Property developer ends up in Court

29-November-2010 Commercial Disputes,Property By admin

Two court cases follow breakdown of a business relationship

The first court decision over who was responsible and who was to pay costs was overwritten by the second court decision.

Facts behind BATTERHAM v MAKEIG [2010] NSWCA86 (22 April 2010)

Makeig, a property development consultant, entered into an agreement with Mr Batterham to provide project management and consultancy advice to assist with rezoning of real estate in the village of Kitchener near Cessnock.  The intention was to prepare the land for development and sell it on to a developer.

Makeig entered into a written agreement with Batterham.  The document was signed on 5 March 2005.  An essential term of the agreement was as follows:
(a)   Makeig to undertake the management of the project
(b)   Makeig agrees to pay all consultant’s costs now the costs ancillary to consultancy services in a timely manner …
(c)   Makeig agreed to pay and has paid costs relating to …. comprising the option fee, the land clearing costs and the survey fee.
(d)   All professional work required to achieve the above result will be carried out by Makeig in a timely manner.

The agreement provided that the profit of the enterprise would be split 11/18 to Batterham and 7/18 to Mr Makeig.  This written document was called the “Kitchener Project Agreement.”

The project progressed through the Council process.  In January 2006 Batterham was told by the Council that the Department of Planning required a Local Environment Study.  Further fees were sought by Council in late 2006.  They asked for $36,500 which was paid by Batterham on 28 November 2006 and further amount of $16,000 on 8 December 2006.

Batterham came to the view that by December 2006 he could no longer work with Makeig.  

Prior to the payment in November 2006, Mr Makeig had delivered up to Mr Batterham an invoice for $450,000 seeking to have Council reimburse him for expenditure of his time in preparing the work for the rezoning of the land.  Mr Makeig gave evidence that he had adopted a “poker stance” and refused to make payments or be actively involved in the project until his demands were met.

Mr Batterham terminated the agreement based on Mr Makeig’s breach of the agreement.

Makeig sued Batterham for damages in the Supreme Court and was successful before Justice Ward.

The Court of Appeal on 22 April 2010 reversed this primary judge decision giving judgment in favour of Batterham and ordering that Makeig pay Batterham’s costs of both the Appeal and the Trial below.

NSW Court of Appeal Judgement

The Court of Appeal judgment is a helpful overview of some very important principles of the law of contract.  Helpfully none of the essential findings were on credit of the witnesses but rather on the construction of the facts and the evidence and how those facts can be construed in regard to the law applicable in the case.

Accordingly the Court of Appeal did not feel constrained from reversing the Trial Court decision finding on the construction of the Kitchener Project Agreement.

The Court of Appeal considered the construction of the words “consultant’s costs” and the words “ancillary” and it concluded that it was Makeig’s obligation, under the Kitchener Agreement, to pay the fees to the council for the further work relating to the Local Environment Study.

The Court of Appeal noted that this was a laymen’s agreement and it should be construed according to its commercial purpose not in any pedantic way.  The “lodgement fee” required by the council was in fact a payment for consultants (to be retained by the council) to prepare the Kitchener precinct to be included in the Cessnock master plan.

Makeig did not pay Nov/Dec 06 Council lodge fees and refused to do so. The Court of Appeal found that although, on Makeig’s evidence, this was a game of “poker” which he was bluffing in order to gain an advantage for himself, there was no objective evidence that Batterham knew it was only a bluff and not Makeig’s genuine intention to breach the agreement. Accordingly the Court of Appeal found it reasonable that Mr Batterham, having received the definite refusal by Makeig to undertake his essential term of the agreement, proceeded to terminate the agreement.

The Court of Appeal observed that the question of repudiation is a question of fact and having regard to the trial judge’s finding that this clause was an essential term the only conclusion based on the evidence before the Court was that Makeig had repudiated the Contract.

Accordingly the Court of Appeal reversed the Trial Judge Decision and substituted their own judgment in its place.

Comment from Mark Streeter – Sydney LawyerMark Streeter Sydney
Lawyer

This was a very interesting case of hotly contested facts and substantial factual issues. Notwithstanding the complexity of the relationship and the number of communications, the actual “breach” identified and relied on by the Courts was based on one letter and two conversations!

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