A seasoned civil works contractor keen to develop a major Lockyer Valley subdivision enlisted the support of an enthusiastic private lender.
In March 2008 Lutz Berger’s company Lake Laurel Pty Ltd purchased the $4.4 mil site in Patrick St Laidley in the expectation of a 173 lot yield.
Shortly after, LL granted a mortgage to Nichols Constructions to secure its $6.25 mil development loan.
In June that year LL also signed up the $2.2 mil buy of adjoining lot 261 on a two-year deferred settlement.
Two years later and just as the GFC was taking hold – and after LL acquired another smaller adjoining parcel – it relieved some financial pressure by selling the development to Nichols on terms that would see LL construct the civil works for the project.
Nichols paid $8.9 mil for the Patrick Street parcel and for a further $3.775 mil – repayable at $25k per subdivided lot on re-sale – took over LL’s rights to acquire lot 261 when its settlement came due on 30 June.
So by mid-2010 the contractual relationship between the parties had effectively been reversed.
LL was in relation to Nichols, now an earthworks contractor on the one hand and vendor-financier on the other. Nichols likewise had two roles in relation to LL, one as developer and the other as a terms buyer.
Nichols became registered owner of lot 261 in July 2010 and – when the subdivision plan for stage 1 was almost ready to be sealed – of the Patrick Street parcel, in March 2012.
By that time tensions concerning the rate of sales of lots in stage 1 and the future of the project began to emerge between the parties.
What had been in their mutual interests up to that point, wasn’t necessarily so hence forth.
Nichols preferred to wait until the stage 1 inventory had been substantially sold before requesting the sealing of the plans for Patrick St stage 2 and lot 261.
To worsen the situation, a severe flood hit the Laidley region in January 2013 damaging some of the earthworks.
Citing numerous breaches, Nichols terminated LL’s civil works contract in October 2014.
By that stage, the Berger company had – in consideration of a loan – assigned the Nicholls debt to his earthmoving colleague Peter Ryan.
In late 2014 Ryan and LL sued Nichols for immediate payment of the deferred $3.775 mil lot 261 debt alleging that Nichols’ conduct – including its breach of an implied “duty to cooperate” – had put it in breach of the deferred payment terms.
Nichols likewise contended – in defence of that claim – LL’s breach of the mutual duty of cooperation by failing to construct or rectify an overland flow channel and a detention basin.
Nichols’ claim over Berger’s admitted breaches, insofar as they related to the civil works contract, was settled before the larger contest – over the $3.775 mil debt and the competing arguments concerning the implied “duty to cooperate” – came before Justice Helen Bowskill in Brisbane’s Supreme Court in May.
Her honour accepted the earthmovers’ arguments that Nichols was in default of the deferred payment mortgage debt terms by allowing the lot 261 DA to lapse, thereby – contrary to a lending covenant – allowing the value of the secured property to be reduced.
Lutz Berger – whose evidence was largely unchallenged – spoke for example, of the reluctance of Nichols’ Leslie Nichols to proceed with stage 2 and his refusal to sign paperwork to allow that to happen.
But what of the competing allegations by both parties that the other was in breach of its implied obligation to cooperate to do everything necessary to ensure the successful execution of the project?
For Berger and Ryan, Nichols breach of that obligation included its failure to secure registration of the Lot 261 plan of subdivision within a reasonable time.
Justice Bowskill agreed with the general proposition that in “every contract each party agrees, by implication, to do all such things as are necessary on his part to enable the other party to have the benefit of the contract”.
She reasoned that Nicholls was indeed in breach of the implied obligation by reason of the failure alleged.
For Nichols, the allegation was that LL failed to construct critical drainage works – which, as noted above, LL conceded – and that it pilfered fill from a part of the site that it ought to have imported, which LL denied.
Applied to “the complex arrangements between these parties,” she ruled, “it is appropriate to construe the [lot 261 mortgage] as including an implied obligation on Lake Laurel not to hinder Nichols Constructions’ efforts to do the things which are necessary to secure the benefit to Lake Laurel”.
She went on to find though that neither circumstance raised by Nichols constituted a breach of its implied obligation to cooperate.
In the absence of that defence holding up, that there was no obstacle to Berger’s company and Ryan recovering the $3.775 mil owing by Nichols. Judgment was entered in their favour for that sum.
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