things of getting the detention tanks, like detention areas built and bunding and all those sorts of things, and I said to Sean and Kathy, “This is getting out of hand, you know. POPS will have to pay for some of that”----- … Have to pay for that because keeping in mind Kathy’s company had been regularly in financial trouble and if the thing – if her business closed down, then I’m struck with a third of this building with all this stuff built especially for them and I didn’t want to pay for it.” [43] On 5 November 2002 Mr Brookes received a quotation27 from Big Country Buildings to erect a warehouse on the land at 17 Josephine Street based on sketches that he had provided for $200,266. There was no allowance for site works, council application or fees. Neither, it would seem, was it for more than the bare warehouse without internal fit out because a later quotation of 24 January 2003 from Big Country Buildings was for almost $600,000 excluding GST.28 Mrs Ralph’s preparations [44] Mrs Ralph arranged for a meeting with Westpac officers to discuss finance for the project. Each of the participants in the project had signed an application and given a statement of assets and liabilities. Sean Ralph’s preparations [45] Sean Ralph arranged for Joseka Pty Ltd to be incorporated (and paid for it). He discussed some needs for the warehouse with Mr Brookes, particularly that large acid storage tanks could not be located on the property. There was little evidence, if any, of engagement with the hazardous chemicals regulatory bodies or local council. Meeting with Steven Podlich 13 November 2002 [46] A meeting took place at Mrs Ralph’s business premises between Mrs Ralph, Sean Ralph, Mr Brookes and Mr Podlich of Westpac on 13 November 2002 to discuss borrowing funds to purchase the land at 17 Josephine Street and to construct a building upon it which would be tenanted by Mrs Ralph’s business. Mr Podlich was aware of the plan because he had discussed the project with Mrs Ralph previously. As at 2002/2003 the bank required the land contract, the design for the building and costings as well as the asset backing of the borrowers to process the application. Plans would be required for the bank’s valuer to carry out the valuation which would occur later. This is confirmed in the bank’s approval in the principal document,29 which Mr Podlich signed: 26 Transcript 2-5 ll 3-22. 27 Part of Exhibit 45. 28 Exhibit 105. 29 Exhibit 77. -- 13 of 33 -- 14 “Following approval, builders plans, specification etc will be obtained from customers to enable valuation to be done. New property expected to be worth $750K when completed. Contract is on a 90 day basis, with settlement not scheduled til 31/3/03, to enable customer to firm up builder. Finance clause expires 14/2/03…” [47] Mr Brookes recalled Mr Podlich saying that plans were not needed until after the approval was given, and that he just wanted to see the figures. The above note is consistent with that recollection. Mr Brookes told Mr Podlich about how it was proposed to cost the project with a completed value which would build in the bank’s standard 35 per cent over cost. The sum mentioned in discussions was approximately $450,000 including the cost of the land. The trust documentation was discussed. [48] Mrs Ralph understood from Mr Brookes that the total cost of the project would be in the vicinity of $380,000 and that was a figure put to Mr Podlich. She recalled suggestions that the project might value up to $404,000. Mrs Ralph understood that whilst Mr Podlich said that the project looked promising they would need to produce plans. She said it was her understanding that the bank required council approved plans so that the valuation carried out by the bank “would be correct”. Mrs Ralph understood that Mr Brookes would prepare those plans under instruction from Sean because he was an expert in that area and would be able to draw the plans and get them to the council. She was assured by Mr Brookes that they would have a 35 per cent equity which was required by the bank once the building was complete. [49] Mrs Ralph gave a rather muddled account of the meeting and her understanding of the bank’s processes for approving a loan to build a commercial building. In light of her conduct in “transferring” the approved finance for Joseka Pty Ltd so promptly to Cantley Trading Pty Ltd to purchase the land and then applying a few months later for Cantley Trading Pty Ltd to borrow money to build the warehouse, if she did not understand what the bank required and when in November 2002, I am persuaded that she did so by mid-February 2003 when she closed down the project. [50] On 29 November 2002 Joseka Pty Ltd entered into a contract of sale to purchase 17 Josephine Street. The special conditions had been settled by solicitors Jones, Leach, Hawley on instructions from Mr Brookes. They were:30 “1.1 (a) Obtaining from the Logan City Council Development Approval for the construction on the subject land of a building within which the Purchaser and/or its related corporation may conduct its proposed business; (b) Obtaining all necessary statutory and government approvals for the construction on the subject land of the aforesaid building and for the conduct upon that land of the Purchaser’s proposed business; (c) Being satisfied that the subject land has not in the past been affected by flood waters; 30 Exhibit 42. -- 14 of 33 -- 15 (d) Being satisfied with the terms of the Easement in favour of Logan City Council burdening the land; (e) Being satisfied with the results of soil tests conducted on behalf of the Purchaser upon the subject land; (f) Being satisfied as to the availability and location of water, sewerage and power services for the subject land on or before 31 January 2003. 1.2 Should the Purchaser be unable to obtain on or before 31 January 2003 all or any of the approvals referred to in Special Condition 1.1(a) or (b), or should the Purchaser be dissatisfied with any of the matters referred to in Special condition 1.1(c)-(f) inclusive, the Purchaser may on or before 7 February 2003 give written notice to the Vendor terminating this Contract in which event this contract will be at an end and all deposit moneys shall be refunded forthwith to the Purchaser. 1.3 The Purchaser shall be responsible for the payment of all or any costs associated with the matters referred to in Special Condition 1.1. 1.4 The Vendor shall on request furnish to the Purchaser and/or to the Logan City Council the Vendor’s consent to the Purchaser making application to Council and to all or any other necessary government authority for the approvals referred to in Special Conditions 1.1(a) and (b) hereof. 1.5 Should the Purchaser have lodged application for the approvals referred to in Special Condition 1.1(a) and (b) hereof, and the Council or government authority have not yet given the approvals sought by the Purchaser by 31 January 2003, the Purchaser shall be at liberty to request, and the Vendor shall grant, an extension until on or before 31 March 2003 of the date by which the conditions referred to in Special Condition 1.1 are to be satisfied.” [51] The personal relationship went through a very stormy period just before Christmas 2002. Mr Brookes emailed Mrs Ralph that he could not see how the “building” could work out given the state of things between them.31 After Christmas, he sent a further email offering to sell his interest in Joseka Pty Ltd to Mrs Ralph for $1. Mrs Ralph accepted the offer but they reconciled to the extent that they continued with the project in January as if nothing had interrupted it. The defendants make much of this “sale” of Mr Brookes’s interest but the subsequent conduct of Mrs Ralph, for example, the communication below, demonstrates that she accepted that the project was “on” again. [52] In a fax to Mr Brookes dated 22 January 2003, Mrs Ralph wrote:32 31 Exhibit 102. 32 Exhibit 49. -- 15 of 33 -- 16 “Joe (1) What is this Sean tells me the finance clause runs out in a week? I discussed this contract with you when I was stressing over running out of time. You assured me end of March and confirmed that again When you Sean and I met. Steve Podlick as I told you Is away until the 28th. (I have left a message at Westpac) Please advise urgently. (2) I cannot read the attachment & cannot present it in this format to council. Please advise urgently Kathy” At this stage matters were becoming critical as the expiry date of 31 January 2003 for the special conditions in the contract was approaching. Mr Brookes negotiated an extension to 17 February 2003 with the vendors. [53] On 22 January 2003 the bank approved finance in principle to $450,000.33 [54] Mr Brookes obtained a quotation estimate from Acetech Constructions (Qld) Pty Ltd for the construction of the warehouse dated 6 February 2003 for $412,500 including GST and excluding council fees. It was sent under the signature of Richard Fone, a director, who gave evidence in the trial. Mr Brookes had initially met Mr Fone at Mr Brookes’s home to discuss the cost of erecting the building based on sketch plans which he gave to Mr Fone and again, probably in early 2003, to discuss matters further. [55] By early February 2003 Mrs Ralph was increasingly anxious about the lack of plans. She gave evidence that she understood that plans were required by the bank before finance would be approved. On 6 February each of Mr Brookes, Mrs Ralph and Sean Ralph signed an authority to act on the land conveyance which was sent by Mr Brookes to Joseka Pty Ltd’s solicitors. Instructions to prepare The Three Way Discretionary Trust had earlier been given. [56] On 10 February Mr Brookes emailed to Mrs Ralph:34 “Kath, I have tried to talk to you about this before, and I don’t want you to brush it off this time. Every time I try to talk to you, you give me the brush off. I have thought about it over the weekend, while I was finishing off the Council stuff for the acid tanks, that Sean was supposed to do, So now your [sic] getting it in writing. When you and Sean proposed he come into the deal I said OK but it was conditional, that he had to do something for it. You are doing 33 Exhibit 77. The bank approval document makes no reference to Mr Brookes when describing the directors and shareholders of Joseka Pty Ltd. 34 Exhibit 107. -- 16 of 33 -- 17 the finance, and I am designing the building and supervising the construction. I was busy with work so we agreed that he would do all the Govt submissions. I don’t care how busy you guys are that was the deal!! I’m busy too. Right now I am doing Seans job in the deal, or it won’t get done. Also I am fed up with Seans behaviour, abusing you and others, including your staff. I put up with it before because we were together, but now where no [sic], I don’t want to keep being involved with somebody like that. he’s your problem I don’t want him to be mine any more. I want Sean out of the deal, and I don’t care how you tell him. You and I can split his share between us or redo the share structure so we have equal shares. Kath, you got him in it so you get him out.” [57] On 11 February Mr Brookes faxed the Acetech quotation dated 6 February to Mrs Ralph as he thought it acceptable and that she would need it for the bank. Mrs Ralph was elusive about whether she had received this document on that day from Mr Brookes when she gave her evidence but it was amongst the bank’s disclosed documents and, realistically, could only have come from her. On that day Mr Brookes understood that Mrs Ralph was to ascertain from Mr Podlich if the bank would approve. According to Mr Brookes, Mrs Ralph telephoned him and told him that the bank would grant the loan but only for 10 years. Mr Brookes was distressed because his calculations were based upon a 20 year loan. [58] On 12 February Mrs Ralph telephoned Mr Brookes and told him that the bank had declined to finance the project altogether. This was, in fact, not the case as the bank documents obtained for these proceedings and confirmed by Mr Podlich in evidence show that finance of $450,000 to purchase the land and erect the warehouse had been approved by 13 February 2003 in the name of Joseka Pty Ltd as trustee for a discretionary trust. [59] Mrs Ralph’s evidence was not that she told Mr Brookes the bank had refused finance but that the cost of the project was greater than she had been led to believe by Mr Brookes and that it was not affordable. She did tell Mr Brookes that the deal was over. I find that she conveyed to Mr Brookes that finance had been declined by the bank. [60] Amongst the bank’s documents35 was a letter dated 21 February 2003 under the hand of Mr Podlich addressed to the directors of Joseka Pty Ltd at 38 Chetwynd Street, Loganholme, notifying the directors that approval for finance for the purchase of land and erection of a building at 17 Josephine Street had been approved. The securities required included guarantees from Mrs Ralph and Sean Ralph but not Mr Brookes. Mrs Ralph denied receiving this communication and enclosures. The omission of Mr Brookes’s name from the bank’s documents was never taken up in evidence. 35 Exhibit 83. -- 17 of 33 -- 18 [61] Mr Brookes was extremely angry to be told that project was over after all the effort he had put into it. Mrs Ralph told him that she just did not want to do it anymore.36 [62] Mr Brookes rang Mr Heraghty to inform him that there was difficulty with getting finance from the bank so that the contract could be completed by 17 February 2003, the extended date. Heraghty was to be away for a week and did not see an extension for a brief period as an obstacle. He proposed they sort it out on his return on 24 February. [63] Sean Ralph telephoned Mr Heraghty on 13 February and said that he was taking over the negotiations for sale; that the money would be “fine”; and Joe would no longer be involved. Sean Ralph assured Mr Heraghty that the contract would settle on 31 March. Mr Heraghty agreed to an extension of time to that date subject to receiving a non-recoverable deposit of $16,000. [64] On 13 February Mr Brookes told Mrs Ralph that he had contacted Suncorp about finance for the project and had a positive response. He had arranged a meeting at Mrs Ralph’s office the next day. Mrs Ralph declined saying that she would only work with Westpac. She told Mr Brookes she was bailing out of the project, selling her share in Joseka Pty Ltd to Sean and resigning as a director. She said that he should sell his share to Sean and resign. She conveyed to Mr Brookes the understanding that perhaps at some much later stage the project could be progressed. Mrs Ralph said Mr Brokes acquiesced in this proposal. [65] On the same day Sean Ralph telephoned Mr Brookes and told him that he wanted to try to save the land. He had been in contract with a friend who might lend him the money to buy the land if he could buy out Mr Brookes’s interest in Joseka Pty Ltd. Mr Brookes agreed to sell his share in Joseka Pty Ltd to Sean Ralph and typed up a document headed “Sale of Shares Agreement”. Sean Ralph attended at Mr Brookes’s office with a Karen Law (from Mrs Ralph’s business) as a witness and with Mrs Ralph’s resignation as a director of Joseka Pty Ltd37 and an identical document for Mr Brookes to sign. Mr Brookes showed Sean Ralph the share sale agreement. It was in the following terms:38 “13/02/02 I Thomas Joseph Brookes (Brookes) of 13 Diddams st Loganholme QLD, agree to sell my shares and interests in Joseka Pty Ltd ACN 102 743 573 and “The Three way trust” to Sean Keith Ralph of 2 Excaliber st Loganholme. Preamble The main asset of Joseka is a current land purchase contract, with William Heraghy. The land was sourced by Brookes. The purchase price for the land negotiated by Brookes is $160,000.00. This equates to $90.00 per square metre The land value in the area varies from a lowest of $100.00 per square metre, for smaller blocks in unattractive streets, to a high of $140 per 36 Transcript 2-40 l 25. 37 Exhibit 108. 38 Exhibit 53. -- 18 of 33 -- 19 square metre in the new estate adjacent. An average is aprox [sic] $110 – $120. The land areas is 1771 square metres. Sale Price The sale price of the shares is to be paid by the following formula/scenario. If a valuation of the land cannot be agreed upon Two valuations are to be obtained (one by Brookes), and an average taken of the two valuations. Valuations can be by a local registered RE agent, or by a registered land valuer. The valuation is a market sale value. Brookes will be paid one third of the difference between the purchses [sic] price (paid by Joseka), and the valuation (described above). This money will be paid by Joseka or Sean Ralph within 12 months of the date of this agreement. If the money is not paid in full by the due date, then this agreement is null and void, and Brookes retains his shares and directorship in Joseka as if this agreement had never existed, or at Brookes consent and discretion, a new agreement can be entered into between the parties. Only with Brookes consent, and at Brookes discretion, a new agreement can be entered into at any time. This agreement confirms and embodies the intent of the parties.” [66] Sean Ralph asked for the building file with the plans in it to be included as part of the sales deal. The file did not contain anything like the bulk of the drawings disclosed in the litigation, Mr Brookes being of the view that the drawings were his. They both executed the sales agreement on 13 February. Mr Brookes did not resign as a director of Joseka Pty Ltd. Mrs Ralph said she was angry when Sean showed her that agreement as it was contrary to what she understood Mr Brookes had agreed in their telephone conversation. No money was ever received by Mr Brookes as a consequence of that agreement. Mr Brookes understood that Sean’s plan was to purchase the land with finance provided by a friend; that he would sit on the land for a few years; and that he would build on it when his mother retired. In fact, the friend was not interested in the deal and Sean knew this quite quickly. [67] Sean Ralph said that he had a clear recollection of the events of 13 February 2003 but on 27 November 2006 he had sworn an affidavit resisting a summary judgment application by Mr Brookes in which he set out an account with the relevant events of that day at odds with his evidence-in-chief in these proceedings. He deposed that he and his mother met with Mr Brookes at 38 Chetwynd Street on 13 February and: “… During that meeting my mother and I told Brookes that because we had not seen any final plans from him it was almost certain that the contract would have to be terminated … He had given us the Big Country Plans … but it was simply not a design the business could utilise.” Sean Ralph deposed that at that meeting Mr Brookes produced the Acetech quote for $412,500 but the Ralphs objected that it was still above the estimate by Brookes of $380,000 upon which the application for finance had been made. Mrs Ralph had -- 19 of 33 -- 20 sworn an affidavit on the summary judgment application which was consistent with Sean Ralph’s on the events of 13 February but not with her oral evidence. [68] In cross-examination Sean Ralph tended to bluster and not meet head on the changed evidence and that no mention was made in his affidavit of the share sale agreement. The conclusion must be that his evidence, where it differs from that of Mr Brookes about that day, is not reliable. [69] On 18 February Mrs Ralph incorporated Cantley Trading Pty Ltd of which she was the sole director and shareholder.39 [70] Because the completion valuation did not come in as high as expected, Mr Podlich proposed to Mrs Ralph that the approved facility of $450,000 be split into two loans for $420,000 and $30,000. The bank documents noted that Mrs Ralph agreed to this by email of 27 February. The loan was still in the name of Joseka Pty Ltd as trustee for The Three Way Discretionary Trust. [71] About this time Mr Brookes received the drawings for the warehouse from the Big Country Buildings draftsman.40 [72] All communication from Mrs Ralph and Sean Ralph ceased after Mr Brookes and Sean Ralph signed the share sale agreement. Mr Brookes sent Mrs Ralph angry correspondence about the breakdown of the project and her silence. On 28 February 2003 he wrote:41 “Sean. Get Kathy to call me re all this. I want to know whats going on. From the day I signed my shares to Sean you dropped me like a dirty rag. I only pulled out of Joseka because Sean was doing this deal on his own because you didn’t want to be involved anymore. Sean showed me your letter of resignation which I have a copy of. * I now find your now a Director and Shareholder. The 14 day notification period passed yesterday and it appears that I am the only one that is leaving Joseka. Why is that, explain this to me – why? Don’t forget I have a photocopy of a letter signed by Kathy dated 13/2/03 that she is resigning as a Director. I reminded you about that remember that she didn’t sign over her shares…” [73] Mr Brookes noted42 in an email to Mrs Ralph of 2 March 2003: “When Sean came to pick up the sale of shares agreement, he made a comment to me and I …when we all got into this you were subcontracting it out, then you decided to use a builder, so what do we need you for.” [74] When Mr Brookes contacted Mr Heraghty to apologise for the loss of the sale Mr Heraghty understood that the sale was still going ahead. Mr Heraghty had, of course, been in regular contact with Sean Ralph who had told him that “Joe” was out of it. Mr Brookes contacted the accountant for the company on 28 February who told him that the company was to be deregistered. On 28 February, Mr Brookes asked Mr Stephen Leach, the company’s and Mrs Ralph’s solicitor, about the status of the land contract and received no answer. He sent another letter 39 Exhibit 2. 40 Exhibit 48. 41 Document 19; referred to in evidence but not tendered. 42 Exhibit 111. -- 20 of 33 -- 21 on 7 March 2003, again seeking some information about the project. On 10 March 2003 Mr Leach faxed a copy of a letter from the solicitors for Mr Heraghty dated 21 February 2003 stating “the Contract between Joseka Pty Ltd and Heraghty is at an end”.43 The letter from Mr Heraghty’s solicitors noted that the finance clause was extended to 17 February 2003 and that there was no advice as to whether the buyer had obtained finance or waived its right under cl 31.3 of the contract. The writer concluded “We advise that the Seller terminates the Contract pursuant to clause 31.5”. [75] Mr Brookes received a facsimile letter dated 3 March 2003 from Mr Graham Wallis, Mrs Ralph’s accountant and the accountant for Joseka Pty Ltd, stating that he had instructions from Mrs Ralph and Sean Ralph to deregister Joseka Pty Ltd. He wrote that he had been informed by them that Mr Brookes was resigning from the company and they wanted it deregistered. If correct, he requested Mr Brookes to sign the form and return it to him.44 [76] On 5 March 2003 Mr Brookes emailed Mrs Ralph asking what was going on and could not understand why there was urgency, presumably about the deregistration. He wrote: “… Kathy, you and Sean had better not be doing something with Joseka behind my back. I have been screwed over by so many people I can’t believe that you might be trying it on too. I still don’t understand why Bill Heraghty would tell me the deal was still going ahead and my calls to Stephen Leach have not been returned. If I don’t get an assurance from you, I am going down to see Bill Heraghty.”45 [77] Mrs Ralph responded46 later that evening: “…nothing is going on. The new building project is dead and buried, and we are staying in our old building. It was a mistake to try to do it in the first place, and I told you, I didn’t want to do it in the first place, so you wasted your own time. I have told Graham to de- register Joseka, and as per your usual style, you still haven’t paid for your share of the cost of the company. I will be the payer, like I always are, …” In light of what was occurring to progress the purchase of the land at 17 Josephine Street by the Ralphs and the negotiations with the bank about finance for the project that was plainly a deceitful answer. It was not Sean Ralph who was purchasing the land as had been suggested to Mr Brookes but Mrs Ralph through Cantley Trading Pty Ltd. Mr Brookes responded complaining that he had spent a year finding the land, designing the building and doing everything including finding alternative finance. He apologised for thinking something “seedy” was going on.47 43 Exhibit 57. 44 Exhibit 59. 45 Exhibit 60. 46 Exhibit 60. 47 Exhibit 55. -- 21 of 33 -- 22 [78] Sean Ralph contacted Mr Heraghty by telephone whilst he was away on a number of occasions on 19, 20 and 24 February. Although Mr Heraghty did not know it at the time, his solicitors actually terminated the contract with Joseka Pty Ltd and a fresh contract was entered into with Cantley Trading Pty Ltd dated 3 March 2003.48 He said in evidence he was not particularly surprised at the change of name as he himself did business through a number of family companies. The deposit was paid. [79] Sean Ralph had been in touch with Mr Fone of Acetech in early March who commissioned Mr Bob Hancox prior to 12 March to provide designs for the new building. Mr Hancox was given Mr Brookes’s final drawing.49 Mr Hancox appeared rather defensive when he gave evidence that he might have been thought to have “copied” Mr Brookes’s plans. His brief was to design the biggest building in conformity with council requirements and the easement requirements on that block. He received a briefing from Sean Ralph. The major difference to the sketch prepared by Mr Brookes was the additional car parking at the rear of the building. Those plans were approved by council. [80] Documents from the bank after 18 February (incorporation of Cantley Trading Pty Ltd) for a time still showed Joseka Pty Ltd as the party purchasing the land. As at 21 March 2003, the bank’s documents showed that the land only was to be purchased50 and the finance to Cantley Trading Pty Ltd to do so was confirmed by letter dated 27 March 2003.51 [81] The contract to purchase 17 Josephine Street by Cantley Trading Pty Ltd settled on 2 April 2003. [82] The bank approved an increased amount of finance to $540,000 “to assist with construction of new business industrial premises at Loganholme, Queensland”52 to Cantley Trading Pty Ltd which Mr Podlich signed off on 29 May 2003. The document noted that the request for finance had previously been approved in principle on 21 March 2003. There was to be an interest only period of two years during which, according to the bank’s document: “… The POPS Group Pty Ltd [would be able] to repurchase all of the units in the Pool Shops Trust (5% currently owned by many retail outlets) that they do not presently have…”53 Mrs Ralph said in her evidence that there was no way she would have agreed to above market rent for the POPS Group in the new premises as initially suggested by Mr Brookes because her customers had taken units in her group to assist her in financially difficult times and that would have breached their trust. It was clearly not her intention to maintain their interest in her business, at least from the time when she was talking to the bank about financing the project in March 2003. Mr Brookes’s notes after August 2002 when Sean Ralph came into the project show that by then market rent would be paid by Mrs Ralph’s business.54 48 Exhibit 74. 49 Exhibit 17. 50 Exhibit 85. 51 Exhibit 87. 52 Exhibit 92. 53 Exhibit 92. 54 Exhibit 75. -- 22 of 33 -- 23 [83] The valuation for the proposed property and the revaluation of Mrs Ralph’s own properties enabled a greater borrowing amount than in February. On 6 June 2003 the bank wrote “to the director” of Cantley Trading Pty Ltd confirming finance to construct the new warehouse.55 A bank diary note of 17 June 2003 notes an on completion value of the building at $590,000 which was acceptable to the bank but was less than had been hoped. [84] In November 2003 the warehouse was commenced by Acetech and was completed in September 2004. Mrs Ralph, through companies controlled by her, conducted her wholesale swimming pool chemicals business from those premises thereafter. Was there a joint venture? [85] Although the defendants contend that the parties reached no concluded agreement because there were outstanding essential terms, it was faintly argued. However, whether there was an agreement requires some consideration. The project between, initially, Mr Brookes and Mrs Ralph and then with the inclusion of Sean Ralph, was to source suitable land and to design a warehouse, purpose built, to accommodate Mrs Ralph’s business. The vehicle for the project was to be a company in which they had equal rights. The benefits accruing to the project were to provide a superannuation fund for each shareholder through a trust. Each was to work towards this common goal and what each was to contribute was identified and sufficient to support the equality of the benefits. The actual financial contribution commitment was nil. The means to achieve that was worked out with the bank and the participants had provided details of their assets. The income and entitlements on termination of their arrangement were managed through the trust. [86] In United Dominions Corporation Ltd v Brian Pty Ltd56 Mason, Brennan and Deane JJ discussed the indicia of a “joint venture”. They said:57 “The term “joint venture” is not a technical one with a settled common law meaning. As a matter of ordinary language, it connotes an association of persons for the purposes of a particular trading, commercial, mining or other financial undertaking or endeavour with a view to mutual profit, with each participant usually (but not necessarily) contributing money, property or skill. Such a joint venture (or, under Scots’ law, “adventure”) will often be a partnership. The term is, however, apposite to refer to a joint undertaking or activity carried out through a medium other than a partnership: such as a company, a trust, an agency or joint ownership. The borderline between what can properly be described as a “joint venture” and what should more property be seen as no more than a simple contractual relationship may on occasion be blurred.” The agreement between the parties was sufficiently certain so far as the essentials were concerned and they conducted themselves as if there was an agreement in place and it should be characterised as a joint venture. Did the joint venture give rise to fiduciary obligations? 55 Exhibit 94. 56 (1985) 157 CLR 1. 57 At 10. -- 23 of 33 -- 24 [87] The defendants strenuously submitted that there was no joint venture agreement between them of the kind which would give rise to obligations of good faith. Rather, they contended that they used a corporate structure for their joint enterprise and their rights and liabilities were to be determined by that structure.58 Mr Stephens submitted that any agreement between the parties came to an end consensually when Mr Brookes signed his resignation as a director in March 2003 having previously handed over his drawings and ceased, thererafter, to take any further part in the project. [88] Whether a joint venture gives rise to a fiduciary relationship between the participants will not always be apparent. In United Dominions, Mason, Brennan and Deane JJ said:59 “The most that can be said is that whether or not the relationship between joint venturers is fiduciary will depend upon the form which the particular joint venture takes and upon the content of the obligations which the parties to it have undertaken. If the joint venture takes the form of a partnership, the fact that it is confined to one joint undertaking as distinct from being a continuing relationship will not prevent the relationship between the joint venturers from being a fiduciary one. In such a case, the joint venturers will be under fiduciary duties to one another, including fiduciary duties in relation to property the subject of the joint venture, which are the ordinary incidents of the partnership relationship, though those fiduciary duties will be moulded to the character of the particular relationship: see generally, Birtchnell v Equity Trustees, Executors & Agency Co. Ltd. [(1929) 42 CLR 384 at pp 407-409].” [89] Although Mr Brookes, Mrs Ralph and Sean Ralph used a corporate structure and a trust to advance their project they were very like partners – the enterprise was a commercial one with a view to profit which was to constitute their superannuation fund. The property was held by the company as trustee for a trust of which they were equal beneficiaries. A fiduciary relationship can arise in the absence of formal agreement. As Mason, Brennan and Deane JJ observed in United Dominions:60 “…A fiduciary relationship can arise and fiduciary duties can exist between parties who have not reached, and who may never reach, agreement upon the consensual terms which are to govern the arrangement between them. In particular, a fiduciary relationship with attendant fiduciary obligations may, and ordinarily will, exist between prospective partners who have embarked upon the conduct of the partnership business or venture before the precise terms of any partnership agreement have been settled. Indeed, in such circumstances, the mutual confidence and trust which underlie most consensual fiduciary relationships are likely to be more readily apparent than in the case where mutual rights and obligations have been expressly defined in some formal agreement. Likewise, the relationship between prospective partners or participants in a proposed partnership to carry out a single joint undertaking or 58 Mr Stephens relied upon Barns v Ryan [2003] QCA 292 but that case raises no particular principle and, like most, depends upon the particular facts. 59 At 11-12. 60 At 12. -- 24 of 33 -- 25 endeavour will ordinarily be fiduciary if the prospective partners have reached an informal arrangement to assume such a relationship and have proceeded to take steps involved in its establishment or implementation.” [90] The relationship between the participants was based on mutual confidence that they would develop the project for their joint advantage. In particular, as Mason, Brennan and Deane JJ observed of the joint venture under consideration in United Dominions:61 “…each participant was under a fiduciary duty to refrain from pursuing, obtaining or retaining for itself or himself any collateral advantage in relation to the proposed project without the knowledge and informed assent of the other participants.” [91] Mr Brookes was in Mrs Ralph’s hands insofar as the application for finance to her bank was concerned. She had insisted on the continuation of that relationship as an aspect of being involved in the project. He relied upon her to deal honestly with him in conveying the outcome of the application for finance. He, to her knowledge, would be unlikely to engage in further conversation with Mr Podlich since that was her part of the project and there had been a meeting in November which seemed to proceed satisfactorily involving all three participants. Mr Brookes had provided his particulars for the asset backing, as requested. As I have concluded, Mrs Ralph did not deal honestly with Mr Brookes. If she was of the view that the amount approved was insufficient it could have been discussed or a further meeting with Mr Podlich to include Mr Brookes could have been arranged. [92] Mrs Ralph and Sean Ralph breached the obligation which they owed to Mr Brookes within their quasi-partnership arrangement to advance the project. I include Sean Ralph because, although his relationship with Mr Podlich was remoter, he was involved closely with his mother’s plans as was apparent from the chronology thereafter. [93] Mr Stephens submitted that if there was a fiduciary relationship, it came to an end when the personal relationship terminated. The evidence does not support that contention. Mr Brookes and Mrs Ralph ceased co-habiting well before the project was seriously underway. Despite the unstable nature of their personal relationship the steady maintenance of the project is clear. Mrs Ralph could have brought the project to an end by telling Mr Brookes that she wanted to sever all ties with him and openly negotiate a fair end. In a sense, that is what Mr Brookes attempted when he was led to believe that Sean Ralph would hold the land after speaking with each of Mrs Ralph and Sean on 13 February 2003. Instead, Mrs Ralph resorted to what can only be characterised as underhand conduct. It possibly was the realisation that she and her son could achieve the object of the project – a purpose built warehouse for her business which, in due course, would become a significant asset – without Mr Brookes. And this she hoped to achieve without financial recognition of his contribution in sourcing the land, persuading a vendor, not at all anxious to sell, not only to sell, but to agree to a contract without a deposit on risk free terms to the purchasers; working up the drawings; and getting quotes from builders and some preliminary plans from engineers. 61 At 13. -- 25 of 33 -- 26 [94] I do not accept that Mrs Ralph misunderstood what the bank needed to progress the finance approval. She was clearly a business woman of some acumen and her vague and confused evidence served only to suggest that she was not being frank. Her denial or lack of positive response that she received two important documents – the Acetech quotation to take to the bank on 11 February and the letter from the bank of 21 February 2003 approving finance to Joskea Pty Ltd – looks suspicious. Mrs Ralph’s relationship with Mr Podlich was a professionally close one62 and the bank’s documents recording what was being sought by Joseka Pty Ltd through Mrs Ralph (after the only meeting involving Mr Brookes) give no suggestion that there was a lack of understanding by Mrs Ralph as to when council approved plans would be necessary. It was quite clear that those plans would be needed for formal valuation purposes but later as, in fact, occurred with respect to Cantley Trading Pty Ltd. [95] Mr Brookes was, at times, in his evidence a rather wearisome witness, prone to discursive answers but not, it seemed to me, because he was not essentially truthful but because he just talked too much. But I did not doubt, from the consistent stand that he took from mid-February 2003, revealed in numerous contemporary documents, that his evidence was a reasonably accurate account of what was occurring between the parties. [96] When Mrs Ralph, speaking for herself and her son, told Mr Brookes the deal was off because the finance was not right, had she done no more and let the land contract lapse and stayed on in her rented premises, there was little for Mr Brookes to complain about. But instead, she incorporated another company within a week, took up the land contract on the same terms through that second company and, in conjunction with Sean Ralph, approached Acetech, the very company that Mr Brookes had dealt with, to send Mr Brookes’s final drawings to a draftsman and used that company to build the warehouse. Mrs Ralph negotiated a better financial package with the bank and the project realised. It was a seamless transition from Joseka Pty Ltd to Cantley Trading Pty Ltd, but without Mr Brookes. That Mrs Ralph put in some of her money (approximately $100,000) later is not relevant. Mr Brookes had the capacity to do so provided it was worked out equitably. Mr Stephens has submitted that Mr Brookes must have known what was going on. Certainly, he was suspicious, as his early enquiries reveal, but Mrs Ralph, in no uncertain terms, told him how wrong he was when she was clearly underway on the project with Cantley Trading Pty Ltd. [97] Mr Brookes, Mrs Ralph and Sean Ralph entered into a joint venture agreement and it was of the kind which required each to work faithfully to achieve its objects. Joseka Pty Ltd remained the company through which that obligation of faithfulness was to be channelled until it was dissolved in August 2004. In Aberdeen Railway Co. v Blaikie Brothers63 Lord Cranworth L C stated: “A corporate body can only act by agents, and it is of course the duty of those agents to act as best to promote the interests of the corporation whose affairs they are conducting. Such agents have duties to discharge of a fiduciary nature towards their principals. And it is a rule of universal application, that no one, having such duties to discharge, should be allowed to enter into engagements in 62 Mrs Ralph said he “dropped in” for a cup of coffee at her premises whenever he was in the area. 63 (1854) 1 Macq 461 at 471. -- 26 of 33 -- 27 which he has, or can have, a personal interest conflicting, or which possibly may conflict, with the interests of those whom he is bound to protect.” [98] That passage was cited with approval by Gibbs J in Consul Development Pty Ltd v DPC Estates Pty Ltd.64 His Honour noted that an agent employed to buy a particular property could not buy the property for himself.65 His Honour noted that in such cases the agent has not necessarily gained a benefit by the use of his position but has made a benefit by entering into a transaction in conflict with his fiduciary duty. Here, however, Mrs Ralph did gain a benefit from her involvement in the joint venture. His Honour referred to the observations of Dixon J in Birtchnell v Equity Trustees, Executors & Agency Co. Ltd66 where his Honour described as “an inflexible rule” that no agent in the course of his agency in the matter of his agency can be allowed to make any profit without the knowledge and consent of his principal and applied it generally to persons in a fiduciary position. [99] This proposition was approved in Warman International Ltd v Dwyer.67 The court: “A fiduciary must account for a profit or benefit if it was obtained either (1) where there was a conflict or possible conflict between his fiduciary duty and his personal interest, or (2) by reason of his fiduciary position or by reason of his taking advantage of the opportunity or knowledge derived from his fiduciary position. The stringent rule that the fiduciary cannot profit from his trust is said to have two purposes: (1) that the fiduciary must account for what has been acquired at the expense of the trust, and (2) to ensure that fiduciaries generally conduct themselves ‘at a level higher than that trodden by the crowd’. The objectives which the rule seeks to achieve are to preclude the fiduciary from being swayed by considerations of personal interest from accordingly misusing the fiduciary position for personal advantage.” [100] Mr Stephens submitted, relying on observations in Farah Constructions Pty Limited v Say-Dee Pty Limited,68 that, in effect, Mrs Ralph had made disclosure to Mr Brookes “at different times and in different ways”,69 and that Mr Brookes was shrewd and astute and knew what was going on and was prepared to hand over the project to Sean Ralph. That contention must be rejected as the evidence to which I have referred simply does not support it. Furthermore, Sean Ralph was a person for whom Mr Brookes had little respect and whom, just a few days earlier, he had wanted out of the project. The terms on which he was prepared to exit the arrangement on the facts as he then understood them to be were set out in the share sale agreement. Cantley Trading Pty Ltd’s position [101] Because of the close identification of Cantley Trading Pty Ltd with Mrs Ralph as sole director and shareholder, there is no need to linger on an examination of the 64 (1975) 132 CLR 373 at 393. 65 At 394. 66 (1929) 42 CLR 384 at 408-9. 67 (1995) 182 CLR 544 at 557. 68 (2007) 230 CLR 89. 69 Farah at 107. -- 27 of 33 -- 28 rule in Barnes v Addy.70 Cantley Trading Pty Ltd had actual knowledge of the fraudulent conduct of Mrs Ralph and Sean Ralph in the context of their joint venture obligations to Mr Brookes and assisted in the dishonest design. Quantum of compensation [102] The court noted in Warman that the assessment of the profit of an errant fiduciary will often be “extremely difficult in practice” and mathematical exactness cannot be achieved but a reasonable approximation. The true measure of the profit or benefit obtained by the fiduciary in breach of his duty should be determined.71 Where appropriate there must be an allowance for skill, expertise and other expenses on the part of the fiduciary.72 As the court said in Warman,73 “It is necessary to keep steadily in mind the cardinal principle of equity that the remedy must be fashioned to fit the nature of the case and the particular facts.” A little later the court added,74 “…the liability of the fiduciary should not be transformed into a vehicle for the unjust enrichment of the plaintiff.” [103] The issue of the quantum of Mr Brookes’s compensation in the event of success in his claim was somewhat protracted because the defendants, despite the plaintiff’s pleaded case, did not anticipate that compensation would be assessed in these proceedings. If anything, Mr Stephens presumed an account of profits might have been ordered in separate proceedings. The want of proper disclosure reflected this approach. The defence was amended during the trial to join issue on the question of compensation. Mr Fone was recalled to give evidence about the actual costs of construction. Mr Brookes put the defendants to proof on these issues. [104] The evidence before the court and the need to bring these proceedings to a conclusion is such that it is appropriate that there be an assessment of compensation rather than a true account of profits and the parties have agreed that that should occur although, in the event, there will be no clear demarcation between profits actually made and compensation. After the late provision of documentary evidence supporting construction costs and expenses and the preparation of schedules after the conclusion of the hearing, detailed submissions were made about the claim for compensation which were responded to by the defendant. Those submissions called for submissions in reply. [105] Mr Brookes’s claim is threefold. He seeks the following: (1) The present value of one-third of the value of the property unencumbered in 2013.75 (2) One-third of the net income (after payment of interest, bank fees and other costs) earned by Cantley Trading Pty Ltd from its ownership of the property until 2013. (3) One-third of the net income stream from 2013 for ten years discounted to the present value. 70 (1874) LR 9 Ch App 244. 71 (1995) 182 CLR 544 at 558. 72 (1995) 182 CLR 544 at 562. 73 (1995) 182 CLR 544 at 559. See also Mantonella Pty Ltd v Myles Thompson [2009] QCA 80 per McMurdo P at [17]. 74 (1995) 182 CLR 544 at 561. 75 This is on the basis that in February 2003 it was proposed that the loan be for a ten year period. -- 28 of 33 -- 29 (4) Interest from the date of breach on 13 February 2003 on the total amount. [106] Mr Stephens’ initial submission was that Mr Brookes had lost the chance to share in the successful project pursued by Cantley Trading Pty Ltd and, given the breakdown in the relationship, that Joseka Pty Ltd could be wound up at any time; that Mrs Ralph could not be compelled to tenant the building; and, accordingly, that chance should be assessed at nil. Initially Ms Heyworth-Smith contended that no construction costs or an amount for skill and effort should be deducted for the value of the property. She accepted that the court in Warman noted that these are matters which will be considered when ordering an errant fiduciary to disgorge profits, or, in awarding compensatory damages. She contended, however, that the defendants’ assessment of the acquisition costs should be scrutinised carefully if that approach were taken. [107] Ms Heyworth-Smith submitted that there was no element of double counting within Mr Brookes’s claims as he was entitled to the value of the property and the value of the income it could produce. That is, at the end of 10 years he would have one-third of an unemcumbered property through his shareholding in Joseka Pty Ltd and one- third of an income stream earned by Joseka Pty Ltd from the tenancy of Mrs Ralph’s business. In order to counter the argument that he could not have the value of the building and an income stream beyond the 10 year mark, it was submitted that he could utilise his share of the unencumbered value of the building after 10 years for the purposes of securing other financial arrangements for his own interests or projects. [108] A joint valuer’s report was prepared pursuant to an order of the Chief Justice made on 31 August 2007. The report was prepared by Messrs Jim Webster and Bart Mead, registered valuers from the firm Propell National Valuers. Their instructions were to value the property on completion in August 2004 and to provide the value of a rental stream from that date on a 10 year lease. [109] Their first report is dated 26 September 2007. Mr Webster provided a second updated report on 14 May 2009. The valuation reports were received by consent and the valuers were not required to give oral evidence. The valuers adopted the capitalisated approach whereby the net passing rent was ascertained and then capitalising at a yield rate assessed from recent sales evidence. As a check the direct comparison was undertaken comparing recent sales in the immediate area. [110] As at August 2004 the property was said to have a Fair Market Value of $780,000 net of GST. As at 26 September 2007 (the date of the first report) it was assessed as having a value of $1,250,000. The rental as at August 2004 was assessed at $66,320 per annum. As at 26 September 2007 it was assessed at $91,190 per annum. These figures were reached by objective market analysis. [111] As at 14 May 2009 a Fair Market Value of the property was $1,100,000 net of GST. The rental income was assessed as $85,225 per annum. This gave a yield of 7.75 per cent. Mr Webster commented that while the industrial market within the greater south east Queensland area had seen strong growth over the previous six years, since the beginning of 2008 transactional activity had slowed considerably and that trend was expected to continue. Although rentals were forecast to stabilise it was expected that with businesses down sizing and vacancies becoming more common, rental would start to decrease over the following six months. A further softening in yield rates was expected in the short to medium term. -- 29 of 33 -- 30 [112] Ms Heyworth-Smith submitted that because the rent actually being achieved since 2006 was $95,198.16 per annum, this was the basis upon which the value of the property should be calculated and the income stream over costs identified. Mr Stephens submitted that an amount for legal costs associated with these proceedings had been factored into the rental paid. Ms Heyworth-Smith objected to this inclusion in submissions because no evidence was given by Mrs Ralph about these expenses. Since value is what a willing and not anxious buyer would pay,76 the appropriate approach to the valuation of the property is on objective evidence which eliminates any idiosyncrasies associated with the arrangements made with respect to this tenant. Furthermore, market rent was what was agreed between the parties.77 [113] Ms Heyworth-Smith submitted, correctly, that the costs of construction and supervision of the building are irrelevant to Mr Brookes’s claim as articulated. This is because the tenant’s rent payments were intended to meet those costs, that is, the repayment of the loan, and it was anticipated that the loan would be discharged after 10 years. There are other matters to consider. Mrs Ralph contributed some $100,000 to the project. Joseka Pty Ltd may have refinanced the loan, a not unusual occurrence, so that the asset would not have been debt free by 2013. I will, however, make some findings about the construction costs. [114] The costs claimed are supported by invoices. Mr Fone gave evidence about the construction costs although there were one or two matters which Ms Heyworth- Smith contended should be deducted.78 It is not suggested that they were not paid and, in good faith. They should be included even though Mr Brookes would argue that had he supervised the building contract that would not have occurred. The $16,000 deposit paid to Mr and Mrs Hegarty for a further extension of time had the affect of adding that sum to the purchase price. Of that amount it may be concluded that even had matters proceeded with Joseka Pty Ltd purchasing the land it seems unlikely that settlement could have occurred on 17 February and another extension would have been required. It is as likely as not that Mr Hegarty would have decided that a non-refundable deposit was called for. Accordingly, that sum of $16,000 should be included in the costs. The following amounts were expended: Cost of land $176,000.00 Legal fees on purchase $ 5,081.50 Acetech Construction fixed price contract $460,983.38 Other costs associated with the building e.g., drawings, surveying fees etc $ 40,433.19 Total costs $682,498.07 [115] It is, in my view, inappropriate to assess Mr Brookes’s compensation in the manner proposed. Neither is the broad statement that compensation of $1,000 represents Mr Brookes’s entitlement as contended for by the defendants. The remedy for breach of fiduciary duty in a situation such as the present is essentially restitutionary 76 Spencer v The Commonwealth (1907) 5 CLR 418 per Griffith CJ at 432. 77 Document 14, part of Exhibit 26 completed in Exhibit 75. 78 See plaintiff’s schedule of reductions 22 May 2009. These included $23,000 as a PC item which was included in the contract price for the packing rooms. In effect the defendants paid more than they need have paid. -- 30 of 33 -- 31 in its character.79 What should be kept in mind is the agreement between the parties about how they were to proceed. Mr Brookes has lost participating in that arrangement and not a different arrangement. The equities do not call for him to be given anything more than was anticipated by the agreement prior to breach rather than receive a percentage of any actual profits generated from the rental of the premises now. There are several factors which dictate this course – the personal relationship between the three participants was very volatile and could have “blown up” at any time necessitating a winding up of Joseka Pty Ltd; Mrs Ralph’s business needed to continue to maintain its profitability to meet the rent commitment; and Mrs Ralph and Sean Ralph needed to continue to operate the business. Once the building was completed Mr Brookes apparently had no further role to pay nor contribution to make. [116] The overall plan was that there should be market rental paid by Mrs Ralph’s business. The initial suggestion that there should be a small amount above meeting the loan repayments, changed to market rental which would meet the repayments to the bank. If that were insufficient adjustments may have been made by way of contribution. Mr Brookes was not keen to put cash into the project, so that may have been a source of friction. The intention was that at the end of the 10 year period the asset would be debt free. There seems to be no sensible basis upon which the rental stream now being received by Cantley Trading Pty Ltd in a different enterprise and involved in legal proceedings on foot since 2006 is an indicator of how things would have been carried on were Mr Brookes a participating member of Joseka Pty Ltd. [117] The submission by the defendants that there should be an allowance for skill and effort in bringing the project to fruition is misconceived because the original agreement had been that Mr Brookes would supervise the building – that was his contribution. [118] Accordingly, I propose to assume a building debt free 10 years after finance approval with repayments being met by the rental. The calculation is a relatively straight forward one. One-third of the present value of the property of $1,100,000 is $366,667. That amount should be discounted to reflect that the sum would not notionally have been available to Mr Brookes until 2013. The multiplier for a deferral of four years is 0.823 which gives a present value of $301,767. [119] The question is whether that amount should be further discounted in light of the chance that Mr Brookes would not have remained in Joseka Pty Ltd to take advantage of that debt free asset in 2013 and the other possibilities to which I have referred.80 Ms Heyworth-Smith contended that there should be no further discounting whereas Mr Stephens submitted that there were so many imponderables that there was no chance that the matter would come to fruition. Many of the objections which Mr Stephens advanced, such as whether Mrs Ralph would have caused her business to enter into a long term rental commitment and whether she would have participated in paying a market rental for the premises and things of that kind, suppose that she would be acting in breach of the project. That is not the appropriate way to consider the loss of the chance.81 There were other factors at work which make it unlikely that the project would have proceeded to completion 79 Target Holdings Ltd v Redferns (a firm) [1996] 1 AC 421 per Brown-Wilkinson LJ at 434. 80 Malec v JC Hutton Pty Ltd (1990) 169 CLR 638. 81 See the approach in Warman (1995) 182 CLR 544 at 566. -- 31 of 33 -- 32 with the participation of Mr Brookes and continued to 2013. The volatility of relations between particularly Mr Brookes and Mrs Ralph suggests that there would have been regular disagreements between the parties which might have brought about the end of Mr Brookes’s participation in the project. The further the project advanced the more likely the disengaging person (and this would most likely have been Mr Brookes) would insist on proper financial compensation. In attempting to assess those matters I would reduce the quantum by 30 per cent which gives a figure of $211,237. [120] Ms Heyworth-Smith has submitted that Mr Brookes is entitled to an amount for rental income after 2013. After the building became debt free the rent from Mrs Ralph’s business would, apart from maintenance of the building which would be ongoing, fall into the trust fund for the benefit of the three beneficiaries. Ms Heyworth-Smith has submitted that a further period of 10 years would be reasonable. The calculations were based on a rental of $91,600 (present actual rent) and a third of that amount for 10 years deferred for four years. That is an amount to just under $200,000. [121] Even if such an income stream would be likely into the future the appropriate basis is to utilise the current market rental of, say, $85,000 per annum. A third of that is $28,333. The multiplier for the deferred period is 339.7 which gives an amount of $185,091. For reasons related to the personal relationship, the participation in Joseka Pty Ltd by Mr Brookes so far into the future seems highly unlikely. On the basis that Mr Brookes would have sold his interest to Mrs Ralph and/or Sean Ralph, that income stream into the superannuation fund would, no doubt, have been factored in. It is unlikely that the Ralphs would have paid anything like that figure. Mr Brookes would have sought what he saw as a fair share. I would allow $50,000, being approximately one-quarter for the loss of receipt of that future income stream bearing in mind that on this reconstruction Mr Brookes would have been unlikely to have invested any cash and would have maintained his own business. [122] Ms Heyworth-Smith contended that interest should be calculated from the date of breach on 13 February 2003 on any award of compensation. That mischaracterises the loss sustained by Mr Brookes. Even had the project proceeded, it was not until the asset was built and tenanted that it had any real value. At any point Mr Brookes could have sold his interest in Joseka Pty Ltd. The initial value would have been any increase in the value of the land from the date of settlement. Thereafter, as the project proceeded, the value of the asset on the land would, presumably, have increased. There is no basis for a claim for interest as I have not allowed any sum representing the “profit” from the income stream to present. All other amounts are for the future. Copyright [123] The defendants contended that the warehouse was a plain building of no marked originality such that Mr Brookes could not claim copyright in his drawings which were given to Acetech Constructions to pass on to the draftsman, Mr Hancox. Mr Fone and Mr Hancox were at pains to say that there was nothing special about this plan and the warehouse was, in the result, similar to dozens of others. The building as seen in the photos and plans tendered is virtually identical to that design by Mr Brookes. He spent considerable effort in observation and in discussion with Sean Ralph about the business’s requirements. His preparatory work was taken in the form of the drawing, exhibit 17, and used by Cantley Trading Pty Ltd. -- 32 of 33 -- 33 However, Mr Brookes was to contribute his skills in drawing plans for warehouses to the furtherance of the project. He has been compensated for the loss of his involvement in the project due to the defendants’ conduct so that he may not have damages for breach of copyright. [124] Taken separately, the value of Mr Brookes’s property in the drawing is worth little more than Mr Hancox’ fee - $3,465. I would allow $5,800 to include interest at 10 per cent from February 2003. Conclusion [125] There should be judgment for the plaintiff against the defendants for $261,237. -- 33 of 33 --