The Supreme Court has found prominent land developer and real estate agent Colin Heath breached his fiduciary duties in regard to his role in long-running land development ventures with the Godecke family.
The Supreme Court has found prominent land developer and real estate agent Colin Heath breached his fiduciary duties in regard to his role in long-running land development ventures with the Godecke family.
The court action was brought by members of the Godecke family (through their companies Belgravia Nominees and Joondel Developments), who claimed Mr Heath’s company Lowe Pty Ltd had improperly been paid $4.6 million.
In a ruling handed down this week, Justice Paul Tottle accepted Mr Heath’s contention that he believed he was entitled to the disputed payments when they were made but found this was not a defence.
He cited the legal text Equity Doctrines and Remedies, which states that “fiduciaries may be liable although their integrity emerges from the proceedings unscathed”.
“In my judgment Mr Heath breached the fiduciary duties he owed to Belgravia and Joondel in the manner outlined above and Lowe is to be taken as having jointly participated in those breaches,” Justice Tottle concluded.
“Mr Heath and Lowe are liable to pay equitable compensation to Belgravia and Joondel in the amount of the disputed payments.”
Mr Heath, who is managing director of Heath Development Company, jointly invested in land development projects over three decades with brothers William (Bill) Godecke and Robert (Bob) Godecke.
The development activities began in the 1970s, when Bill Godecke incorporated Belgravia Nominees and his brother incorporated Penhurst Nominees.
Companies associated with Mr Heath (including Lowe) provided services as a project manager and, in some instances, as a real estate agent.
In addition, in 1998, Mr Heath was appointed as a director of Belgravia and Penhurst.
The men were involved in multiple land developments, in suburbs including Hamersley, Carine, Quinns, Mundaring, Forrestfield and Joondalup, as well as in Busselton, Denmark and Queensland.
The dispute arose after Bob Godecke died in 2011.
His children, Karin Godecke and Tony Godecke (through Belgravia and Joondel), subsequently disputed payments to Lowe.
The surviving brother, Bill Godecke, did not challenge Lowe's entitlement and has actively supported Mr Heath during the litigation.
The two children, represented by Robertson Hayles Lawyers, sought to recover payments made to Lowe between 2006 and 2012, via Godecke Land Trading Partnership (GLTP).
(The law of limitations barred them from seeking recovery of earlier payments.)
Mr Heath, represented by Jackson McDonald, contended that Lowe was entitled to charge a project management fee for each project equivalent to 5 per cent of the gross sales price of each developed lot, plus a 'marketing and selling fee' also equivalent to 5 per cent of the gross sales price of each developed lot.
Licensed real estate agents are able to charge a maximum fee of 5 per cent.
Before the litigation commenced, Mr Heath claimed Lowe was entitled to these payments based on the terms of an agreement signed in 1999.
“As the litigation has progressed, Lowe has reformulated the basis upon which it contends that it had an entitlement to the impugned payments,” the judgement stated.
“Lowe does not now contend that the 1999 Agreement was the source of its entitlement to the payments.”
Mr Heath subsequently argued the fees were based on oral agreements and were supported by the conduct of the joint ventures.
“Lowe submits that when contemporaneous documents are considered it is inescapable that the Godecke companies actually made payments to it amounting to 5 + 5%, less reductions for the amounts paid to third parties for project management or selling, and the inescapable inference is that the Godecke companies agreed that Lowe was entitled to fees of 5 + 5% - less reductions for payments made to third parties for project management or selling - for its overall project management of each project,” the judgement stated.
Justice Tottle said an essential element of Lowe's case was that following the appointment of third parties either as project managers or selling agents, its role in project management and sales continued.
Its role was to make judgments required to protect the Godecke companies' interests and it made those judgments 'as if it was the owner' from start to finish of each project or, as senior counsel for Lowe put it, 'from cradle to grave'.
“This metaphor reflected two themes developed by Lowe,” Justice Tottle said.
“The first was that Mr Heath managed the entirety of the project before any third parties were appointed as project managers or sales agents.
“The second was that the appointment of third parties did not bring an end to Lowe's responsibilities, it remained responsible for overall project management because the Godecke companies left all the decisions that had to be made by them as owners involved in the projects to Lowe.”
Justice Tottle said critical elements of the case were conversations that occurred between 1978 and 2012 and he acknowledged it was difficult to remember such distant events.
Nonetheless, he made critical comments about the evidence of both Mr Heath and Bill Godecke.
“Mr Heath's evidence falls a long way short of the cogent evidence about past events and (where relevant) conversations with persons who have died, on which a court might be prepared to rely without corroboration,” he concluded.
Justice Tottle also said he was not prepared to rely on Bill Godecke's evidence unless it was corroborated by other reliable evidence.
“Bill's evidence demonstrated that he reposed great confidence in Mr Heath and felt a profound sense of loyalty towards him.
“My impression was that this emotional commitment to Mr Heath combined with the passage of time made it impossible for Bill to provide the court with his recollection of events in an objective manner.”
Belgravia and Joondel pleaded that Mr Heath knew Lowe was not entitled to the disputed payments or the entitlement was doubtful.
Justice Tottle’s key findings are outlined below.
“Belgravia and Joondel contend that Mr Heath breached his fiduciary duties both because he was in a position of 'clearest conflict' and because he used his position as a director of Belgravia and Joondel, or an opportunity resulting from that position, being the authority to draw cheques against or otherwise operate the GLTP and Joondel accounts.
“In my judgment each of these contentions is made out.
“Mr Heath owed to each of Belgravia and Joondel a duty not to make payments to Lowe to which it had no contractual entitlement.
“This duty conflicted with his interest in obtaining the payments for Lowe's benefit.
“Mr Heath was able to make the payments because he was a signatory to the GLTP and Joondel bank accounts. He was a signatory because he was a director of each company.”
Lowe was ordered to pay half the $4.3 million claimed by Belgravia (because that company is part-owned by Bill Godecke) and all of the $220,000 claimed by joondel, plus interest.
Business News contacted Heath Development Company for comment.
