Jelekainen v Frikton[2007] QSC 98

SUPREME COURT OF QUEENSLAND

MUIR J:

Introduction

[1] The first plaintiff, Mr Jelekainen, and the defendant, Mr Frikton, purchased land at Maleny for a price of $995,000 under an agreement of sale and purchase dated 18 August 2003 with a view to its subdivision and resale under an agreement to be entered into between them. Subsequently, a joint venture agreement was entered into. These proceedings are concerned with the parties’ rights and entitlements in respect of it and with Mr Frikton’s and Mr Jelekainen’s respective interests in the land. There are three main issues:

(a) Did the copy of the Joint Venture Agreement initially signed by Mr Frikton contain a schedule and was he aware of its contents?

(b) What are the terms of agreement entered into between Mr Frikton and Mr Jelekainen concerning the former’s contribution of $100,000 to the capital of the joint venture and how does that agreement bear on their respective entitlements under the joint venture?

(c) Was there an agreement under which Mr Frikton withdrew from the joint venture, retaining only a right to 10 per cent of the net profits of the joint venture?

The background to the subject transactions

[2] Mr Frikton is a retired barber and farmer who was born in Hungary on 18 April 1938. After working as a barber in the United Kingdom and in Canada for about 16 years, he migrated to Australia. After his arrival in Australia, he opened and operated a barber’s shop and farmed land at Maleny. He owned that land jointly with another. It was subdivided by them and the subdivided parcels, with one exception, were sold over a period of some years.

[3] Mr Frikton met Mr Jelekainen and Ms Wraight, the second plaintiff, when, in mid May 2003 as prospective purchasers, they inspected the remaining subdivided parcel. Mr Frikton resided in a house he had built on it and had listed it for sale. Messrs Jelekainen and Frikton (together referred to as “the Parties”) subsequently became quite friendly and had some discussions about entering into a joint venture to develop Mr Frikton’s property. Those discussions came to nothing.

[4] In August 2003 the owner of the land offered to sell it to Mr Frikton. Mr Frikton introduced Mr Jelekainen to him with a view to assisting in the negotiation of its purchase and participating in its purchase and subsequent development.

[5] Mr Jelekainen was born in December 1971. He obtained a Batchelor of Engineering and worked for about nine years full-time in the construction industry. At the time of his dealings with Mr Frikton he was managing a family owned business which provided timber flooring for sporting venues. He also had minor experience of property development.

[6] Prior to signing the contract to purchase the land, the Parties investigated its subdivisional potential with the Caloundra City Council and formulated a general subdivisional plan.

Negotiation of the Joint Venture Agreement

[7] Settlement under the agreement for the purchase of the land was originally due on 3 December 2003. On 28 October 2003 Mr Jelekainen emailed a proposed joint venture agreement to Mr Frikton. The draft was 12 pages long including its schedule and execution clauses. It recited that the Parties were, or were to be, owners of the land and that they had invited “the investors” to invest in the “Project”. The “investors” were to have no say in decisions relating to the Project but were to share with the Parties the balance of net profits of the Project remaining after payment of 20 per cent of the net profit to the Parties. The schedule to the draft was not completed but it contained provision for insertion of the names of investors and their respective capital contributions.

[8] Mr Frikton sent a copy of this document to his solicitor on 28 October 2003 in order to obtain his advice. The draft, amended by the solicitor, was sent by Mr Frikton to Mr Jelekainen by email on 7 November 2003. It also contained an uncompleted schedule.

[9] A revised draft was emailed by Mr Jelekainen to Mr Frikton on 26 November 2003. The most significant difference between that draft and its predecessor was the addition of the following sentence to clause 6: “The level of individual Capital Contributions by [Mr Jelekainen] and [Mr Frikton] from the finance facility will be reflected in the schedule beside each parties’ name.”

[10] Mr Jelekainen did not refer to this alteration specifically in his email. He noted merely that “the modifications are minor”. That document was perused by Mr Frikton and forwarded by him to his solicitor for his advice on 26 November 2003. Also on that day Mr Frikton faxed to his solicitor a document prepared by Mr Jelekainen which estimated joint venture profits and provided for their distribution. Ten per cent of the profits were shown as going to each of the Parties with the balance being payable to “investors”.

[11] Mr Frikton’s solicitor gave the requested advice in an email of 28 November 2003.

The first signing of the Joint Venture Agreement

[12] After a Christmas party hosted by Mr Jelekainen and Ms Wraight on 28 November 2003, at Mr Jelekainen’s parents’ house, Mr Frikton spent the night at the residence shared by Mr Jelekainen and Ms Wraight.

[13] On the morning of 29 November 2003, before Mr Frikton’s departure, Mr Jelekainen had Mr Frikton sign a document identical in terms to that sent by email to Mr Frikton on 26 November, except for the contents of the schedule. The document signed consisted of a number of pages which were not stapled or attached in any way. Mr Jelekainen swears that a schedule, which had handwriting insertions in it, was present whilst the draft was signed and was discussed between those present. Mr Jelekainen said that: he identified the contributors and contributions actually received; he explained that he had to check the amounts and the identity of the investors inserted in the schedule; he discussed the “Aura Trust” and said he would contribute $100,000 on behalf of Mr Frikton from the loan he was to obtain from the Bank. According to Mr Jelekainen, Mr Frikton said that he had received legal advice and was happy with the Joint Venture Agreement. Mr Frikton signed the Joint Venture Agreement but not the schedule with handwriting on it.

[14] Later on 29 November Mr Jelekainen and Ms Wraight met with the other parties to the agreement who signed a reprinted Joint Venture Agreement identical to that signed by Mr Frikton, except that the insertions in the schedule were typed rather than handwritten.

[15] Mr Jelekainen’s account of what happened in relation to the signing of a version of the Joint Venture Agreement on 29 November 2003 receives support from Ms Wraight. Her evidence is to the effect that she was present when Mr Jelekainen went through the document, the pages of which were loose, with Mr Frikton in some detail, explaining some parts of the document as he did so. She recalls Mr Jelekainen inserting names and amounts in the schedule to the document in the presence of Mr Frikton. She recalls Mr Jelekainen telling Mr Frikton and her that he was still not sure how much “Olli was putting in for Seija” or what entity Mr Manner was using. Ms Wraight professed a clear recollection of Mr Jelekainen identifying to her and Mr Frikton the names of the proposed investors and the amounts of their respective contributions.

[16] Mr Frikton tells quite a different story. His account is to this effect. At about 9 a.m. on the morning of 29 November he knocked on Mr Jelekainen’s bedroom door and said he was about to leave as he had a doctor’s appointment. Mr Frikton made coffee and Mr Jelekainen and Ms Wraight came out. Ms Wraight reminded Mr Jelekainen about the Joint Venture Agreement and Mr Jelekainen tried to print a copy using his laptop and a connected printer. Mr Jelekainen said the last two pages could not be printed. Mr Frikton, being in a rush, signed the part of the agreement produced to him and departed. Mr Jelekainen did not go through the document with him as Mr Jelekainen and Ms Wraight suggested.

The second signing of the Joint Venture Agreement

[17] On 2 December 2003 there was a meeting at the offices of the plaintiffs’ solicitors for the purposes of signing the security documentation in relation to the purchase of the land. After that meeting Mr Jelekainen remained in an office in the premises with Mr Frikton. Mr Jelekainen swears that he produced the copy of the Joint Venture Agreement signed on 29 November 2003 by all parties other than Mr Frikton. According to Mr Jelekainen he discussed it with Mr Frikton “explaining the Aura Trust contribution and [told] him that his own contribution of $100,000 was coming from the [bank] loan. [They] went through the details and amounts of the other investors. [Mr] Frikton said … that he was satisfied with the schedule. [He] initialled the schedule along with every other page in the joint venture agreement.” 

[18] In an affidavit sworn by Mr Frikton in other proceedings in April 2005, he professed a recollection that he had first signed a complete version of the Joint Venture Agreement on 8 March 2004 whilst in the offices of the plaintiff’s solicitors concerning a joint venture problem. He swore that he did not have time to read the document before signing it.

[19] In the affidavits which comprised his evidence-in-chief in these proceedings, Mr Frikton accepted that he had signed a version of the Joint Venture Agreement on 2 December 2003, but did not describe the circumstances of its signing. Mr Frikton’s evidence about the signing in cross-examination is not perfectly clear. Its substance seems to be that Mr Jelekainen placed the document in front of him when his attention was focused on the loan documentation and he signed it without reading it or considering its contents.

[20] Mr Frikton’s solicitor had given him further oral advice in relation to the Joint Venture Agreement on 1 December. In the course of the conversation, Mr Frikton’s solicitor “cautioned him about proceeding”. Mr Frikton also telephoned his solicitor from the offices of the plaintiff’s solicitors on 2 December and had a conversation with him about the documents he had signed or was about to sign.

[21] Mr Frikton emailed his solicitor on 3 December concerning the execution of the documentation in favour of the Bank. He said in it that he “felt cornered” and “did the next best thing” to having his own solicitor look at the documentation. He said in that regard “he [Mr Plastiras] offered to look at it for me, and I told him that be (sic) good as he is acting for both of us in this deal”. He asked his solicitor to send a letter to Mr Plastiras thanking him for acting for the Parties together and noting his own solicitor’s inability to peruse the documents. In the course of the email he remarked “(I feel that there was a deliberate effort to prevent me to have you look at it).” There was no such communication in relation to the Joint Venture Agreement.

The circumstances giving rise to the alleged Release Agreement

[22] The purchase of the land did not proceed smoothly. Channel 7 Queensland Pty Ltd asserted rights over the land arising from a Licence Agreement and lodged a caveat. With a view to resolving the dispute, it was proposed that the Parties enter into a deed in order to protect Channel 7’s rights. This, and the way in which the purchase was progressing generally, caused concern to Mr Frikton. In an email to Mr Jelekainen on 28 December 2003 he complained about the transaction and said:

“We [I] entered into a NIL ENCUMBRANCES contract and I cannot see my way to totally take over Bob’s [the vendor’s] agreement to be your and my responsibility …with an encumbrance like that we will never sale (sic) it for a good price …I had envisaged a peaceful life for myself, and this is nothing short of getting to be a disaster … I am considering, that if it is agreeable with you, and you can find someone to take my part over, and released from all contractual bindings I am ready to give up on this deal.”

[23] In an email of 28 December to his solicitor, Mr Frikton expressed concern “that there is a sinister deal is on (sic) the making”. He referred to the circumstances in which two versions of the Joint Venture Agreement had been signed and asked “…what if anything can be done to stop if there is a fraudulent way my signatures have ben (sic) obtained to defraud me in any way?”

[24] Mr Jelekainen telephoned Mr Frikton on the morning of 29 December saying amongst other things that he was disappointed with Mr Frikton’s decision. Mr Frikton told him that he had made his mind up and Mr Jelekainen communicated his acceptance of Mr Frikton’s withdrawal from the joint venture. Mr Jelekainen then emailed Mr Frikton as follows:

“I understand you are not happy with it as the deal did not go as we first planned.

You have made it clear you want out and as such I will respect your decision and have the appropriate paperwork drawn to have your name removed from the title and from the HSBC loan. I will however protect your 10% share of the venture, as I believe you are entitled to it. Should you have a change of heart and still wish to invest in the project then that opportunity still remains… I understand your withdrawal however this decision will have no impact on our relationship. I too want peace and harmony in my life.”

[25] On 8 January 2004 Mr Frikton emailed his solicitor as follows:

“…Ari and I agreed to have me taken off the title and the bank loan documents, and I will have 10% interest in the proceeds of the property. (Should I have an official paper to that effect or Ari’s e-mail is sufficient?)

I would like you to advise me for correctly and totally be removed from all the Bank loans on which I signed for, so when I get the papers from Ari I would like you to check them out.”

[26] The email further evidenced a suspicion of Mr Jelekainen and Mr Plastiras arising out of the signing of the securities documentation and their failure to provide Mr Frikton with copies of that documentation promptly. The email concluded with, “(It is strange to me that this deal gone the way it has, rather than give me copy’s of it)”.

[27] On 8 January 2004 Mr Jelekainen discussed the proposed transfer of Mr Frikton’s interests with Mr Plastiras. With a view to minimising stamp duty, Mr Plastiras put forward the possibility of altering the transfer of the land so that Mr Frikton would be shown as holding a one per cent interest and Mr Jelekainen a 99 per cent interest. Mr Plastiras then set about having the transfer altered. Mr Jelekainen swears that immediately after discussing the alteration of the transfer with Mr Plastiras, he telephoned Mr Frikton about the matter. In the course of the telephone conversation he said that he explained that if Mr Frikton was only a one per cent owner the amount of stamp duty “would be much less” and that Mr Frikton told him that “he wanted to reduce his ownership on the title to the lowest percentage possible in the hope of avoiding the large stamp duty payable and the further costs which he would have to pay…”.  It is his evidence that Mr Frikton told him to take whatever steps were required to achieve such an objective and that after the conversation he telephoned Mr Plastiras and told him that Mr Frikton “was agreeable to the amendment to the transfer”.

[28] In his affidavit sworn on 2 April 2007, Mr Frikton, in dealing with the alteration to the transfer, does not deny the conversation alleged by Mr Jelekainen. He does not even refer to it. He does, however, deal with the conduct of the plaintiffs’ solicitors concerning the matter. In an affidavit in reply to Mr Jelekainen’s principal affidavit, Mr Frikton swears that Mr Jelekainen “only told [him] he had changed the Form 1 [transfer] on or about 26 January 2004”. He does not swear that there were no earlier conversations in which such a proposed change was discussed.

[29] Mr Jelekainen swears that on or about 11 January 2004 during a visit by him to Mr Frikton’s home at Maleny, Mr Jelekainen said to Mr Frikton that he wanted to give him another opportunity to be an investor in the project. According to him, Mr Frikton said, in substance, that his attitude was unaltered, that he did not wish to do so. Mr Jelekainen said that he accepted this and he affirmed that Mr Frikton would remain entitled to his 10 per cent of the profits.

[30] On 3 February 2004 Mr Frikton’s solicitors wrote to the plaintiffs’ solicitors stating:

“We understand that our client is to withdraw from the purchase of the property although settlement has taken place. We have a copy of your letter of 16 January 2004 to your client… We have been handed a Transfer by our client but the interest being purchased is not shown.

Can you confirm our client did not guarantee any loan and if this Transfer is signed our client will get a Release from HSBC.”

[31] The solicitors for the plaintiffs responded to the letter on 13 February confirming that settlement took place on 29 December 2003. They said:

“The interest that our client is acquiring from your client is 1% which will provide our client with 100% ownership.

Your client was a borrower on the HSBC loan documents and therefore he is personally liable along with our client for the repayment of the debt. However, our client has confirmed that George will be entirely released from his loan obligations once the transfer into our client’s name has been signed and registered.”

[32] The Bank confirmed in writing to Mr Frikton’s solicitors on 5 April that on lodgement of the transfer from joint names to that of Mr Jelekainen, Mr Frikton would have no liability in relation to the loan facility. Mr Frikton’s solicitors notified the plaintiffs’ solicitors on 13 April that they had received such advice from the Bank and asked for an undertaking that the transfer would be promptly stamped and lodged. The response of Mr Jelekainen’s solicitors by facsimile was to undertake to promptly stamp the transfer but they pointed out that it would be the Bank which would be attending to lodgement for registration.

[33] On 24 April Mr Frikton emailed his solicitor stating he was not happy with “the fax from [Mr Plastiras]” and that he was “not having much response from” Mr Jelekainen. He continued, “…so I may just protect myself by staying on the deed, what is your thoughts?”

[34] Towards the end of April Mr Frikton had a number of communications with his solicitors in which he investigated ways in which his interests could be protected and the agreement or arrangement between himself and Mr Jelekainen could be documented. These communications gave rise to an email from him to Mr Jelekainen on 1 May 2004 in which he proposed that his solicitors draw up a contract which would provide that:

(a) Mr Jelekainen purchase his share “of the one per cent, you have registered on the title for me for $14,000 …”;

(b) His obligations under the Bank loan be extinguished;

(c) The offer in the email of 29 December to protect Mr Frikton’s 10 per cent share in the venture be accepted.

The $14,000 purchase price was arrived at by Mr Frikton on the basis that it was one per cent of the Bank’s valuation of the land.

[35] Mr Jelekainen advised Mr Frikton in an email of 6 May that the latter’s proposal was accepted. On 26 May, in a telephone discussion with Mr Jelekainen, Mr Frikton advised Mr Jelekainen that he was taking further advice about the matter. The relationship between the Parties then deteriorated and this litigation ensued.

Findings on credit

[36] I did not find Mr Frikton’s evidence reliable. He is a person of a suspicious nature with an inclination to perceive dishonesty in others in circumstances in which it would not be suspected by any reasonable person. He became concerned, without good cause, that Mr Jelekainen may be attempting to cheat him. As a result of his fear that he was or was to become the victim of dishonesty, and quite possibly for other reasons, Mr Frikton’s recollection of relevant events has been clouded. He is incapable of bringing objectivity to the giving of his evidence or to the recall or consideration of relevant fact.

[37] In giving his evidence, Mr Frikton was more concerned to advocate his cause than to relate the facts as best as he could recall them. His recollection of material facts appeared to me to be poor and he was most unwilling to make concessions, even when plainly due. The evidence shows Mr Frikton to be cautious and considered in his dealings. He is not given to precipitate or ill-considered action and it is unlikely that he would sign a document of a contractual nature without understanding it and being fully satisfied of its contents.

[38] I concluded that although Mr Jelekainen gave his evidence honestly, it had to be treated with some caution. It emerged, even before cross-examination, that some matters sworn to by him were the product of reconstruction rather than actual recollection and that he had not troubled to distinguish between the two. In my view, his recollection of events and occasions and of the sequence of events is more reliable than his recollection of the detail of conversations. In all respects, however, I regard his evidence as more reliable than that of Mr Frikton. I have no reason to doubt the accuracy or general reliability of Ms Wraight’s evidence.

The terms of the Joint Venture Agreement

[39] On 29 November 2003, Mr Jelekainen, Mr Frikton (together referred to as “the Parties”) and the second, third and fourth plaintiffs, Joanne Wraight, Olli Manner and Seija Lowe, entered into a Joint Venture Agreement in respect of the land. Mr Jelekainen and the third plaintiff did so in their capacities, respectively, as trustee of the Aura Trust and the Olli Manner Family Trust.

[40] It was recited in the Joint Venture Agreement that the Parties would be the owners of the land and that the second, third and fourth plaintiffs together with the “Aura Trust” (the Investors”) had been invited to contribute capital to the project.

[41] Under the Joint Venture Agreement:

(a) The Parties had the sole right to make decisions in relation to the implementation of the Project.

(b) The Investors and Mr Frikton were obliged to make the payment specified in the schedule to the agreement upon its signing.

(c) The Parties agreed to procure finance for the Project in their own names on the security of the land. Clause 6 provided:

“[The Parties] will procure Finance in their own name and for that purpose will offer the Land as security. The finance amount will become part of the Capital Contribution and as such they must pay all moneys, proportionate to their individual Capital Contribution, payable under the Finance Facility including without limitation, repayments, interest, fees and charges. The level of individual Capital Contributions by [Mr Jelekainen] and [Mr Frikton] from the finance facility will be reflected in the Schedule beside each parties’ name.”

(d) The proceeds from the Project would be dispersed by paying outstanding rates, taxes and other statutory charges in relation to the land, then all development expenses, the repayment of capital contributions, then 20 per cent of the balance divided equally between Mr Jelekainen and Mr Frikton, then as to the balance, to Mr Jelekainen, Mr Frikton and the Investors in proportion to the amounts of their respective capital contribution set out in the schedule.[1]

[42] “Finance Facility” was defined as “a facility for financial accommodation between [the Parties] and a Financier to assist in making up any investor shortfall required with funding the Project, including raising Capital…”.  “Investors” was defined as “…all parties that invest Capital in the Project, or any of them, as the case requires”.

[43] The schedule described the contributors and their respective contributions as:

The borrowing for joint venture purposes

[44] In order to finance the Aura Trust’s contribution of $800,000 and the payment of $100,000 on behalf of Mr Frikton, Mr Jelekainen procured a loan of $650,000 from HSBC Bank Australia Limited (“the Bank”) to himself and Mr Frikton. Security for the loan was:

(a) A mortgage over the land;

(b) A mortgage over Mr Jelekainen’s property at River Hills, Brisbane;

(c) A deed of guarantee by Aura Sports Pty Ltd; and

(d) A deed of covenant between the Bank, the trustee and the adult beneficiaries of the Karitta Trust of which Mr Jelekainen and members of his family were beneficiaries.

The loan was drawn down on 8 January 2007 and all of the loan moneys were applied as capital contributions to the joint venture.

Further consideration of clause 6 of the Joint Venture Agreement and the Contribution Agreement

[45] Prior to the addition of the concluding sentence to clause 6, moneys borrowed by the Parties on the security of the land for the purposes of the joint venture became part of their “Capital Contribution”. The Parties, however, were obliged to service and repay the loan. Clause 6 deals with borrowings under the “Finance Facility”. As appears from clause 1, the Finance Facility means financial accommodation “to assist in making up any investor shortfall”. Consequently, whether any moneys were to be borrowed pursuant to clause 6 and if so, the amount of any borrowing was entirely dependent on whether the investors’ contributions were sufficient to meet the costs of the joint venture. The only part of the Joint Venture Agreement which identifies those contributions is the schedule.

[46] After the addition to clause 6 of the final sentence, even though the Parties borrowed under the Finance Facility and were jointly and severally liable to the lender, their resulting “Capital Contributions” were not dependent on the amount borrowed. Rather, their respective “Capital Contributions” were to be determined by reference to the schedule. Mr Frikton, having assumed liability equally with Mr Jelekainen for the borrowing of $650,000 from the Bank, was credited with only $100,000 of the loan moneys. Mr Jelekainen, either personally or in his capacity as trustee, took the benefit of the balance of the loan of $550,000 which was treated by him as part of his Capital Contribution.

[47] Another curious feature of clause 6 is that it gave the Parties an advantage over other investors in that the Parties alone had the ability to use the land as security for borrowings for the purpose of making Capital Contributions.

[48] Could the Parties, consciously, have arrived at such a seemingly one-sided bargain? Mr Freeburn SC who led Mr Jarro for Mr Frikton, not without some justification, described it as “bizarre’. But the Contribution Agreement provides some support for the plaintiffs’ case. Mr Frikton accepts that the Contribution Agreement was entered into, although he contends that its terms were different from those alleged by Mr Jelekainen. But it is plain that there was a special arrangement concerning Mr Frikton’s Capital Contribution which affected the “Finance Facility”.

[49] On Mr Jelekainen’s pleaded version of the Contribution Agreement, Mr Jelekainen assumed responsibility for servicing and repaying the facility subject only to Mr Frikton’s obligation to repay the $100,000 at the earlier of the completion of the project or the repayment of the loan under the Finance Facility. Mr Jelekainen swore in his oral evidence that the bargain was that Mr Frikton could repay the $100,000 at his option on the sale of his house or on the repayment of the loan under the Finance Facility or on completion of the Project.

[50] In an affidavit sworn in April 2005, Mr Jelekainen stated that on or about 23 October 2003 he offered to “allow [Mr Frikton] to make a $100,000 contribution to the Project from the proceeds of” the Finance Facility and Mr Frikton accepted the offer. He swore that there had been prior discussions in which Mr Frikton had said that if he could not raise the necessary funds, presumably from the sale of his house, he could not take out a loan to make a contribution as he was not in a position to service it. He also swore that at the meeting on 29 November 2003, at which Ms Wraight was present, he told Mr Frikton that he would contribute $100,000 on his behalf and that “such sum, and part of the funds [he] was contributing, would be coming from the loan with HSBC and that the balance was coming from contributions of other investors”. No mention was made of interest or of any other costs of the borrowing.

[51] In his affidavit sworn on 15 February 2007 Mr Jelekainen swore that in the course of discussion with Mr Frikton on 29 November he said words to the effect that:

“I would contribute $100,000 on his behalf and this would come from a loan which I was going to obtain from HSBC in order to fund part of my contribution to the joint venture;

He could pay me back the $100,000 together with interest and costs that I was paying on that amount for him.”

[52] Mr Jelekainen swore that Mr Frikton thanked him “for making this contribution on his behalf” and said that he had not yet sold his house. Also in this affidavit Mr Jelekainen swore that the $100,000 sum was to be repaid “once his house was sold or the development project was finalised (whichever came first)”. The concluding qualification was not mentioned in the 2005 affidavit.

[53] Mr Frikton’s pleading admitted the allegations concerning the Contribution Agreement, except that he denied that costs and interest were included. Oddly, particulars of the defence accepted that costs and interest were payable. In oral evidence Mr Frikton said that Mr Jelekainen was to “spot his contribution, accumulated costs and interests (sic) until his home was sold”.

[54] In cross-examination Mr Frikton said, in effect, that Mr Jelekainen knew that he, Mr Frikton, was unable to service the loan until he sold his property. He confirmed his affidavit evidence that a couple of days prior to 18 August 2003 Mr Jelekainen said to him that a loan had to be taken out to enable settlement to take place and that he would pay the interest and costs on that loan until Mr Frikton sold his property and obtained the proceeds of sale. He agreed with counsel that in such discussion “there was no mention of a $650,000 sum”. As for the contribution of $100,000 referred to in the schedule, he said that Mr Jelekainen said to him “I am spotting you for the $100,000 so it looks better to all the investors”.

Findings in respect of the entering into of the Joint Venture Agreement

[55] I find that events proceeded on 29 November 2003 substantially as Mr Jelekainen and Ms Wraight stated. Mr Jelekainen explained various parts of the proposed Joint Venture Agreement to Mr Frikton and, to a lesser extent, to Ms Wraight over a substantial period. The schedule was also the subject of explanation and by the end of the discussion, if not before, it had been completed by Mr Jelekainen in handwriting with the additions which subsequently appeared in print in the document signed by Mr Frikton on 2 December 2003.

[56] Mr Frikton was placed under no pressure by Mr Jelekainen on 29 November or 2 December 2003 in relation to the signing of the Joint Venture Agreement. Neither on 29 November 2003 nor on 2 December 2003 did Mr Jelekainen believe that Mr Frikton did not understand or misunderstood any provision of the Joint Venture Agreement.

[57] Mr Jelekainen explained the nature and extent of the contributions to be made to the capital of the joint venture and the identity of the contributors (with the qualification on 29 November referred to earlier). Mr Frikton understood from the explanations and from perusing the schedule on both occasions that the capital contributions to the joint venture were to be as recorded in the schedule.

Findings as to the Contribution Agreement and clause 6 of the Joint Venture Agreement

[58] Because of Mr Frikton’s disinclination to commit himself to making payments of capital or interest prior to the sale of his Maleny property, the Parties entered into the Contribution Agreement. Under it, although the Parties were to be both borrowers and mortgagors from the Bank of the sum of $650,000, Mr Jelekainen had responsibility for servicing the debt and repaying the loan. $100,000 of the loan was to be applied as Mr Frikton’s contribution to joint venture capital. The balance of the loan was to be applied as Mr Jelekainen’s contribution to joint venture capital.

[59] Mr Frikton was obliged to pay $100,000 to Mr Jelekainen on the last to occur of the settlement of the sale of his property, the repayment of the loan under the Finance Facility, or the completion of the Project. I do not accept that the bargain was that repayment be effected on the happening of the first of those events as, to the knowledge of Mr Jelekainen, it was of particular concern to Mr Frikton that he be under no obligation to make any such payment until he had received the proceeds of sale of his property. I conclude however that it was implicit in the words used by them, if not expressly stated, that Mr Frikton would reimburse Mr Jelekainen for interest paid in respect of the sum of $100,000 when repaying the capital.

[60] It is likely that the Parties had an imperfect understanding of the legal import of their bargain and that Mr Frikton considered that the Contribution Agreement provided ample protection against any risk flowing from his obligations to the Bank in respect of the overall borrowing. Mr Jelekainen, for his part, came to see the borrowing as his transaction, facilitated by Mr Frikton’s lending his name as borrower as a result of the land being held in joint names.

[61] It is argued on behalf of Mr Frikton that if his primary contentions fail, any distributions under the Joint Venture Agreement should be made on the basis that Mr Frikton has made a contribution of $100,000 and is to be credited with a further capital contribution of either $550,000 or $650,000 by operation of clause 6. The contention is also that Mr Jelekainen has no entitlement to any distribution.

[62] The argument is as follows. Mr Jelekainen and the Aura Trust separately signed the Joint Venture Agreement and have “separate and different obligations under the agreement”. The trust is one of several “passive investors”. When regard is had to the last sentence of clause 6 which refers to the “individual Capital Contributions by Ari and Gyorgy from the Finance Facility”, the reference to Ari must be to Mr Jelekainen personally and not to him in his capacity as trustee. As Mr Jelekainen is not specified in the schedule he has no obligation to make a capital contribution and Mr Frikton was obliged to make all the payments under the Finance Facility. Consequently, Mr Frikton is entitled to have $650,000 regarded as his Capital Contribution.

[63] By the time the Joint Venture Agreement was entered into, the Parties, and all other parties to the Joint Venture Agreement, were aware that Mr Jelekainen’s Capital Contribution of $800,000 was to be made by him in his capacity as trustee of the Aura Trust. All parties were also aware of the nature of the borrowings to be effected for the purpose of enabling the Parties to make their Capital Contributions. Against this background, it is impossible to construe the last sentence of clause 6 as referring only to Mr Jelekainen in a capacity other than his capacity as trustee.

[64] Even without reference to such background it would be obvious enough, construing the document reasonably and as a whole, that the reference to “Aura Trust” in the schedule should be seen as referring to Mr Jelekainen in his capacity as trustee. Clause 6 assumes that Mr Jelekainen’s name appears in the schedule. The “finance” is to be procured under clause 6 by Mr Jelekainen, in an unidentified capacity, and Mr Frikton. The clause envisages that the procuring of such finance will give rise to “individual Capital Contributions” which will be shown in the schedule. The schedule then must be perused to see the Parties’ respective contributions. The conclusion that Mr Jelekainen’s contribution is not shown, but that Mr Frikton’s is shown is not one which would be arrived at readily. I have no hesitation in rejecting it. It would confound the reasonable expectations of the Parties and be contrary to the understanding of reasonable persons with the same knowledge of background circumstances as the Parties.

[65] The object of contractual construction is to “ascertain and give effect to the intentions of the contracting parties”.[2] Those intentions, to be determined objectively, are “what a reasonable person would have understood [the words of the contract] to mean.”[3] And to ascertain that “normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction.”[4] Such a reasonable person is one who has all the background knowledge which would reasonably have been available to the parties in the situation which they were in at the time of the contract [5] and a commercial contract, like the Joint Venture Agreement, “should be given a businesslike interpretation”. Its interpretation requires “attention to … the commercial circumstances which the document addresses, and the objects which it is intended to secure”.[6]

Findings as to the Release Agreement

[66] The emails of 28 December and 29 December, of themselves, cannot evidence the binding agreement alleged by the plaintiffs. If the email of 28 December is to be construed as an offer, it was conditional upon Mr Frikton being “released from all contractual bindings”. That expression would appear to include obligations under the Joint Venture Agreement which had three parties additional to the Parties. Mr Jelekainen, in his email of 29 December, appears to have understood the requirement to be limited to the removal of Mr Frikton’s name from the title to the land and to a release by the Bank. The reference in the 28 December email to “someone to take my part over” was also ignored by Mr Jelekainen.

[67] Mr Jelekainen, however, as is recorded above under the heading “The circumstances giving rise to the alleged Release Agreement” swears to discussions between himself and Mr Frikton in which agreement was reached. The understanding deposed to by Mr Jelekainen appears to have been shared by Mr Frikton. In his email to his solicitor on 8 January 2004, he said “…Ari and I agreed to have me taken off the title and the bank loan documents, and I will have 10% interest in the proceeds of the property”. In the same email he sought advice about his being “correctly and totally … removed from all the Bank loans”.

[68] Mr Frikton appears to have become restless as a result of not having the formalities of his release completed and on 27 April 2004 raised with his solicitor the prospect of protecting himself “by staying on the deed”. It is significant that until around this time Mr Frikton was not seeking advice as to whether he should remain a joint venturer but as to how his release from his obligations to the Bank and his removal from the title to the land could best be effected. A letter of 3 February from Mr Frikton’s solicitors to the plaintiffs’ solicitors is consistent also with the understanding that an agreement in relation to Mr Frikton’s withdrawal from the joint venture existed and needed to be implemented. By this time, as a result of Mr Plastiras’s stamp duty advice, the Parties were discussing a transfer of a one per cent interest in the subject land which would have the effect of extinguishing Mr Frikton’s interest in the land. The correspondence and actions of the Parties from 3 February until mid-April are also more suggestive of conduct directed to implementing an agreement than of negotiations with a view to concluding an agreement.

[69] On 1 May 2004, Mr Frikton put forward an offer in which his one per cent share was to be acquired for $14,000. That was accepted. It is argued on behalf of Mr Frikton that apart from the content of the communications between the Parties, it is unlikely that a legally binding agreement was entered into because:

(a) Mr Jelekainen was not in a position to bind the other parties to the joint venture;

(b) Mr Frikton’s communicated intention was that releases “from all contractual bindings” would be properly documented;

(c) The scope of the bargain remained fluid, as is witnessed by the 1 May 2004 offer; and

(d) It was unlikely that the disposition of an interest as valuable as Mr Frikton’s share in the joint venture would be disposed of except under a written agreement.

[70] It may be accepted that Mr Jelekainen had no authority to bind other parties to the joint venture but he did not purport to do so. The bargain, if there was one, was struck between himself and Mr Frikton. It was not remarkable that the Parties would consider that Mr Jelekainen had it within his power to procure the release of Mr Frikton from all relevant obligations, provided the Bank consented. He was the driving force of the joint venture and other participants, who had relatively minor interests, were his friends or relatives.

[71] Before the conclusion can be reached, however, that there was a binding agreement, it is necessary to perceive consensus between the Parties as to the terms of the alleged agreement. Although the written communications do not establish offer and acceptance, the plaintiffs’ case is greatly strengthened by reference to the discussions between the Parties. I find that Mr Jelekainen’s evidence in relation to them is, in substance, accurate.

[72] Mr Douglas submitted that the question of whether a binding agreement has been concluded is not always capable of resolution by analysing communications in terms of offer and acceptance. In this regard, he referred to the following passage from the reasons of McHugh JA, with whose reasons Hope and Mahoney JJA agreed, in Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd :[7]

“It is often difficult to fit a commercial arrangement into the common lawyers' analysis of a contractual arrangement. Commercial discussions are often too unrefined to fit easily into the slots of ‘offer’, ‘acceptance’, ‘consideration’ and ‘intention to create a legal relationship’ which are the benchmarks of the contract of classical theory. In classical theory, the typical contract is a bilateral one and consists of an exchange of promises by means of an offer and its acceptance together with an intention to create a binding legal relationship ...

Moreover, in an ongoing relationship, it is not always easy to point to the precise moment when the legal criteria of a contract have been fulfilled. Agreements concerning terms and conditions which might be too uncertain or too illusory to enforce at a particular time in the relationship may by reason of the parties' subsequent conduct become sufficiently specific to give rise to legal rights and duties. In a dynamic commercial relationship new terms will be added or will supersede older terms. It is necessary therefore to look at the whole relationship and not only at what was said and done when the relationship was first formed.”

[73] In Brambles Holdings Ltd v Bathurst City Council[8] Heydon JA referred with approval to the observation of McHugh JA in Integrated Computer Services Pty Ltd that:

“Nevertheless, a contract may be inferred from the acts and conduct of the parties as well as or in the absence of their words … The question in this class of case is whether the conduct of the parties, viewed in the light of the surrounding circumstances shows a tacit understanding or agreement. The conduct of the parties, however, must be capable of proving all the essential elements of an express contract…”

[74] Considering a similar problem, Lord Denning MR said in Port Sudan Cotton v Govindaswamy Chettiar & Sons [9] in words approved by Bingham LJ in Pagnan SpA v Feed Products Ltd:[10]

“In considering this question, I do not much like the analysis in the text-books of inquiring whether there was an offer and acceptance, or a counter-offer, and so forth. I prefer to examine the whole of the documents in the case and decide from them whether the parties did reach an agreement upon all material terms in such circumstances that the proper inference is that they agreed to be bound by those terms from that time onwards.  That is, I think, the result of Brogden v Metropolitan Railway Co.”

[75] The plaintiffs contend that the facts fall within the first class of case addressed in the following passage from the judgment of the Court in Masters v Cameron: [11]

“Where parties who have been in negotiation reach agreement upon terms of a contractual nature and also agree that the matter of their negotiation shall be dealt with by a formal contract, the case may belong to any of three classes. It may be one in which the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect. Or, secondly, it may be a case in which the parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document. Or, thirdly, the case may be one in which the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract.

In each of the first two cases there is a binding contract: in the first case a contract binding the parties at once to perform the agreed terms whether the contemplated formal document comes into existence or not, and to join (if they have so agreed) in settling and executing the formal document; and in the second case a contract binding the parties to join in bringing the formal contract into existence and then to carry it into execution. …

Cases of the third class are fundamentally different. They are cases in which the terms of agreement are not intended to have, and therefore do not have, any binding effect of their own.” (emphasis supplied)

[76] Alternatively, the plaintiffs contend that the Release Agreement fell within that category of agreement described in the following passage from the reasons of McLelland J in Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd Ors:[12]

“There is in reality a fourth class of case additional to the three mentioned in Masters v Cameron, as recognised by Knox CJ, Rich J and Dixon J, in Sinclair, Scott & Co v Naughton (1929) 43 CLR 310 at 317, namely, ‘…one in which the parties were content to be bound immediately and exclusively by the terms which they had agreed upon whilst expecting to make a further contract in substitution for the first contract, containing, by consent, additional terms”. Their Honours refer to the speech of Lord Loreburn, in Love & Stewart v S Instone & Co (1917) 33 TLR 475 at 476, where his Lordship said that:

‘It was quite lawful to make a bargain containing certain terms which one was content with, dealing with what one regarded as essentials, and at the same time to say that one would have a formal document drawn up with the full expectation that one would by consent insert in it a number of further terms. If that were the intention of both parties, then a bargain had been made, none the less that both parties felt quite sure that the formal document could comprise more than was contained in the preliminary bargain.’”

[77] There is nothing in the relevant exchanges prior to mid-April 2004 which suggests to me that the Parties intended to have the terms of their bargain restated in a more formal document or that performance of one or more of the terms was conditional upon the execution of a more formal document. 

[78] Mr Frikton, in effect, asked to withdraw from the joint venture. Mr Jelekainen agreed to the request and, implicitly, if not expressly, agreed to do all that was necessary to bring about the desired objective. The fact that in order to achieve the agreed result, the Parties had to execute other documents and obtain consents or releases from others does not require the conclusion that no binding agreement was entered into. But the more formal and complex the steps necessary to implement the agreement the more likely it is that the Parties intended not to be bound until a formal contract was signed.

[79] The existence of an agreement may be inferred from the subsequent conduct of the parties.[13]  The fact that there has been performance of a transaction by both sides is also strong evidence of the existence of an intention to enter into legal relations.[14]  Also, the existence of a contract may be proved by admissions.[15] All three of these propositions have relevance here. Mr Jelekainen, albeit without precipitate haste, set about obtaining a release from the Bank and having Mr Frikton removed from the title. The alteration of the title deed was not effected with a view to defrauding Mr Frikton: it was done with a view to implementing an agreement which Mr Jelekainen understood to exist.

[80] An admission is contained in Mr Frikton’s email to his solicitor of 8 January 2004. Although complaint is now made on behalf of Mr Frikton of Mr Jelekainen’s ignoring Mr Frikton’s role as equal manager of the affairs of the joint venture, this conduct is quite consistent with part performance of the Release Agreement. Included in the conduct to which I refer is the failure by Mr Frikton to assert his rights. It would not be in keeping with Mr Frikton’s character, as I perceive it, to have allowed Mr Jelekainen to assume the sole conduct of the joint venture activities if Mr Frikton had not thought that he had relinquished his rights under the Joint Venture Agreement.

[81] The fact that Mr Jelekainen later agreed to a term not contained in the alleged agreement is not fatal to his case. Parties to negotiations may, by their words and conduct, make it clear that they do intend to be bound even though there are other terms yet to be agreed,[16] provided of course, that all essential terms of their bargain are agreed.[17]

[82] And the mere fact that negotiations continue after the point at which an agreement is alleged to have come into existence does not lead, necessarily, to the conclusion that no binding agreement was reached.[18]

[83] As Cozens-Hardy MR said in Perry v Suffields Ltd:[19]

“Though, when a contract is contained in letters, the whole correspondence should be looked at, yet if once a definite offer has been made and it has been accepted without qualification, and it appears that the letters of offer and acceptance contained all the terms agreed on between the parties, the complete contract thus arrived at cannot be affected by subsequent negotiation.  When once it is shown that there is a complete contract, further negotiations between the parties cannot, without the consent of both, get rid of the contract already arrived at.” 

[84] In my view, the oral and written communications relied on by the plaintiffs support the conclusion that, by 8 January 2004, at the latest, the Parties had reached a consensus and intended to be legally bound.

[85] Mr Frikton was concerned that the Project may not prosper and that he could be cheated. He wanted to leave the joint venture immediately and to have no further obligations in respect of it. Achieving that result was not a matter of complexity The subject matter of the bargain was straightforward. Mr Frikton’s primary concern was to be released from liability to the Bank. Mr Jelekainen agreed that this should be done and set about procuring it. In the process, the Parties appeared to conclude that nothing formal needed to be done to have Mr Frikton released from any obligations under the Joint Venture Agreement. Perhaps this was because of a perception, reasonable in the circumstances, that liability to the Bank posed the only appreciable risk. Also, the fact that Mr Frikton was to have a 10 per cent preferred interest in net profits may have made him reluctant to seek formal documentation of a release from joint venture obligations.

[86] The issue is one of the Parties’ intention to make a concluded agreement, [20] not what they subjectively intended, but whether reasonable persons in their respective positions would consider that a bargain had been concluded[21] by reference to the words and actions of the Parties.[22] For the reasons just discussed, such reasonable persons would consider that a legally binding commitment had come into existence.

[87] As the following passage from the reasons of Lloyd LJ in Pagnan SpA v Feed Products Ltd[23] explains, the existence or otherwise of a contract is not to be determined by imposing on the parties the Court’s perceptions of the matters on which they ought to have agreed in order to be bound:

“It is sometimes said that the parties must agree on the essential terms and that it is only matters of detail which can be left over. This may be misleading, since the word ‘essential’ in that context is ambiguous. If by ‘essential’ one means a term without which the contract cannot be enforced then the statement is true: the law cannot enforce an incomplete contract. If by “essential” one means a term which the parties have agreed to be essential for the formation of a binding contract, then the statement is tautologous. If by “essential” one means only a term which the Court regards as important as opposed to a term which the Court regards as less important or a matter of detail, the statement is untrue. It is for the parties to decide whether they wish to be bound and, if so, by what terms, whether important or unimportant. It is the parties who are, in the memorable phrase coined by the Judge, ‘the masters of their contractual fate’. Of course the more important the term is the less likely it is that the parties will have left it for future decision. But there is no legal obstacle which stands in the way of the parties agreeing to be bound now while deferring important matters to be agreed later. It happens every day when parties enter into so-called ‘heads of agreement’.” (emphasis added)

[88] For the above reasons, I find that the Release Agreement, slightly different in content from that alleged, was entered into by no later than 8 January 2004. The terms of the Release Agreement alleged by the plaintiffs were that in consideration of Mr Jelekainen’s releasing Mr Frikton from the obligation to repay moneys under the Contribution Agreement and in consideration of “making reasonable endeavours” to have Mr Frikton released from his obligations under the mortgage to the Bank, Mr Frikton would transfer to Mr Jelekainen his interest as contributor under the Joint Venture Agreement, any other interest under the Joint Venture Agreement and his interest in the land “except for his entitlement to share equally in any proceeds of the development project under clause 7” of the Joint Venture Agreement.

[89] I find that the Release Agreement included terms that Mr Jelekainen procure the release of Mr Frikton from any obligations to the Bank and from any obligations under the Joint Venture Agreement. The latter term, in my view, was implicit in the communications which comprise the Release Agreement. I do not accept that Mr Jelekainen’s obligation was limited to “making reasonable endeavours”. As a result of Mr Frikton’s repudiation of the Release Agreement, he was not in position to complain about the lack of any formal release by other parties to the Joint Venture Agreement. It is likely that he acquiesced in Mr Jelekainen’s conduct in that regard. These issues however, were not pleaded or argued and it is unnecessary to explain them further.

Misrepresentations, misleading and deceptive conduct, unconscionable conduct and mistake

[90] I am not satisfied that Mr Frikton signed any version of the Joint Venture Agreement whilst under any pleaded mistaken belief. Nor am I satisfied that there was any misrepresentation by Mr Jelekainen to Mr Frikton as pleaded, let alone reliance on any alleged representation or misrepresentation.

[91] There is no factual support for any of Mr Frikton’s claims for relief.

[92] The claims relating to the alteration to the transfer of the land are of no material consequence, having regard to my findings in respect of the Release Agreement. In any event, I am not satisfied that Mr Frikton did not give Mr Jelekainen his approval of the alteration to the transfer.

[93] It may be that the Release Agreement was varied by the exchange of emails on 1 May 2004 and 6 May 2004. However, no party pleaded or relied on any agreement or variation of agreement evidenced by those emails and it is unnecessary for me to consider them further.

Conclusion

[94] As Mr Jelekainen has repaid the loan from the Bank and as Mr Frikton no longer appears on the title and has a release from the Bank, no orders are required to protect Mr Frikton’s interests under the Release Agreement, the existence of which he denies. Nor is it necessary or appropriate to order specific performance of the Joint Venture Agreement.

[95] The counterclaim will be dismissed with costs.

[96] The Parties are invited to make submissions as to other orders to reflect these reasons and costs.